Court Opinion

ID: 9723806
Source: CourtListenerOpinion
Date Created: 2023-08-26 10:33:12.91519+00
Date Added: 2024-06-11T18:24:52.206789
License: Public Domain

HANSON, Judge
(dissenting)
I respectfully dissent. I would affirm the district court’s conclusion that the “Waivers of Subrogation” clause applies only to claims brought under the Builder’s Risk Endorsement; covering loss to the Work, and does not preclude ISD 833’s subrogation claim brought under the preexisting property coverage for damages to non-Work portions of the school property.
This dispute reduces itself to conflict between the contractor’s liability insurance, covering Bor-Son’s performance of the Work, and the owner’s pre-existing property insurance, covering ISD 833’s non-Work property. Since Bor-Son has admitted its liability for negligence, it seems clear that both coverages are implicated, and the question becomes which should be the ultimate source for payment of the damage to non-Work property. That question is determined by the parties construction contract, which allocates the parties’ respective risks and insurance obligations and defines the scope of the Waivers of Subrogation clause.
*442For context, it is important to note that Bor-Son agreed that it would be liable to indemnify ISD 833 for any damage to non-Work property resulting from its negligence in performing the Work. The construction contract required Bor-Son to obtain liability insurance in order to provide ISD 833 with security for that potential liability. Bor-Son has admitted its liability and ISD 833 now looks to Bor-Son’s liability insurer for payment.
The construction contract also required ISD 833 to obtain insurance, but with a narrow scope. Section 11.3.1 only required ISD 833 to purchase property insurance that insured the interest of both parties in the Work at the site. Thus, the construction contract required Bor-Son to provide liability insurance to cover the risk that Bor-Son would damage ISD 833’s non-Work property, while it required ISD 833 to provide property insurance for damage to both parties’ interest in the Work.
It is noteworthy that the construction contract further provided that if ISD 833 did not obtain the required property insurance for the Work, Bor-Son could obtain it and charge the cost back to ISD 833 by a change order. ISD 833, however, did obtain the specific coverage required by Section 11.3.1. While ISD 833 already had general property coverage under MSBAIT’s self-insured property plan, it did not rely upon that coverage to satisfy its obligation under Section 11.3.1. Instead, it obtained, at an additional cost, a Builder’s Risk Endorsement that specifically covered the Work, identified each of the three school roof projects and added Bor-Son as an “additional plan participant.”
Without going any further, it would seem logical to conclude that, because the damage was to the non-Work portions of ISD 833’s property, the allocation of risks and insuring obligations made in the construction contract would dictate that the liability insurance obtained by Bor-Son would pay the loss. Such a conclusion seems to be necessary to give effect to Bor-Son’s obligation under the construction contract to obtain liability insurance for “claims for damages, other than to the Work itself * * ⅜.” Further, it would seem inappropriate to apply the waiver of subrogation to ISD 833’s pre-existing coverage for property in which Bor-Son had no insurable interest.
The question then becomes whether the parties intended to modify the seemingly clear allocation of risks and insuring obligations by the Waivers of Subrogation clause. That clause contains a waiver by ISD 833 of all rights against Bor-Son for damages “to the extent covered by property insurance obtained pursuant to this Paragraph 11.3 or other property insurance applicable to the Work * * Bor-Son argues, and the majority opinion apparently agrees, that this language constitutes a waiver of subrogation by ISD 833, not only for claims under the Builder’s Risk Endorsement for damages to the Work, but also for claims under ISD 833’s pre-existing property coverage for damages to non-Work. Bor-Son and the majority opinion read Employers Mutual Casualty Co. v. A.C.C.T., Inc., to require this result. See Emps. Mut. Cas. Co. v. A.C.C.T., 580 N.W.2d 490 (Minn.1998) (interpreting the subrogation waivers of sub-rogation clause in the standard AIA contract). I would apply A.C.C.T differently.
It is true that A.C.C.T. ruled that the determinative issue is not whether the damage was to the Work or non-Work, but is “the owner’s decision to purchase a new policy or to rely upon an existing one” Id. at 493. However, I conclude that ISD 833 did purchase “a new policy” within the meaning and intent of A.C.C.T. I do not think the supreme court intended to create *443an artificial distinction between owners who satisfy their insurance obligations by purchasing stand-alone coverage for the Work and those who satisfy it by purchasing additional coverage for the Work from their existing property insurer under a Builder’s Risk Endorsement. ISD 833 did not rely on its existing coverage, but purchased new, added coverage specifically to satisfy its obligation under the construction contract.
It is, of course, logical that ISD 833 obtained that insurance from the same source. As a school district, ISD 833 is a member of the Minnesota School Boards Association Insurance Trust (MSBAIT), which provides a pooled self-insurance plan. A member’s insured losses are funded by all member school districts. It seems meaningless to require that, if ISD 833 wished to limit its waiver of subrogation to the additional insurance it was obligated to purchase under the construction contract, it must obtain the additional insurance from another source, or in a different form (i.e. as a separate policy rather than as an endorsement).
I read A.C.C.T. to require only that an owner who wishes to limit its waiver must purchase additional coverage that applies only to the Work and names the contractor as an additional insured. Both the owner and the contractor have an insurable interest in the Work until completion.
ISD 833 has supplied copies of two district court decisions involving the purchase by other school districts of similar Builder’s Risk Endorsements to the MSBAIT plan to satisfy their construction insurance obligations. In both cases the court held that these Endorsements should be treated as separate policies under A.C.C.T. See ISD 701 v. H.G. Harvey Constrs., No. 69-C7-98-301098 (St. Louis County Dist. Ct. March 17, 1999) and ISD 2125 v. Winona Heating and Ventilating Co., No. 20-C6-99-000057 (Dodge County District Court March 20, 2000). Each of these decisions concluded that, because the school district did not rely on existing property coverage, but took affirmative steps to acquire and pay for coverage specific to the Work, the waiver of subrogation clause applied only to the Builder’s Risk Endorsement coverage, and subrogation claims could be pursued for claims paid under the pre-existing property coverage.
As noted earlier, the construction contract provided that if ISD 833 did not purchase the insurance for the Work required by Section 11.3.1, Bor-Son could do so and charge the cost to ISD 833. Had Bor-Son done so, this additional coverage would clearly limit the waiver of subrogation to claims paid under the policy purchased by Bor-Son. However, Bor-Son was apparently satisfied that the Builder’s Risk Endorsement fulfilled ISD 833’s obligation under Section 11.3.1. It seems odd to now penalize ISD 833 for having purchased the additional coverage.
I would affirm the district court’s decision that the waiver of subrogation clause does not apply to claims paid under ISD 833’s pre-existing property coverage for damage to non-Work, but only applied to claims paid under the Builder’s Risk Endorsement, which is “the property insurance obtained pursuant to this Paragraph 11.3 * * * applicable to the Work.” It seems incongruous to me to require member school districts to pay for property damage admittedly caused' by Bor-Son’s negligence, when Bor-Son was contractually obligated to insure its liability for that damage.