### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 7 -00 228 -CV

Aus ti n Inde pe nde nt Sc hoo l D ist r ic t , A ppe lla nt

v. H. C. Beck P artner s, Ltd. , Appellee

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 353RD JUDICIAL DISTRICT NO. D-1- GV-07- 0004 52 , HO NORAB LE SUZ ANNE COVINGTO N , JUDGE PRESIDI NG

M E M O R

A N D U M O P I N I O N
Th is i s an ap pe a l of

a summa ry jud g me nt i n f

a vo r o f a g e ne ra l c on tr a c tor

in a su it for br eac h of a c onstruction contra ct. T h e cl aim s in the suit were f iled by the prope rty

owner . Howeve r, what is at issue is the status of the subrog ation rig hts of the owner ’s i nsurer and the e ffe ct of ce rtain contra ctual provisions on those rig hts. W e re verse the summary judgme nt and re mand for further proce eding s consistent with this opi nion. Appellant Austin I ndepende nt School Dis t ri ct (AI SD) contra cted with appe llee H. C. Be ck Partne rs, L td. fo r mold remediation and r enovations to an e lementar y school. I n the

c ours e of the wo rk , te mpo ra

ry ro of ingins ta lle d b y

a su bco nt ra c tor

of H. C. B e c k f

a ile d to re ma in

wate rt ig ht d

ur inga ra ins tor m. T he c os t to re pa ir

the re su lti ngdama g e to t

he bu ild ing and

its c on te nts
wa s p a id b y

AI SD’ s in sura

nc e c arr ie r, Tr a ve le rs L loyds I ns ur anc e Com pa ny . AI SD fi le d th is s uit

a g a i n s tH
. C
. B e c k

an d o t h e r p art i e s o nA u g u s t2 5 , 2 0 0 3
. In a c c o r d an c e w i t ht h e i n s u r an c e p o l i c y,AI SD orig inally filed a notice of appe al on J uly 20, 2006. This Court dism issed the appe al 1 for lac k of jurisdiction beca use the c ause r emained pe nding in the tr ial court on other claims, and the trial court had not enter ed a f inal and appe alable or der. See A ustin Indep. Sch. Dist. v. H . C. Beck Par t s ., Ltd. , No. 03-06-00502- CV (Tex. App.—Austin Dec. 8, 2006) (mem. op.). On Ma rch 21, 2007, the trial cour

t severe d AI SD’s claims ag ainst H. C. Be ck fr om the other c laims pending in the tr ia l c ourt
. 2 Trave lers is subrog ated with re spect to AI SD’s clai m s . H. C . Be ck filed a motion for summary judgme nt asserting that Trave lers h ad no right of subrog ation or, alter natively , if Traveler s had a rig ht of subrog ation, AI SD brea ched the construction contr act by failing t o o b t ain an insurance po lic y that in c lud e d a

wa ive r o f s ub ro g a tio n r ig hts , and the re by re le a se d or wa ive d its c la ims a g a ins t H. C. Be ck. The district court g rante d H. C. Be ck ’s motion for summary judgme nt on AI SD’s

c la ims a g a ins t H . C. B e c k w ith ou t sp e c if yinga ba sis . A I SD a

pp e a ls the jud g me nt. 1 Th is a pp e a l c on c e rn s c ontr actpro vi si on s re lat in g to s ub rogat io n ri ghts in two s e pa ra te ag ree ments. The construc tion contrac t betwee n AI SD and H. C. Be ck conta ins the following provision relatingto a re quirement for AI SD to obtain insurance:
8.2 I NSURANCE REQUI RED OF [AI SD] Duringboth phases of the P rojec t, [AI SD] shall purcha se and maintain liability and proper ty insurance , including w aiver s of subrog ation.
AI SD’ s in sura

nc e po lic y a g re e me nt w ithTr a ve le rs c on ta ins the fo llo wi ngpr ov isi on re latin g to
su br og a tio n o f r ig hts :
I f a ny pe rs on or or g anizatio n to or fo r wh om [Tr a ve le rs ] m a ke s p ay me nt u nd e r t his po l i c y h a s r i g h t s t o r e c o v e r d a m a g e s f r o m an o t h e r , t h o s e r i g h t s ar e t r an sf e rr e d to [Tra v e le r s ] to th e e xte n t o f s u c h p ay me n t. T h a t p e r s o n o r o r g an iz a ti on must do e ve ry thi ng ne c e ssa

ry to se c ur e [Tr a ve le rs ’s ] ri g hts and mus t do noth ing a ft e r t he los s3

to impair them. [Traveler s] wil l be entitled to priority of rec overy ag ainst any

such th ir d p arty ( in c lu d in g in te r e s t) to th e e xte n t p ay me n t h a s b e e nma d e b y

[T r a v e le r s ], p lu s a tt o r n e y ’ s f e e s , e xp e n s e s o r

c o s ts in c u r

r e d b y [T r a v e le r s ]. But, [AI SD] may

waive its rig hts ag ainst another pa rty by specific written ag ree ment

. . . .
H. C . Be ck asse rted thre e g rounds for summar y judgme nt with respec t to AI SD’s claims: (1) the c onstruction contra ct provision requiringAI SD to purchase an insuranc e policy that included a w aiver

of subrogation acts as a waiver of AI SD’s claims bec ause Tr avele rs is subrog ated to A I SD’ s c la i m s ; ( 2 ) a l t e r n a t i v e l y , i f t h e p r o v i s i o n i n t h e c o n s t r u c t i o n c o n t r a c t d o e s n o t a c t a s a waiver of AI SD’s claims, then AI SD’s failure to obta in a n insurance policy

with an ef

fec tive waiver

of -s ub rogatio n c la

us e wa s a mate ri a l br e a c h o f t

he c on str uc tio n c on tr a c t th a t op e rate s a s a re le a se of AI SD’s claims; and (3) AI SD’s contra ctual re prese ntation that it would obtain an insuranc e policy with a waive r of subrog ation and bre ach of that repr esentation constitut ed a w aiver of any claims that it may have ha d ag ainst H. C. Be ck. We r e v iew summary

judgme nts de novo. Pr ov ide nt L ife& Ac c ide nt I ns . Co . v . Kn ott , 128 S.W .3d 211, 215 (Tex. 2003). Under the standar d applicable to a traditional motion for

summa ry jud g me nt, the mot ion

sh ou ld b e g ra

nte d o nly wh e n th e mo vant e sta

bli sh e s th a t th e re is no g enuine issue a s to any materia l fac t and that it is entitl ed to ju d gm en t as a m at t er of law. See Tex
. R. Ci v. P. 1 66 a (c ); Nixon v. Mr. Prop. Mgm t. Co. , 690 S.W .2d 546, 548 (Tex. 1985). In

re vie wi nga

mot ion fo r sum mary jud g me nt, we a c c e pt as tr ue a ll e vid e nc e fa

vo ri ngthe no n- mov ant, making ever

y rea sonable inferenc e and resolving all doubts in the non-movant’s favor. See Nixon , 690 S.W .2d at 548-49. We will aff irm the s ummary judgme nt if any g round pre sented to the districtThe pa rties do not dispute that AI SD is pursuing the claims in this case in the inter est of 2 its su br og e e , T ra

ve le rs . The dissent fa ils to cite to any case —state or f

ede ra l —holding that a

party ’s contra ctual 3 ag ree ment to obtain an insurance policy with a waiver -of- subrog ation clause is sufficient, by itself, to waive the insure r’s rig ht of subrog ation. There is no a uthority to this eff

ect be cause the dissent’s position conflates a r elea se of claims by a party who owns the c laims with a waiver of subrog ation rig hts by a sure ty or insurer

that has a subr og ation interest in the cla ims. I n eac h of the c ases c ited by th e disse nt, the c on tr a c t at is su e e xpre ssl y re le a se d c la ims be tw e e n th e ins ur e d a nd the pa rt y ag ainst whom claims are being made. See TX. C.C., Inc. v . W ilson/Barnes Gen. Contractors, Inc. , 233 S.W .3d 562, 565 (Tex. App.—Dallas 2007, pe t. denied) ( “The Owner and C o n t ra ct o r waive a ll r ig hts a g a ins t e a c h o ther” ); W alker Eng’

g, Inc. v . Bracebridge Corp. , 102 S.W .3d 837, 839 (Tex. App.—Dallas 2003, pe t. denied) ( “The Owner and C o n t ra ct or wa ive all rig hts ag ainst eac h oth e r” ); Indiana Ins. Co. v. Erhlich , 880 F. Supp. 513, 516 (W.D. Mich. 1994) ( “T h e Ow n er and Contractor w aive all rig hts a g ainst

. . . separ ate contra ctors”)

. The insure r in those ca ses could not rec over a s subrog ee be cause there wer e no cla ims exis ting for t he ins urer to be subrog ated to—the 4 court is meritorious. See P icke tt v. Texas Mut. Ins. Co. , 2 39 S.W. 3d 82 6, 84 0 ( Te x. Ap p. —A us tin 2007, no pet.). We f

irst c onsider H. C. B eck’ s argument that the construc tion contrac t’s provision

re qu i r i n g A I S D t o p u r c h a s e an i n s u r an c e p o l i c y t h a t i n c l u d e s a w a i v e r o f s u b r o g a t i o nop e ra te s, by its e lf , to wa ive AI SD’ s c la ims in thi s laws uit be c a us e Tr a ve le rs is a sse rt inga su br og a tio n in te re st in A I SD’ s c la ims

. A s anin it ia l m a tt e r , th e p la in la n g u a g e o f th e c o n s tr

u c ti o nc o n tr a c t p r o v is ion 2 does not purport to wa ive subrog ation righ t s by any one ag ainst any one. The provision require s AI SD to obtain a liabilit y i n s u ranc e policy that includes “w aiver s of subrog ation.” AI SD either obtained such a

n insurance policy

o r i t did not and, thus, either per formed its oblig ations under this provision or not. AI SD did not waive its insurer’s subrog ation rig hts under this provision. The construction contra ct provision is an ag ree ment by AI SD to procur e insurance containing “wa ivers of subrog ation.” I t is not, itself, a waiver of subrog ation rig hts. Such a waiver must be part of the insurance policy

obtained by

AI SD. 3ins u re d h ad rele ased its claims. Se e TX. C.C

. , 2 33 S.W. 3d

a t 57 3- 74 ; W

alker Eng’

g , 102 S.W .3d a t 84 4; Indiana Ins. Co. , 880 F. Supp. at 519-20.

Subrog ation rig hts, when they exis t, belong to the s ubrog ated pa rty . I n the situation p r e s e n t e d h e r e , t h e s e r i g h t s b e l o n g t o an d ar e w a i v a b l e b y t h e i n s u r e r

— n o tt h e i n s u r e d

. C e rt a i n l y, an insurer ma

y , by contra ct, waive its subrogation rights base d on some ac tion by the insured suc h as allowing the insured to re lease its c laims w ithout obtaining the consent of the insurer who holds subrog ation rig hts. Howeve r, t his does not chang e the fac t that subrog ation rig hts are the subrog ated party ’s rig hts to wa ive. An insured c an af fec t a subrog ated insure r’s rig hts by rele asing claims the insured ha s a g a ins t th ir d p art ie s, and thi s ma y or may no t be a br e a c h of the i ns ur anc e c on tr a c t. Howeve r, this ty

pe of e limination of subrogation rights depe nds on a release or waiver by the insured of cla ims owned by

the insured a g ainst a third par ty . I n such a s i t u at i o n , the subrog ated pa rty ’s su br og a tio n r ig hts are e lim inate d b e c a us e the un derl y in g cla im w a s e lim inate d, no t be c a us e subrog ation was wa ived. This sort of ef fec t on subrog ation rig hts doe s not f ollow f rom any sort of wa ive r b y the ins ur e r of its su br og a tio n r ig hts un le ss t

he ins ur e r h a s e xpre ssl y

g ra nte d th a t po we r t o the ins ur e d b y

a g re e me nt. I n thi s c a se , the c on str

uc tio n c on tr a c t be tw e e n AI SD and H. C. B e c k do e s n ot r e le a se AI SD’s claims ag ainst H. C. Be ck that ar e asse rted in this l aw s u i t , and the insura nce c ontrac t neither w aived Tr avele rs’s subrog ation rig hts nor g ran t ed author ity to AI SD to waive Tra

veler s’s su br og a tio n r ig hts . T he ins ur anc e c on tr a c t g ra nte d AI SD the a

uth or ity to r e le a se its c la ims a g a ins t H. C. B e c k w ith ou t su c h a re le a se c on sti tut ing a br e a c h of t he ins ur anc e a g re e me nt— a uth or ity AI SD has not exercised. 5

I t is no t unc omm on fo r a

n o wn e r o r o the r p art

y in a c on str uc tio n p ro je c t hi e ra rc hy to
a g re e to pr ov ide ins ur anc e that inc lud e s wa ive rs of su br og a tio n. Suc h wa ive rs may c ome in a va ri e ty of for ms. For e x ample, an insurer might expressly ag ree in the i nsuranc e policy to waive subrog ation rig hts as to any

par t y for whom the policy

holder ha s ag ree d to provide such a waiver

. See, e .g. , Chevron U.S.A., Inc. v. Cigna Ins. Co. , No. 09-97-00032- CV, 1998 Tex. App. L EXI S 5043, at *8-9 (Tex. App.—Be aumont Aug . 13, 1998, pet. denied) (not desig nated f or publication). An insure r mig ht a lso a g re e —a s w a s d on e he re —th a t a po lic y ho lde r m ay

un de r c e rt a in c ir c ums tanc e s r e le a se i t s c l a i m s a g a i n s ta

th i r d p a r t y

t h e r e b y e x t i n g u i s h i n g an y

s u b r o g a t e d c l a i m s b y

t h e i n s u r e r . In this c ase, howeve r, the insuranc e policy obtained by

AI SD does not waive the insurer’ s subrog ation6

ri g h t s a g a i n s t an y o n e . I t a l l o w s A I S D t o r e l e a s e o r w a i v e c l a i m s b y “ s p e c i f i c w r i t t e na g re e me nt” under c erta in circumstanc es. Such a r elea se or wai v er of cla ims, if made in compliance with the ins ur anc e po lic y , w ou ld h a ve the e ff e c t of e xtinguis hin g Tr a ve le r’ s su br og ati on ri g hts be c a

us e it would exti ng uish the claims from which those rig hts would arise. How ever , H. C. Be ck does not contend he re that AI SD ha s “by specific written ag ree ment” re lease d or wa ived the cla ims at issue in this l awsuit. H. C. Be ck ar g ues that AI S D agr ee d to provide insuranc e with waive rs of subrog ation and that this ag ree ment, by itself, acc omplishes the waiver . Howeve r, without either a n
e xpre ss wa ive r of su

br og a tio n by the ins ur e r or a re le a se or

wa ive r o f c la ims by

the ins ur e d in

thi s
case , the insurer ’s subrog ation rig hts remain g overne d by its poli cy with the insured. Ev e n if the c on str

uc tio n c on tr a c t pr ov isi on

c ou ld b e re a d to be an att e mpt by AI SD to waive subrog ation ri gh t s o n b ehalf of its insurer, it is not at all clear that such an attempt would operate to rele ase or waive A I SD’s claims in this case . Be cause we f ind that the construction contra ct provision betwee n H. C
. Be ck and AI SD does not purport to wa ive subrog ation rig hts on the par t of AI SD’s insurer, w e do not express an opinion on the merits of the e ffe ct such a provision would have on c laims such as those filed by AI SD in this case . I n addition, the plain lang uag e of the insurance policy betwee n AI SD a nd Trave lers does not w aive Trave lers’s rig ht to subrog ation with r espec t to AI SD’s claims ag ainst H. C. Be ck. To the contra

ry , the policy provides that any rig ht of AI SD to recove r dama g es for which Tra

veler s has made pay

ment is transfer

red to Tr avele rs to the extent of such pay ment. The p o l icy

does contemplate A I SD’s ability to waive its rig hts of recover y ag ainst a thi rd party

such as H. C. B eck by written ag ree ment, but as we ha ve stated, the construction contr act’ s procur ement-of -insuranc eH. C. B e c k c on te nd s th a t Chevron U.S.A., I nc. v. Cigna InsuranceCo. , No. 09-97-00032- 4 CV, 1998 Tex. App. L EXI S 5043 (Tex. App.—Bea umont Au g. 13, 1998, pet. denied) (not desig nated f

or publication), is instructive he re. I n that case , the insuranc e policy waived subr og ation rig hts as to “[a]ny

person or

org anization for whom the Named Insured ha s agr eed by written contra ct to furnish this waiver .” Id. at *8-9. The c ourt held that this lang uag e in the policy was not a mbi g uo us and

op e rate d to wa ive su

br og a tio n r ig hts a g a ins t any pa rt y the ins ur e d h a d a g re e d to provide a waiver of subrog ation. Howeve r, in Chevron U.S.A. , the contra ct betwe en the insure d and the third party

challeng ing the exis tence of subrog ation rig hts e x pressly provided that the insure d “wa ives all rig hts of subrog ation that [i t] or its insurers may have a g ainst Contract o r’ s Clients,” which included the defe ndant. Id. at *6-7. The re is n o such contra ctual provision betwe en H. C. Be ck and A I SD in this case . 7 provi s i o n d o es n o t acc omplish t his, nor does any other a g ree ment in the rec ord. H. C. B eck doe s
no t ide nti fy any oth e r pr ov isi on of the c on str uc tio n co ntr a c t th a t op e ra te s to wa ive AI SD’ s c la ims in c onne c tio n w ith the dama g e s at is su e in t his su it. Consequently , the first g round for summary 4 jud g me nt a sse rt e d b y

H. C. B e c k c ann ot s up po rt summa ry jud g me nt. I n its second and third g rounds for summary judgme nt, H. C. Be ck asse rted—in the alternative—that AI SD’s failure to obtain an insuranc e policy that included an e ffe ctive wa iver of subrog ation rig hts was a br eac h of the c onstruction contra ct, and that the bre ach ope rate d as either

a re lease or a w aiver

of A I S D’ s cl ai m s . We offer no opinion on the merits of this contention or

on the e ff e c t of a po ssi ble br e a c h of the pr oc ur e me nt- of -i ns ur anc e pr ov isi on

by AI SD o n it s a

bil ity to pursue cla ims or obtain a reme dy ag ainst H. C. B eck. Although pa rt of its motion for summary judgme nt, this was not th e t h eo ry on which H. C. B eck soug ht and obtained summary judgme nt in the district court. H. C. B eck c oncede s that the rec ord—as it c urre ntly stands—will not support

a summa ry jud g me nt o n th e ba sis that a br e a c h of th e con st ru c tio n c on tr a c t by AI SD o pe rate d to rele ase or waive c laims as a matter of law.8 AI SD also argues that t h e procur ement-of -insuranc e provision’s re quirement that the insuranc e in cl u d e “w ai vers of subrog ation” is too indefinite to be enf orce d. See T.O. Stanley Bo ot C o. v . B an k of E l P as o , 8 47 S.W. 2d 21 8, 22 1 (T e x. 19 92 ) (c on tr a c t, to b e le g a lly bin din g , mu st be suff iciently definite in its terms s o that court c an under stand what promisor unde rtook). Acc ording to AI SD, the provision omits essential terms such as whom the waiver s are in favor of , whom the waive rs oper ate a g ainst, and what work i s t o be cove red. We a re not c onvinced that the lack of specific ity for these terms relating to the waiver -of- subrog ation clause to be o b t ained by AI SD is sufficient to make the oblig ation to procure s o m e fo rm o f waiver of subrog ation nonb in d in g . Compare id. (p ur po rt e d c on tr a c t to loa

n mo ne y too ind e fi nit e be c a

us e no int e re st r a te
or re pay ment terms set for

th). I n additi o n , we do not conside r the c ontrac tual provision at issue to be am b i gu o u s . The languag e of a contra ct is ambig uous when it is susceptible to two or more

rea sonable interpr etations. Seagull Energy E & P, Inc. v . Eland Energy, I nc. , 207 S.W .3d 342, 345 (Tex. 2006). AI SD does not sugg est, and we do not f ind, a rea sonable interpre tation of the contra ct’s “wa ivers of subr og ation” cla use other tha

n that t h e “li ability

and prope rty

insurance ” policy purcha sed by AI SD in accor dance with the contra ct must waive the insure r’s rig hts of subrog ation ag ainst H. C. Be ck for

liabiliti es cove red by

the policy

. See W

alker Eng’

g, Inc. v . Brace b r i dge Corp. , 102 S.W .3d 837, 841-44 (Te x . App.—Dallas 2003, pe t. d en i ed ) (de scribing purpose of waiver s of subrogation in construction conte x t). Thus, the proc ureme nt-of-insura nce pr ovision at i s s u e h e r e n e i t h e r

m a k e s t h e c o n t r a c ti n d e f i n i t e n o r c r e a t e s ana mb i g u i t y.9 We conclude that, on this record, t h e d i s t ri ct court e rre d in gr anting H. C. Be ck’s motion for summary

judgme nt. We rever se the judg ment of the district cour t, and we r emand f

or further proce eding s consistent with this opi nion.

__________________________________________ G. Alan Waldrop, Just ice Be fore J ustices Pemberton, Waldrop and H enson; Dissenting O pinion by J ustice He nson Reverse d and Remande d Filed: Mar ch 13, 2009