Liberty Mutual Fire Insurance v. Fowlkes Plumbing

Case: 18-60608 Document: 00515073231 Page: 1 Date Filed: 08/12/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 12, 2019
No. 18-60608
Lyle W. Cayce
Clerk
LIBERTY MUTUAL FIRE INSURANCE COMPANY, as subrogee of
Chickasaw County School District,
Plaintiff - Appellee
v.
FOWLKES PLUMBING, L.L.C.; SULLIVAN ENTERPRISES,
INCORPORATED; QUALITY HEAT ; AIR, INCORPORATED,
Defendants - Appellants
Appeal from the United States District Court
for the Northern District of Mississippi
Before HIGGINBOTHAM, JONES, and COSTA, Circuit Judges.
PER CURIAM:
We allowed this interlocutory appeal that asks how the Supreme Court
of Mississippi would interpret the subrogation waiver in a common form
contracting agreement. The question has split courts nationwide. Because of
the closeness and importance of this question, we certify again, this time to the
state supreme court so that it can answer the difficult question for itself.
I.
This insurance dispute resulted from a fire that destroyed a small-town
school. Chickasaw County School District needed to restore the windows at
one of its schools over the summer break, so its school board entered into a
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contract with Sullivan Enterprises. The agreement was memorialized in the
board’s minutes as follows:
Motion to accept the bid from Sullivan Enterprises, Inc. for the 1935
Window Restoration Project based on Mr. Hood reviewing the bid
documents, reviewing the contracts, and checking the credentials of
the company was made by Mr. Collums and seconded by Ms. Butler.
Four approved, and one abstained. . . . The motion passed.
During the work on the windows, a fire broke out that destroyed the
entire school. The school district had previously obtained a Liberty Mutual
insurance policy that covered fire damage. Liberty Mutual paid $4.3 million
after the fire.
Liberty Mutual then brought a subrogation claim against Sullivan and
two subcontractors claiming that they negligently caused the fire. The district
court bifurcated the case, so that it could first determine whether there was a
waiver of subrogation in the contract between the school district and Sullivan,
and only then (if still relevant) determine who was at fault for the fire. This
stage of the case is only about the subrogation waiver.
The subrogation controversy centers around the meaning of American
Institute of Architects Document A201-2007, a widely-used form contract that
was part of the district’s contracting agreement with Sullivan. 1 The key
provision is section 11.3.7; the district court correctly noted that a deep division
exists about how to interpret this provision’s subrogation waiver. It opted for
the minority view and then certified an interlocutory appeal, which we
accepted.
1 American Institute of Architects documents are commercial form contracts used in
owner-contractor agreements. The AIA document in question, AIA Document A201-2007, is
titled “General Conditions of the Contract for Construction.”
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II.
Before we can interpret the waiver language—or ask the state supreme
court to do so—we must determine whether a valid contract even existed
between the school board and Sullivan. If not, interpreting A201-2007 would
be a moot point. Though the two sides signed an agreement, there is some
question regarding its validity. Mississippi strictly enforces a rule that public
boards can only speak through their minutes. KPMG, LLP v. Singing River
Health Sys., --- So. 3d ---, 2018 WL 5291088, *5 (Miss. 2018); 2 Wellness, Inc. v.
Pearl River Cty. Hosp., 178 So. 3d 1287, 1290–91 (Miss. 2015); Thompson v.
Jones Cty. Cmty. Hosp., 352 So. 2d 795, 796 (Miss. 1977). The minutes must
contain enough of the contract for the court to evaluate its terms. Wellness,
178 So. 3d at 1291. The onerous duty falls on the contracting party—not the
school board—to make sure the contract is in the minutes. Id. at 1293.
The school board minutes may fall far short of this requirement. They
cite no contractual provisions, only reciting that a bid was accepted. But we
do not have to decide the minutes question as Liberty Mutual forfeited this
claim by not advancing it in the district court. See Shell Offshore, Inc. v. Tesla
Offshore, L.L.C., 905 F.3d 915, 920 n.3 (5th Cir. 2018). The closest Liberty
Mutual came to arguing contractual invalidity was in its opposition to
summary judgment, when it discussed the school board’s requirement to
approve the project and then questioned whether A201-2007 was part of the
contract that the school board approved. But that discussion never mentions
the minutes rule or Mississippi cases applying it. Instead, it argued only that
2 As of the date of this opinion, KPMG has not been released for publication and could
still be revised or withdrawn by the Supreme Court of Mississippi. It is thus not yet
precedential. KPMG has also filed a petition for certiorari with the Supreme Court of the
United States. No. 18-1308 (filed April 10, 2019).
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the school board was unaware of these conditions. Because Liberty Mutual
has forfeited its argument, we treat the contract as a valid one.
III.
We thus turn to interpreting the contract between Sullivan and the
district. Doing so requires making our way through several provisions of A201-
2007, particularly “Article 11 Insurance and Bonds.” Section 11.3.1 requires
that “the Owner,” here the school board, “shall purchase and maintain . . .
property insurance . . . comprising the total value for the entire Project at the
site . . . ” The school board met its requirement by maintaining its preexisting
policy with Liberty Mutual.
Then another provision, subsection 11.3.5 states that:
If during the Project construction period the Owner insures properties
. . . at or adjacent to the site by property insurance under policies
separate from those insuring the Project . . . the Owner shall waive
all rights in accordance with the terms of Section 11.3.7 for damages
caused by fire. . .
The importance of this provision is debated and we think misunderstood by
the parties, as we will explain shortly.
Finally and most crucially, Section 11.3.7’s waiver of subrogation
provision requires that:
The Owner and Contractor waive all rights against [ ] each other and
any of their subcontractors, sub-subcontractors, agents and
employees, each of the other . . . for damage caused by fire . . . to the
extent covered by property insurance obtained pursuant to this
Section 11.3 or any other property insurance applicable to the
Work. . .
The contract elsewhere defines Work as “the construction and services
required by the Contract Documents, whether completed or partially
completed. . . .”
The contractors argue that Section 11.3.5 provides a complete waiver of
subrogation. But their argument ignores that this waiver is only “in
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accordance with the terms of Section 11.3.7;” it is the later provision that
governs the interpretation. More importantly, the contract between the school
board and Sullivan never triggered Section 11.3.5. That section requires an
insurance policy “separate from those insuring the Project.” The Liberty
Mutual policy insured the Project, and the school board did not obtain
additional insurance policies for properties at or adjacent to the window
restoration project. Section 11.3.5 thus is not directly implicated and cannot
provide its own waiver of subrogation, though of course it may shed light on
the meaning of Section 11.3.7. See Facilities, Inc. v. Rogers-Usry Chevrolet,
Inc., 908 So. 2d 107, 111 (Miss. 2005) (“When construing a contract, we will
read the contract as a whole, so as to give effect to all of its clauses.”)
So the district court correctly viewed Section 11.3.7 as the ultimate
inquiry. This common provision generates more than its fair share of
litigation. Courts have interpreted the waiver in two ways. The somewhat
more popular interpretation looks to the source of the insurance proceeds. If
the insurance bought or maintained under Section 11.3.1 covered the damage,
then the waiver reaches the full extent of that insurance coverage. See
Commercial Union Ins. v. Bituminous Cas. Corp., 851 F.2d 98, 101–02 (3d Cir.
1988); Tokio Marine & Fire Ins. Co. v. Employers Ins. of Wausau, 786 F.2d 101,
105 (2d Cir. 1986); Bd. Of Comm’rs of Cty. of Jefferson v. Teton Corp., 30 N.E.3d
711, 713 (Ind. 2015); Lexington Ins. Co. v. Entrex Communication Services,
Inc., 749 N.W.2d 124 (Neb. 2008); Emp’rs Mut. Cas. Co. v. A.C.C.T., Inc., 580
N.W.2d 490, 493 (Minn. 1998); Trinity Universal Ins. Co. v. Bill Cox Const.,
Inc., 75 S.W.3d 6, 13–14 (Tex. App.—San Antonio 2001, no pet.). Perhaps the
leading case for this approach is from Nebraska. See Lexington Ins., 749
N.W.2d at 124. Under this majority approach, the contractors’ subrogation
waiver would cover all the damage, barring Liberty Mutual’s subrogation
claims.
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But Liberty Mutual’s claims would go forward under the minority
approach, which considers what type of property was damaged, only waiving
subrogation for damage to Work property. See Copper Mountain. Inc. v. Indus.
Sys., Inc., 208 P.3d 692 (Colo. 2009) (en banc); see also Butler v. Mitchell-
Hugeback, Inc., 895 S.W.2d 15, 22 (Mo. 1995) (en banc); S.S.D.W. Co. v. Brisk
Waterproofing Co., 556 N.E.2d 1097, 1100 (N.Y. 1990); Pub. Emp. Mut. Ins. Co.
v. Sellen Constr. Co., Inc., 740 P.2d 913, 916 (Wash. Ct. App. 1987). The
Supreme Court of Colorado’s decision is the most recent on this side of the split.
See Copper Mountain, 208 P.3d at 692. The district court adopted this view,
ruling that the subrogation waiver only covered the damage to the window
project.
No Mississippi state court has taken a side in this deep and longstanding
split. 3 See Copper Mountain, 208 P.3d at 697–98; id. at 701 (Martinez, J.,
dissenting) (collecting ten cases supporting the majority rule and seven for the
minority). The closeness of the question counsels in favor of certification to
the state supreme court. See State of Fla. ex rel. Shevin v. Exxon Corp., 526
F.2d 266, 274–75 (5th Cir. 1976) (noting closeness of the question as one of the
most important certification factors). So does the fact that this is not a one-off
issue. The AIA form contracts are used widely, and uncertainty about this
provision has generated much litigation. That is contrary to the goal of
subrogation waivers, which are meant to prevent litigation. A definitive
answer from the state court will reduce future disputes by parties to
contracting agreements that contain this type of subrogation waiver.
3 The district court adopted the minority approach based in part on a Southern District
of Mississippi opinion that we affirmed in a nonprecedential decision. See Fidelity & Guar.
Ins. Co. v. Craig-Wilkinson, Inc., 948 F. Supp. 608 (S.D. Miss. 1996), aff’d, 101 F.3d 699 (5th
Cir. 1996). That unpublished federal decision does not offer much help for the Erie guess we
would have to make.
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We therefore certify the following question:
Is the waiver of subrogation between the school district and Sullivan
limited to damages to the Work or does it also apply to damages to
non-Work property?
***
We CERTIFY the previously stated question and direct the Clerk’s Office
to forward this opinion, as well as the record and appellate briefs, to the
Supreme Court of Mississippi to determine whether to accept the certification.
We disclaim any intention or desire that the Supreme Court confine its reply
to the precise form or scope of the question certified. The panel retains
cognizance of the appeal in this case pending response from the Supreme Court
of Mississippi.
A True Copy
Certified order issued Aug 12, 2019
Clerk, U.S. Court of Appeals, Fifth Circuit
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