Opinion ID: 1138073
Heading Depth: 1
Heading Rank: 5

Heading: The Fire Insurance Clause.

Text: Concededly, the plaintiff procured no fire insurance for the protection of MHS or Colby, but only for its own protection. The plaintiff contends, however (1) that it never became bound to any of the defendants to furnish insurance on the Colby cargo lifts because the incorporation into its contract with MHS of the Colby contract was for the limited purpose of making only the specifications or engineering details a part of the principal contract; (2) that the provision should not be construed to apply if the fire was caused by the negligence of the defendants; (3) that the provision, if it became binding on the plaintiff, was waived by the defendants and defendants should be estopped to rely on it; and (4) that in any event there was no contract to provide insurance for Lord, a mere incidental beneficiary. As to its first point plaintiff relies upon the rule thus stated in 13 Am Jur 2d 15-16, Building, etc. Contracts § 12, that: It is generally held that where a building contract refers to the plans and specifications and so makes them a part of itself, the contract is to be construed as to its terms and scope together with the plans and specifications. Where the plans and specifications are by express terms made a part of the contract, the terms of the plans and specifications will control with the same force as though physically incorporated in the very contract itself. Where, however, the plans and specifications are referred to in the contract for a particular specified purpose, such specifications can serve no other purpose than the one specified, and are foreign to the contract for all other purposes.    (Italics added.) Plaintiff argues that the references to the Colby proposal to MHS were intended only as a means of describing the engineering specifications for the construction and installation of the cargo lifts and did not incorporate contractual provisions accompanying such specifications. Two Oregon decisions are cited as supporting this view. In Myers v. Strowbridge Estate Co., 82 Or 29, 160 P 135, there was a lease containing an agreement under which the lessee was to alter and improve the leased premises. The lessee entered into a contract with another for the performance of the plumbing work. Such contract provided: The contractor shall and will provide all the materials and perform all the work    as shown on the drawings and described in the specifications prepared by H.M. Fancher, Architect, which drawings and specifications are identified by the signatures of the parties hereto, and become hereby a part of this contract.    82 Or at 35. The court said: The rule seems to be well established that where reference is made in one document to another unattached document for a specific purpose only, such other document becomes a part of the former for such special purpose only. (Italics added.) 82 Or at 43. Not only was the document unattached, but the reference plainly was to the drawings and specifications, prepared by an architect, which alone, the parties agreed, were to become hereby a part of this contract. Therefore, it was held that a provision in the lease exempting the lessor from any claim arising out of liens did not become a part of the plumbing contract. Similarly, in Wallace v. Oregon Engineering Co., 90 Or 31, 174 P 156, 175 P 445, a provision in a subcontract read that all work shall be done in accordance with the plans and specifications as outlined in the prime contract, which contract is hereby referred to and made a part of this agreement so far as appertaining hereto.  (Italics added.) 90 Or at 33. The court held, in construing this language, that a provision in the prime contract against assignment of the contract or subletting any part of it did not become binding on the subcontractor. Not only was the Colby proposal physically annexed to the two MHS proposals and the Crown Zellerbach Bill of Material, but, unlike the cases relied on by the plaintiff, the reference is general, not specific. See Valley Const. Co. v. City of Calistoga, 72 CA2d 839, 841, 165 P2d 521. 3. It might well be argued that the word specifications as understood by Crown Zellerbach was not limited to engineering details, for in its Bill of Material, which included contractual provisions having no relation to engineering, it designated that document as this specification. This aside, it was not the specifications, that is, the engineering details, to which reference was made in the MHS-Crown Zellerbach contract. It was the Colby proposal, which included both engineering details and general contractual provisions, that was incorporated by reference in the principal contract. When to this is added the deliberate act of Crown Zellerbach in inserting in the Bill of Material its own language of adoption of the Colby proposal and rearranging the provisions of that proposal in the manner above described, there can be no doubt of Crown Zellerbach's conscious purpose to include in its undertaking the fire insurance and fire protection clauses and that these provisions became a part of the contract as ultimately entered into. 4. As previously stated, plaintiff contends that the fire insurance clause was not intended to apply if the fire was caused by the negligence of the contractors. To determine this question consideration must be given to the contract as a whole. Pertinent provisions are the following: 21  LIABILITY Supplier is not to be held liable for any loss, damage or delay due to transportation, accident, fire strike, civil or military authority, insurrection, or any cause beyond their control. ____________ Should the material and equipment, or any part thereof, included in this proposal, be damaged or destroyed after it has been received by you, by fire, the elements or any other cause, unless such damage or destruction be caused by our [MHS] active fault or negligence, then and in that event you shall forthwith pay us for all work then performed and all materials then used or provided for use in connection with the execution of the work covered hereby, whereupon we shall deliver to you all such material and equipment as is included in such payment and as has not been delivered to you, transportation charges thereon to be paid by you or by us as specified in the first paragraph of this paragraph 16. _________ INDEMNITY. Seller [MHS] agrees to indemnify and save and hold harmless the Buyer, its officers, agents and employees from any and all claims, charges, liabilities and/or damages of any kind or nature whatsoever on account of the operations of Seller, his subcontractors, or his or their agents or employees, arising out of or growing out of the performance, malperformance, and/or nonperformance of this purchase order, or the supplying of material, or performing work under this purchase order, Seller also agrees that if Seller or his subcontractors, agents, or employees are required to be present on Buyers premises, or perform work with any of Buyer's employees, that Seller will secure and maintain in full force and effect during the performance of any work involved in connection with this purchase order, adequate public liability and property damage insurance satisfactory to Buyer, which insurance shall not name Buyer as an additional insured. The indemnity clause is included among a number of general conditions printed on the reverse side of the Crown Zellerbach purchase order. The clause first above quoted, which is referred to by counsel as the exculpatory clause, was obviously intended to relieve the contractors from liability for losses from the causes therein enumerated which they otherwise would have had to bear. See Collins v. Post et al, 227 Or 299, 303-304, 362 P2d 325; 13 Am Jur 2d 67, Building, etc. Contracts § 64; Annotation 53 ALR 103. A similar provision in a roofing contract was held by this court not to exempt the contractor from loss by fire caused by his negligence: Oregon Mutual Fire Ins. Co. v. Mathis, 215 Or 218, 334 P2d 186. [1] This decision is in accord with the rule in this state that a presumption will be indulged against an intention to contract for immunity from the consequence of one's own negligence and that a contract will not be given that meaning unless so expressed in unequivocal language: Southern Pac. Co. v. Layman, 173 Or 275, 280, 145 P2d 295. See, also, So. Pac. Co. v. Morrison-Knudsen Co., 216 Or 398, 410, 338 P2d 665; U.S. Fid. & Guar. Co. v. Thomlinson Co., 172 Or 307, 324-325, 141 P2d 817; Glens Falls Indem. Co. v. Reimers, 176 Or 47, 53, 155 P2d 923; Annotation, 175 ALR 8, 19, 29-32, 89-92, 144-149. It is in accord also with what we deem to be the weight of authority touching the construction of similar provisions in leases: Morris v. Warner, 207 Cal 498, 279 P 152; Carstens v. Western Pipe & Steel Co., 142 Wash 259, 252 P 939; Winkler v. Amusement Co., 238 NC 589, 79 SE2d 185; Brophy v. Fairmont Creamery Co., 98 Neb 307, 152 NW 557, LRA 1918A 367; VanWormer v. Crane, 51 Mich 363, 16 NW 686, 47 Am Rep 582. So construed, the exculpatory clause harmonizes with the provision above quoted relating to the payment by plaintiff for equipment and material damaged or destroyed by fire after it has been received by the plaintiff unless such damage or destruction is caused by the negligence or active fault of the contractors, and with the indemnity clause under which MHS agreed to indemnify and save harmless the plaintiff from damages of any kind or nature whatsoever on account of the operations of Seller, his subcontractors, etc. If the insurance clause is construed to relieve the contractors from liability for negligence in causing a fire, as the defendants contend, there is conflict between it and the provisions just discussed. This would also be the case if the indemnity clause were to be construed, as counsel for plaintiff suggest it should be, as applicable only to negligent conduct of the contractors. Pointing to the duty of the court to give effect to every provision of a contract where that is possible: Moore v. Schermerhorn, 210 Or 23, 31, 307 P2d 483, 308 P2d 180, 65 ALR2d 715; Hardin v. Dimension Lbr. Co., 140 Or 385, 389, 13 P2d 602, plaintiff argues that the construction of the insurance clause urged by it will bring harmony out of this seeming conflict. But this would be to put a meaning upon fire insurance contrary to common understanding, and, so far as we know, to the universal practice of insurance companies. See the standard fire insurance policy prescribed by ORS 744.100; The Liability of The Tenant, 31 Boston U.L. Rev. 47, 50. Beyond this, a fire insurance policy which excluded from the coverage a negligently caused fire would afford the contractors no protection that they did not already have under the exculpatory clause, for that clause, without doubt, relieves them from liability for loss due to a fire not caused by their negligence. In several recent cases the courts have held that an agreement of the parties to a lease obligating the landlord to carry insurance on the leased premises is a complete defense to an action by the landlord, or by his insurer as subrogee, against the tenant for negligence in causing a fire which damaged or destroyed the leased premises: General Mills v. Goldman, 184 F2d 359 (8th Cir.1950); Cerny-Pickas & Co. v. C.R. Jahn Co., 7 Ill 2d 393, 131 NE2d 100; United States Fire Ins. Co. v. P.-M. Corp., 166 Ohio St 85, 139 NE2d 330; Kansas City Stock Yards Co. v. A. Reich & Sons (1952, Mo) 250 SW2d 692. The courts reasoned that such a provision meant that a fire loss, whether caused by negligence of the tenant or not, would be paid out of the proceeds of the insurance. There was also involved in the first three of the cited cases [2] the usual surrender clause requiring the lessee to return the premises to the lessor at the end of the term in good condition loss by fire and ordinary wear excepted. The court in General Mills v. Goldman , which is considered the leading case on this subject, while conceding that in some circumstances such a provision might not, under a strict construction, relieve the tenant from liability for fire caused by his negligence, said: But there is no public policy in Minnesota inimical to resort to fire insurance covering loss by fire occurring with or without negligence and there is no reason for applying any `strict construction' to a lease entered into in contemplation of having a fully appreciated and guarded against fire risk carried by an insurance company. The undisputed evidence in this case presents exactly that situation. The landlords here agreed that the tenant should not be liable to pay for `loss by fire' because it was understood between them that fire insurance would be taken out and a fire insurance company would be required to pay for any `loss by fire' occurring on the premises during the term of the lease. Such insurance company would be required to pay whether the `loss by fire' was caused by negligence or not as fire insurance universally covers loss by fire occurring from the kind of negligence here involved. 184 F2d at 364-365.