Court Opinion

ID: 2726209
Source: CourtListenerOpinion
Date Created: 2014-09-08 20:59:37.327589+00
Date Added: 2024-06-11T10:52:52.723106
License: Public Domain

Oct 22 2013, 5:24 am

FOR PUBLICATION

ATTORNEY FOR APPELLANT:                     ATTORNEYS FOR APPELLEE,
                                            Shambaugh & Son. L.P.:
JONATHAN H. NUSBAUM
Beers Mallers Backs & Salin, LLP            BRIAN P. CLIFFORD
Fort Wayne, Indiana                         MICHAEL L. JAMES
                                            Faegre Baker Daniels, LLP
                                            Fort Wayne, Indiana

                                            ATTORNEYS FOR APPELLEE,
                                            Hamilton Hunter Builders, Inc.:

                                            JAMES J. SHEA
                                            TIMOTHY W. DEGROOTE
                                            ANDREW S. WILLIAMS
                                            Hunt Suedhoff Kalamaros, LLP
                                            Fort Wayne, Indiana

                             IN THE
                   COURT OF APPEALS OF INDIANA

ALLEN COUNTY PUBLIC LIBRARY,                )
                                            )
      Appellant,                            )
                                            )
             vs.                            )    No. 02A04-1302-PL-78
                                            )
SHAMBAUGH & SON, L.P.,                      )
HAMILTON HUNTER BUILDERS, INC.,             )
W.A. SHEETS & SONS, INC., and               )
MSKTD & ASSOCIATES, INC.,                   )
                                            )
      Appellees.                            )

                    APPEAL FROM THE ALLEN SUPERIOR COURT
                       The Honorable Nancy Eshcoff Boyer, Judge
                            Cause No. 02D01-1002-PL-26
                                    October 22, 2013

                           OPINION - FOR PUBLICATION

BARNES, Judge

                                    Case Summary

      Allen County Public Library (“the Library”) appeals the trial court’s grant of

summary judgment in favor of Shambaugh & Son, L.P. (“Shambaugh”), Hamilton

Hunter Builders, Inc. (“Hamilton Hunter”), W.A. Sheets & Sons, Inc. (“Sheets”), and

MSKTD & Associates, Inc. (“MSKTD”) (collectively “the Defendants”). We reverse

and remand.

                                         Issue

      The Library raises two issues, which we combine and restate as whether the trial

court properly concluded that the Library was contractually prohibited from seeking

recovery from the Defendants for pollution remediation costs related to construction

work that the Library hired the Defendants to perform.

                                         Facts

      In 2004, the Library undertook a capital improvement project to renovate and add

to its main library branch building in Fort Wayne. The Library hired Sheets to act as

construction project manager and MSKTD to act as project architect. The Library also

contracted directly with Shambaugh to perform the project’s mechanical, electrical, and

fire protection work, and with Hamilton Hunter to perform the project’s concrete work.
                                           2
       The Library’s contracts with the Defendants were based on a form construction

project contract prepared by the American Institute of Architects (“AIA”). The contracts

contained various provisions related to insurance and subrogation.         Sections 11.3.1,

11.3.1.1, and 11.3.1.2 of the contracts provided:

              11.3.1    Unless otherwise provided, the Owner [THE
              LIBRARY] shall purchase and maintain . . . property
              insurance in the amount of the initial Contract Sum as well as
              subsequent modifications thereto for the entire Work at the
              site on a replacement cost basis without voluntary
              deductibles. Such property insurance shall be maintained,
              unless otherwise provided in the Contract Documents or
              otherwise agreed in writing by all persons and entities who
              are beneficiaries of such insurance, until final payment has
              been made . . . or until no person or entity other than the
              Owner has an insurable interest in the property required by
              this Paragraph 11.3 to be covered, whichever is earlier. This
              insurance shall include interests of the Owner, the Contractor,
              Subcontractors and Sub-subcontractors in the Work.

              11.3.1.1 Property insurance shall be on an “all-risk” policy
              form and shall insure against the perils of fire and extended
              coverage and physical loss or damage including, without
              duplication of coverage, theft, vandalism, malicious mischief,
              collapse, falsework, temporary buildings and debris removal
              including demolition occasioned by enforcement of any
              applicable legal requirements, and shall cover reasonable
              compensation for Architect’s services and expenses required
              as a result of such insured loss. Coverage for other perils
              shall not be required unless otherwise provided in the
              Contract Documents.

              11.3.1.2 If the Owner does not intend to purchase such
              property insurance required by the Contract and with all of
              the coverages in the amount described above, the Owner shall
              so inform the Contractor in writing prior to commencement of
              the Work. The Contractor may then effect insurance which
              will protect the interests of the Contractor, Subcontractors and

                                             3
              Sub-subcontractors in the Work, and by appropriate Change
              Order the cost thereof shall be charged to the Owner. If the
              Contractor is damaged by the failure or neglect of the Owner
              to purchase or maintain insurance as described above, without
              so notifying the Contractor, then the Owner shall bear all
              reasonable costs properly attributable thereto.

App. p. 317. Section 11.3.7 of the contracts further provided:

              Waivers of Subrogation. The Owner and Contractor waive
              all rights against each other and against the Construction
              Manager, Architect, Owner’s other Contractors and own
              forces described in Article 6, if any, and the subcontractors,
              sub-subcontractors, consultants, agents and employees of any
              of them, for damages caused by fire or other perils to the
              extent covered by property insurance obtained pursuant to
              this Paragraph 11.3 or other property insurance applicable to
              the Work, except such rights as the Owner and Contractor
              may have to the proceeds of such insurance held by the
              Owner as fiduciary. . . .

Id. at 317.

       As indicated by its capitalization, “the Work” was a term of art specifically

defined by the AIA contract and referred to “the construction and services required by the

Contract Documents, whether completed or partially completed, and includes all other

labor, materials, equipment and services provided or to be provided by the Contractor to

fulfill the Contractor’s obligations. The Work may constitute the whole or part of the

Project.” Id. at 315. Also, in addition to the Library’s obligation to procure property

insurance under the contract, each of the Defendants was obligated to:

              purchase . . . such insurance as will protect the Contractor
              from claims set forth below which may arise out of or result
              from the Contractor’s operations under the Contract and for
              which the Contractor may be legally liable, whether such

                                            4
              operations be by the Contractor or by a Subcontractor or by
              anyone directly or indirectly employed by any of them, or by
              anyone for whose acts any of them may be liable:

                                         *****

              5.     claims for damages, other than to the Work itself,
              because of injury to or destruction of tangible property,
              including loss of use resulting therefrom . . . .

Id. at 316.

       Before work on the project began, the Library obtained a “Builders Risk Plus”

insurance policy from Great American Insurance Group (“Great American”) to

specifically cover the library renovation and addition jobsite. Id. at 360. The property

covered by the policy included:

              building materials and supplies, equipment, machinery and
              fixtures . . . fences, foundations, excavations, underground
              pipes, drains, paving, and/or pilings at any construction job-
              site covered by this Coverage Form . . . which is, or intended
              to become, a permanent part of the structure(s) at the job-
              site(s) described in the Declarations.

Id. at 369. Excluded from the scope of the policy’s coverage was “water, land (including

land on which the property is located), grading or fill . . . .” Id. The policy’s general

limit of coverage was $54,920,000.       However, the policy also contained a specific

“coverage extension” for “Pollutant Clean Up and Removal” to cover expenses to extract

pollutants “from land or water at a job-site” resulting in loss to “Covered Property.” This

coverage carried its own separate policy limit of $5,000. Id. at 371.

                                             5
       One part of the library renovation and addition project required Shambaugh to

permanently install an emergency diesel generator and two diesel fuel storage tanks—one

1,000 gallon tank and one fifty gallon “day” tank—in the library’s basement. Hamilton

Hunter poured the concrete floor supporting the generator and tanks, and which also

covered copper piping connecting the “day” tank and generator. Part of the concrete

pouring process required Hamilton Hunter workers to create a wooden form for the

concrete and drive steel stakes into the ground.           In December 2007, the Library

discovered that a hole in the copper piping had caused approximately 3,000 gallons of

diesel fuel to leak into the ground underneath the library. The Library believes that the

hole was caused by a Hamilton Hunter employee having driven a steel stake through the

pipe.1 The Library undertook to investigate and clean up the leaked fuel. The Library

filed a claim with Great American related to the cleanup. Great American covered the

claim and paid the Library $5,000, in accordance with the policy limits for pollution

cleanup.

       In 2010, the Library sued the Defendants to recover costs associated with the

diesel fuel cleanup.      The Library asserted in its complaint that it had incurred

approximately $490,000 in cleanup-related expenses thus far, with the costs expected to

increase. On July 9, 2012, Shambaugh moved for partial summary judgment, which was

joined by Hamilton Hunter. The motion asserted that the Library had waived its ability to

seek recompense for the diesel fuel cleanup by the AIA contract’s provisions quoted
1
  Hamilton Hunter denies any responsibility for the hole in the pipe, but for purposes of summary
judgment is not contesting the Library’s claim that it caused the hole.
                                               6
above—in particular Section 11.3.7—and its obtaining of pollution cleanup insurance

coverage from Great American and payment from Great American.

       On September 26, 2012, the trial court granted Shambaugh’s and Hamilton

Hunter’s motion for partial summary judgment. On January 22, 2013, the trial court

entered an order finding that Sheets and MSKTD also were entitled to summary

judgment and that it was entering final judgment in favor of all of the Defendants. The

Library now appeals.

                                         Analysis

       We review a trial court’s summary judgment ruling de novo. Miller v. Dobbs, 991

N.E.2d 562, 564 (Ind. 2013). We will affirm a grant of summary judgment “‘only if

there is no genuine issue as to any material fact and the moving party is entitled to a

judgment as a matter of law.’” Id. (quoting Overton v. Grillo, 896 N.E.2d 499, 502 (Ind.

2008)); see also Ind. Trial Rule 56(C). We must construe all evidence and resolve all

doubts in favor of the non-moving party, so as to avoid improperly denying that party’s

day in court. Id.

       Resolution of this case turns primarily upon interpretation of the parties’ contracts.

“The construction of a contract is particularly well-suited for de novo appellate review,

because it generally presents questions purely of law.” Holiday Hospitality Franchising,

Inc. v. AMCO Ins. Co., 983 N.E.2d 574, 577 (Ind. 2013). The primary goal of contract

interpretation is “‘to determine the intent of the parties at the time the contract was made

as disclosed by the language used to express their rights and duties.’” Id. at 577-78

                                             7
(quoting First Fed. Sav. Bank of Ind. v. Key Markets, Inc., 559 N.E.2d 600, 603 (Ind.

1990)). Clear, plain, and unambiguous language is conclusive of the parties’ intent, and

we will neither construe unambiguous contract language nor add provisions not agreed to

by the parties. Vincennes University ex rel. Bd. of Trustees of Vincennes v. Sparks, 988

N.E.2d 1160, 1165 (Ind. Ct. App. 2013), trans. denied. “A contract is not ambiguous

merely because the parties disagree as to its proper construction; rather, a contract will be

found to be ambiguous only if reasonable persons would differ as to the meaning of its

terms.” Id. We must attempt to interpret a contract by reading it as a whole and

construing its language so as not to render any words, phrases, or terms ineffective or

meaningless. Id. When reading all the terms of a contract together, more specific terms

control over any inconsistent general statements. Id.

       This court has been asked on several prior occasions to analyze the insurance and

subrogation provisions of the AIA standard construction contract that are at issue here.

In South Tippecanoe School Building Corporation v. Shambaugh & Son, Inc., 182 Ind.

App. 350, 395 N.E.2d 320 (1979), we addressed a situation in which a gas explosion and

fire damaged a high school that was under construction. The school corporation sued

various contractors, alleging negligence among other theories of recovery. After the

school corporation’s insurer paid the corporation for the damages under a builder’s risk

policy it had issued, it continued a subrogation action against the contractors. On appeal,

                                             8
the insurer claimed that the AIA contract’s waiver of subrogation provision2 did not bar

recovery of amounts covered by the builder’s risk policy.

       We disagreed and held that “‘an agreement to provide insurance constitutes an

agreement to limit recourse of the party acquiring the policy solely to its proceeds even

though the loss may be caused by the negligence of the other party to the agreement.’”

South Tippecanoe, 183 Ind. App. at 361, 395 N.E.2d at 326-27 (quoting Morsches

Lumber, Inc. v. Probst, 180 Ind. App. 202, 203, 388 N.E.2d 284, 285 (1979)). We also

stated that the insurance provisions of the AIA standard contract “reveal a ‘studied

attempt’ by the parties to require construction project risks to be covered by insurance

and to ‘allocate among the parties the burden of acquiring such insurance.’” Id. at 360,

395 N.E.2d at 326. We further noted that if a construction project owner failed to take

out sufficient insurance “‘to cover the cost of the undertaking,’” the owner—not the

contractors—was required to bear the loss caused by such a miscalculation. Id. at 373,

395 N.E.2d at 334 (quoting Morsches, 180 Ind. App. at 206, 388 N.E.2d at 387). There

does not appear to have been any question in South Tippecanoe that the full extent of the

property damaged by the explosion and fire was the under-construction school building

and not any property outside of the construction project.

       In Midwestern Indemnity Company v. Systems Builders, Inc., 801 N.E.2d 661

(Ind. Ct. App. 2004), trans. denied, after completion of a construction project to add onto

a factory, the roof of the new addition collapsed after a snowstorm, causing the loss of the
2
  At the time, this provision was numbered 11.3.6, but it was worded nearly identically to the current
provision numbered 11.3.7 in the version of the AIA contract utilized by the parties here.
                                                  9
building itself as well as the contents of the building. The factory owner’s insurer paid

$1,391,818.90 in total to the owner, of which $44,971.21 was for the building’s contents.

The insurer then brought a subrogation action against the subcontractor who designed and

built the addition. We held that the waiver of subrogation provision of the AIA standard

contract—section 11.3.7, as here—applied even though construction had already been

completed, and also that the waiver applied to negligence claims against the

subcontractor. Midwestern, 801 N.E.2d at 671-72.

      Having established that section 11.3.7 applied to the factory owner/insurer’s

claims against the subcontractor, we went on to analyze whether the factory

owner/insurer was prohibited from seeking recovery from the subcontractor for the loss

of the contents of the building. Ultimately, we held there was no such prohibition,

observing that “the waiver of subrogation is limited in scope as to what property is

covered.” Id. at 672. We explained:

             [T]he construction contract provides that the scope of the
             waiver of subrogation is limited to the work performed under
             the contract. Specifically, the construction contract requires
             the Owner to purchase insurance “for the entire Work.” The
             construction contract defines “Work” to mean “the
             construction and services required by the Contract
             Documents, whether completed or partially completed, and
             includes all other labor, materials, equipment and services
             provided or to be provided by the Contractor to fulfill the
             Contractor's obligations. The Work may constitute the whole
             or part of the Project.” By definition, “Work” does not
             include the contents that were placed in the building after it
             was completed. Further, the waiver of subrogation applies to
             damage caused by perils insured against by the “property
             insurance obtained pursuant to this Paragraph 11.3 or other

                                           10
               property insurance applicable to the Work . . . .”
               Accordingly, the scope of the waiver of subrogation is limited
               to the value of the Work performed under the contract, i.e.,
               the building addition. Because the contents are not part of the
               Work or completed building addition and because there was
               no requirement to waive subrogation rights as to property
               damage to property other than the Work, we hold that the
               waiver of subrogation does not bar recovery for damage to
               the contents of the building.

Id. at 672-73 (citations omitted). Thus, we permitted the insurer to attempt to recover

from the contractor the $44,971.21 it paid to the property owner for the contents of the

building.3

       After careful consideration, we conclude that this case is in line with Midwestern

and cases from other jurisdictions that we cited in support of our holding, including Town

of Silverton v. Phoenix Heat Source Systems, Inc., 948 P.2d 9 (Colo. Ct. App. 1997), and

S.S.D.W. Co. v. Brisk Waterproofing Co., Inc., 556 N.E.2d 1097 (N.Y. 1990).4 To be

clear, the Library is alleging that the diesel fuel leak spread beyond the strict confines of

the library construction project and seeped into the surrounding land, and that the Library

3
  In so holding, we acknowledged the existence of contrary authority holding that the standard AIA
waiver of subrogation provision precludes recovery by a property owner against a contractor anytime the
property owner is reimbursed by insurance for a loss, regardless of whether the contractor damaged
“Work” or “non-Work” property. See Lloyd’s Underwriters v. Craig & Rush, Inc., 32 Cal. Rptr. 2d 144
(Cal. Ct. App. 1994). We declined to follow this authority in Midwestern and we see no reason to
second-guess that decision.
4
  In resolving this case, we have deemed it unnecessary to address the Library’s argument that it was
under no obligation to purchase pollution cleanup insurance coverage. Our analysis regarding Section
11.3.7 and the scope of “the Work” would be the same regardless of whether the Library was required to
purchase such coverage. We also need not address the Library’s argument regarding a supplementary
condition added to the AIA contract regarding indemnification of it by the Defendants for claims related
to hazardous materials cleanup, which the Defendants argue is only a “third party” indemnification
provision that does not permit direct “first party” recovery by the Library from the Defendants for such
cleanup. See Flaherty & Collins, Inc. v. BBR-Vision I, L.P., 990 N.E.2d 958, 967 (Ind. Ct. App. 2013).
                                                  11
has incurred and will continue to incur significant costs associated with remediating that

seepage from the land. The Library was only required by Section 11.3.1 of the AIA

contract to cover the cost of “the entire Work at the site on a replacement cost basis,” just

as in Midwestern. The definition of “the Work” likewise is identical to the definition in

Midwestern—“the construction and services required by the Contract . . . .” App. at 315.

This evidences an intent that the Library was under no obligation to procure insurance for

damage to property surrounding the jobsite or to property outside of the building project

itself.    Such damages could well exceed and be completely unrelated to the total

replacement cost of “the Work.” As such, the waiver of subrogation provision in Section

11.3.7 does not apply to damaged, contaminated land outside of “the Work”—i.e., the

library building addition and renovation.

          The trial court stated and the Defendants argue that the leakage of diesel fuel into

land surrounding the library merely represented “consequential damages” flowing from a

mishap related to “the Work.” However, the same could have been just as easily said

with respect to the damaged contents of the factory in Midwestern, which we held were

not subject to the waiver of subrogation clause. Nor did the fact that the factory owner in

Midwestern had procured insurance coverage for the contents of the building have any

impact upon the effect of the waiver of subrogation clause.

          We also reject the Defendants’ attempt to argue that, as interpreted by

Midwestern, the waiver of subrogation clause would only permit the Library to seek

recovery for any loss of the contents of the fuel tanks. The Defendants’ reading of

                                               12
Midwestern is too narrow. Although the contents of a building was the particular loss at

issue in that case, the language of the opinion is clear that under Section 11.3.7 of the

standard AIA construction contract, “there [is] no requirement to waive subrogation

rights as to property damage to property other than the Work . . . .” Midwestern, 801

N.E.2d at 673. Our holding was not limited just to damages to the contents of a building,

but any property outside the scope of “the Work.”

       We also note that in Town of Silverton, a faulty snow melting system that was

installed as part of a new roof construction for a town hall was alleged to have caused a

fire that damaged not only the new roof, but other parts of the town hall as well. The

Colorado Court of Appeals held, “the scope of the waiver of subrogation [under section

11.3.7 of the AIA form contract] is limited to the value of the work performed under the

contract, i.e., the new roof, and is inapplicable to other parts of the town hall damaged in

the fire.” Town of Silverton, 948 P.2d at 12. These facts are even more similar to the

present case than those in Midwestern, in that they concern damage to property

immediately surrounding “the Work” and not the contents of a building. As we found

Town of Silverton persuasive in Midwestern, we do likewise here.

       Finally, we find additional guidance in S.S.D.W. Co. In that case, an apartment

building owner alleged that a contractor who was hired to do some corrective work

caused a fire that caused extensive damage not only to parts of the building covered by

the contract but to other areas as well. The Court of Appeals of New York held that

under the standard AIA insurance and waiver of subrogation provisions—again, virtually

                                            13
identical to the provisions here (though differently numbered)—the waiver of subrogation

provision did not preclude the apartment building owner or its insurer from seeking

recovery from the contractor for damages to the building that went beyond the parts of

the building covered by “the Work.” S.S.D.W., 556 N.E.2d at 1100-01. Among other

parts of its analysis, the court observed that, while the apartment building owner was

required by the contract to procure insurance covering “the Work,” the contractor was

obligated to procure insurance “covering whatever property damage it may cause other

than to the Work itself.” Id. at 1099. The court stated that if it permitted the contractor—

and its liability insurer—to escape liability for damages it caused beyond the scope of the

“the Work,” it would upset the balancing of insurance responsibilities set forth by the

contract, effectively transforming the property owner’s insurer into the insurer of the

contractor. The court found such a construction to be inconsistent “with either the natural

and obvious meaning” of the contract’s insurance provisions “or with what seems to be

the over-all sense of the arrangement” of those provisions. Id. at 1100.

       We find this reasoning persuasive as well. As in S.S.D.W., under the standard

AIA contract, the Defendants were required under Section 11.1.1 to procure liability

insurance that would provide coverage for damage to property “other than to the Work

itself . . . .” App. p. 316. In other words, we believe the AIA standard contract generally

divides responsibility for providing insurance as follows: the project owner is required to

provide insurance covering any mishaps that cause harm to “the Work” itself, while

contractors are required to provide insurance covering mishaps that cause harm outside of

                                            14
“the Work.” Moreover, a project owner cannot seek reimbursement from a contractor for

any mishaps resulting in harm to the project itself, because it was obligated to purchase

insurance for such mishaps.      However, a project owner can seek recovery from a

contractor (or its insurer) for construction mishaps resulting in harm to non-construction

work property, consistent with the contractor’s obligation to purchase liability insurance

to cover those kind of mishaps. For this reason, we are unmoved by the Defendants’

argument that they were unaware that the Library had only procured $5,000 worth of

insurance coverage for pollution cleanup, suggesting that they might have procured

additional pollution cleanup insurance under Section 11.3.1.2 of the AIA contract if they

had known the Library had procured such a small amount of coverage. This is because

the Defendants already clearly were obligated under Section 11.1.1 to purchase liability

insurance for harm to property outside the scope of “the Work” and they could have

planned accordingly.

                                        Conclusion

       Consistent with our holding in Midwestern, we conclude that the Library is not

precluded by Section 11.3.7 of the standard AIA contract from seeking recovery for

pollution cleanup costs for property contaminated by the Defendants’ allegedly faulty

construction that is outside the scope of “the Work” for which the Defendants were

contracted to perform. Namely, the Defendants may be required to reimburse the Library

for cleanup costs of the land outside of the library building itself. We reverse the grant of

                                             15
summary judgment to the Defendants and remand for further proceedings consistent with

this opinion.

       Reversed and remanded.

CRONE, J., and PYLE, J., concur.

                                         16