Court Opinion

ID: 2747433
Source: CourtListenerOpinion
Date Created: 2014-10-31 21:01:28.204925+00
Date Added: 2024-06-11T11:26:15.150042
License: Public Domain

FILED
                           NOT FOR PUBLICATION                                OCT 31 2014

                                                                          MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

THE TRAVELERS INDEMNITY                          No. 12-15170
COMPANY, as subragee of Tourism and
Sports Authority, DBA Arizona Sports &           D.C. No. 2:11-cv-00965-JAT
Tourism Authority,

              Plaintiff - Appellant,             MEMORANDUM*

  v.

CROWN CORR INC., an Indiana
corporation,

              Defendant - Appellee.

THE TRAVELERS INDEMNITY                          No. 12-16663
COMPANY, as subragee of Tourism and
Sports Authority, DBA Arizona Sports &           D.C. No. 2:11-cv-00965-JAT
Tourism Authority,

              Plaintiff - Appellant,

  v.

CROWN CORR INC., an Indiana
corporation,

              Defendant - Appellee.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                   Appeal from the United States District Court
                            for the District of Arizona
                James A. Teilborg, Senior District Judge, Presiding

                      Argued and Submitted March 11, 2014
                           San Francisco, California

Before: THOMAS, FISHER, and BERZON, Circuit Judges.

      Plaintiff-appellant The Travelers Indemnity Co. (“Travelers”) appeals the

district court’s decision to grant defendant-appellee Crown Corr, Inc.’s (“Crown

Corr”) motion to dismiss Travelers’ two contract claims and one tort claim.

Because the parties are familiar with the facts and procedural history of the case,

we need not recount them here.

      We have jurisdiction under 28 U.S.C. § 1291. “We review de novo a

dismissal under [Fed. R. Civ. P.] 12(b)(6) for failure to state a claim.” Kaiser

Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338, 1340 (9th Cir.

1992). We also “review a district court’s application of state substantive law in

diversity actions de novo.” Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865,

872 (9th Cir. 2007). For the reasons discussed below, we affirm the district court’s

decision.

                                          2
                                            I

                                           A

      The district court dismissed Travelers’ contract claims on the basis of the

subrogation waiver in Section 11.4.6 of the Design/Build Agreement

(“agreement”), which set out parameters for the construction of the University of

Phoenix Stadium (“stadium”). Section 11.4.6 reads, in its entirety:

      The Parties waive subrogation against one another, the
      Design/Builder, Design Consultants, Subcontractors, and their
      respective agents and employees on all property and consequential
      loss policies that may be carried by any of them on adjacent properties
      and under property and consequential loss policies purchased for the
      Facility.

      When Arizona courts interpret contracts, they “attempt to ascertain and give

effect to the intention of the parties at the time the contract was made if at all

possible.” Taylor v. State Farm Mut. Auto. Ins. Co., 854 P.2d 1134, 1139 (Ariz.

1993) (internal quotation marks omitted). The Arizona Supreme Court has

instructed that a “judge first considers the offered evidence and, if he or she finds

that the contract language is ‘reasonably susceptible’ to the interpretation asserted

by its proponent, the evidence is admissible to determine the meaning intended by

the parties.” Id. at 1140. However, a court “need not waste much time if the

                                           3
asserted interpretation is unreasonable or the offered evidence is not persuasive.”

Id. at 1141.

      The district court did not err in concluding that Section 11.4.6 was not

“reasonably susceptible” to Travelers’ proffered interpretation and therefore

rejecting Travelers’ parol evidence. Travelers contends that the district court erred

in interpreting the term “Facility” in Section 11.4.6 to mean “the Stadium after it is

fully operational.” However, Travelers fails to put forth a narrower reading that

shows the term refers only to the stadium before substantial completion. At most,

Travelers establishes that the term refers to the stadium both before and after

substantial completion. For example, Travelers notes that in Recital A of the

agreement, “Facility” is used as a shorthand version of the term “multipurpose

stadium facility” and that the Recital states that the Authority is empowered to

“construct, finance, furnish, maintain, improve, own, operate, market and provide”

the “Facility.” Travelers argues that because the agreement envisions

“construct[ing]” and “financ[ing]” the Facility, both of which will occur before

completion, the term could apply to the stadium before completion. Similarly,

Travelers argues that the terms “Work” and “Project,” refer to the services

necessary to complete the stadium and the construction process, not the pre-

completion stadium itself, so that “Facility” could still be used pre-completion.

                                          4
Even if Travelers is correct as to both of these arguments, it only succeeds in

showing that the term applies to the stadium before and after completion. Indeed,

if the fact that Recital A uses “construct” and “finance” in describing the early

stages of the stadium shows that the term “Facility” could apply to the pre-

completion stadium, the fact that “maintain,” “operate,” and “market” are also used

shows that “Facility” must also apply to the stadium after completion and

throughout its lifetime.

      Travelers also cites several sections, including Sections 1.5, 1.8.1, and 2.1.1,

that use adjectives beyond the term “Facility” itself to describe the “completed and

fully operational Facility.” It argues these phrases show that “Facility” cannot

refer only to the post-completion stadium. But, again, Travelers’ argument does

not establish that “Facility” refers only to the pre-completion stadium. Moreover,

in other provisions, like Recitals A and B, and Sections 1.7.1.10, 2.8.1.b, 11.4.1.m,

the contract refers to “Facility” in a way that describes a post-completion stadium.

Indeed, Recital B forecasts that the Arizona Cardinals football team will play

football games “at the Facility for thirty (30) years.” In that context, the term

envisions a fully completed stadium over the course of three decades. In short, the

term “Facility” means the stadium at any time. The waiver therefore still applies

today and is not “reasonably susceptible” to Travelers’ more restrictive view.

                                           5
      The broader context of the Design/Build Agreement confirms our view of

the subrogation waiver. Section 11.4.6 does not include any language as to how

long it will be in effect. Travelers argues that the agreement was written to

facilitate construction of the stadium and, as a result, it only mentions duration

when a provision, like Section 2.2.20, is meant to apply beyond substantial

completion. See, e.g., Agreement § 2.2.20 (“The provisions of this Article [2] shall

survive the completion, suspension or termination of this Agreement.”). However,

other sections, like Section 11.4.1, explicitly state that they will apply through

substantial completion only.

      Other provisions in Section 11.4 are written narrowly as well. Section

11.4.3 explains the extent to which the Authority and the Cardinals may occupy the

partially completed stadium (labeled in this provision “the Work” and not “the

Facility”). Section 11.4.5 contains a waiver of rights due to loss or damage to

equipment used during construction. Section 11.4.4 includes a waiver of rights

“for damages caused by perils covered by insurance provided under Section 11.4.”

      Section 11.4.6 is different from each of these provisions. It contains a

subrogation waiver by the Parties against all others involved, including

subcontractors, “under property or consequential loss policies purchased for the

Facility.” It does not limit itself to injuries or harm arising from “the Work,” and it

                                           6
does not include the Section 11.4.4 restriction that the waiver applies only to

“insurance provided under Section 11.4.” Instead, the language is far broader.

      In sum, we conclude that Section 11.4.6 is not reasonably susceptible to

Travelers’ narrow interpretation. The district court did not err in rejecting that

interpretation and refusing to consider Travelers’ parol evidence.1

                                          B

      Travelers also challenges the district court’s conclusion, assuming the

subrogation waiver applies to Travelers, that the Authority had the ability to waive

the subrogation rights of a post-construction property insurer.

      Arizona courts recognize the right of an insured, when the insured is waiving

its own rights, to waive its insurer’s subrogation rights. Monterey Homes Ariz.,

Inc. v. Federated Mut. Ins. Co., 212 P.3d 43, 47 (Ariz. Ct. App. 2009) (noting that

“an insurer’s right to subrogation derives from its insured’s right to recover against

a third party” and concluding that “if the insured releases its claims against the

third party—even without the insurer’s consent—the insurer will be barred from

asserting that claim against the third party by way of subrogation”).

      1
         Both Travelers and Crown Corr cite to a number of cases from other states.
These cases are of limited relevance because, unlike this case, they all involve the
American Institute of Architects’ (“AIA”) form contract, or some close variation
thereof.

                                           7
      The Authority waived its rights against Crown Corr. Section 11.2, in

general, requires the Design/Builder (i.e., Hunt) to carry liability insurance. In

Section 11.2.5, the agreement provides that Hunt, and its consultants and

subcontractors via separate agreements, releases the Authority and other “Released

Parties” “from any and all claims or causes of action” which Hunt or its consultants

or subcontractors possess “resulting in or from or in any way connected with any

loss covered and actually paid . . . by an insurance policy as agreed by the Parties

hereunder.” In return, that same provision states that

      [t]he Released Parties . . . release the Design/Builder . . . [and]
      Subcontractors . . . from any and all claims or causes of action
      whatsoever which any of the Released Parties might otherwise possess
      resulting in or from or in any way connected with any loss to the
      extent it is covered and actually paid by any insurance policy provided
      hereunder or any other insurance policy otherwise available to the
      Released Party or that should have been covered by any insurance
      policy any Released Party was required to maintain.

      Hunt’s agreement with Crown Corr, at Section 8.3, contains a similarly

broad release provision. Crown Corr also notes that Travelers’ insurance policy

explicitly acknowledges that an “Insured,” like the Authority, “may waive its rights

against another party by specific written agreement.” As a result, Travelers has

implicitly acquiesced to the subrogation waiver in Section 11.4.6. Moreover,

savvy insurers like Travelers have several options available, when negotiating an

                                          8
insurance contract, for limiting the effect of a subrogation waiver. See Bakowski v.

Mountain States Steel, Inc., 52 P.3d 1179, 1186 (Utah 2002).

      In sum, we conclude the district court did not err in determining that the

Authority could waive the subrogation rights of a property insurer hired years after

the property in question was completed. As a result, we conclude that the

subrogation waiver in Section 11.4.6 applies to Travelers and bars its contract

claims against Crown Corr.

                                         II

      The district court rejected Travelers’ negligence claim under Arizona’s

economic loss doctrine. We affirm on a separate ground, namely that the

subrogation waiver in Section 11.4.6. precludes tort claims as well as contract

claims. See Atel Fin. Corp. v. Quaker Coal Co., 321 F.3d 924, 926 (9th Cir. 2003)

(“We may affirm the district court’s judgment on any ground supported by the

record, whether or not the decision of the district court relied on the same grounds

or reasoning we adopt.”).

      Generally, subrogation waivers apply “regardless of the nature of the claim.”

2 Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor on Construction

Law, Analysis of AIA General Conditions: Waivers of Subrogation, § 5:231

(2014). Travelers argues the waiver of subrogation in this case nonetheless should

                                          9
not apply to tort claims because: (1) Arizona law requires waivers of liability for

negligence to be expressed in “clear and unequivocal terms,” Sirek v. Fairfield

Snowbowl, Inc., 800 P.2d 1291, 1295 (Ariz. Ct. App. 1990), and the Design/Build

Agreement does not contain the necessary language; (2) the Design/Build

Agreement, in Section 15.8.1, notes that nothing in the agreement should be read to

limit rights and remedies available to the parties by law; and (3) the Arizona

Constitution, article XVIII, section 5, requires that defenses in tort cases of

contributory negligence or assumption of risk be heard by a jury.

      Travelers is correct that exculpatory clauses, which exempt a negligent

tortfeasor from liability and leave a victim with no recourse, are disfavored and

construed strictly in Arizona, because such clauses“may encourage carelessness.”

Sirek, 800 P.2d at 1294-96; see also Bothell v. Two Point Acres, Inc., 965 P.2d 47,

51 (Ariz. Ct. App. 1998); Morganteen v. Cowboy Adventures, Inc., 949 P.2d 552,

553-56 (Ariz. Ct. App. 1997); Mauer v. Cerkvenik-Anerson Travel, Inc., 890 P.2d
69, 73-74 (Ariz. Ct. App. 1994).

      However, subrogation waivers are different from traditional exculpatory

clauses. Subrogation waivers do not present the same dangers as exculpatory

clauses, because no risk exists that the injured party will be left without

compensation, and subrogation waivers serve important policy goals. Lexington

                                          10
Ins. Co. v. Commc’n Servs., Inc., 749 N.W.2d 124, 130-31 (Neb. 2008); see also

Am. Motorist Ins. Co. v. Morris Goldman Real Estate Corp., 277 F. Supp. 2d 304,

307-08 (S.D.N.Y. 2003) (noting that a “waiver of subrogation clause is an

allocation of risk provision, which places the ultimate risk of loss on the insurer,”

and that subrogation waivers “are not true exculpatory clauses”).

      The cases Travelers cites all relate to exculpatory clauses. Although Arizona

does not appear to have ruled explicitly on whether a subrogation waiver applies to

a tort claim, Travelers cites no case law that would compel us to conclude Arizona

would depart from the general rule. Travelers points to language in the Arizona

constitution and to language in the Design/Build Agreement itself. But

subrogation waivers are also different from the assumption of risk waivers

contained in many form contracts and targeted by the Arizona Constitution, again

because the injured party is not left without recompense. And while Section 15.8.1

of the agreement clarifies that nothing in the agreement serves as “a limitation of

any duties, obligations, right and remedies otherwise imposed or available at law,”

Travelers cites no authority that supports construing such a provision to constrain a

subrogation waiver—a common type of waiver found in many contracts in the

construction context. Moreover, although neither is completely factually

analogous, both United States Fidelity and Guaranty Co. v. Farrar’s Plumbing and

                                          11
Heating Co., 762 P.2d 641, 641-43 (Ariz. Ct. App. 1988), and Fire Insurance

Exchange v. Thunderbird Masonry, Inc., 868 P.2d 948, 952-53 (Ariz. Ct. App.

1993), lend support to the general proposition that a valid subrogation waiver

encompasses tort claims. Thus, because we conclude that the Authority waived its

rights against Hunt and subcontractors and that the subrogation waiver applies

against Travelers as to its contract claims, we also conclude the waiver applies to

Travelers’ tort claim.2

                                         III

        Because we affirm the district court’s decision to grant Crown Corr’s motion

to dismiss, we also affirm the court’s decision to grant attorneys’ fees to Crown

Corr.

        AFFIRMED.

        2
         Travelers also contends that, even if the subrogation waiver applies to its
tort claim, “the scope of that waiver could extend only to damage to property that
was the subject of the subcontractor’s work” and not to other property—such as the
separate roof system and sound system speaker clusters—that was allegedly
damaged by the falling roof panels in this case. We conclude that the district court
did not err in deciding that the subject of the Design/Build Agreement, and the
subrogation waiver specifically, was the entire completed stadium and that
Travelers has not sufficiently supported its argument that certain portions of the
stadium are so separate and distinct as to constitute “other property” outside the
scope of the agreement and waiver.

                                         12