Court Opinion

ID: 4428916
Source: CourtListenerOpinion
Date Created: 2019-08-20 19:14:55.047225+00
Date Added: 2024-06-11T14:50:43.262056
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
              APPROVAL OF THE APPELLATE DIVISION

                                   SUPERIOR COURT OF NEW JERSEY
                                   APPELLATE DIVISION
                                   DOCKET NO. A-5395-16T4

ACE AMERICAN INSURANCE
COMPANY,

     Plaintiff-Appellant,              APPROVED FOR PUBLICATION

                                                 April 4, 2019
v.
                                           APPELLATE DIVISION
AMERICAN MEDICAL
PLUMBING, INC.,

     Defendant-Respondent.
_____________________________

           Argued September 26, 2018 – Decided April 4, 2019

           Before Judges Koblitz, Ostrer and Currier.

           On appeal from Superior Court of New Jersey, Law
           Division, Union County, Docket No. L-0299-17.

           Daniel Q. Harrington argued the cause for appellant
           (Cozen O'Connor, PC, attorneys; Daniel Q.
           Harrington, on the briefs).

           Fredric P. Gallin argued the cause for respondent
           (Methfessel & Werbel, PC, attorneys; Fredric P.
           Gallin, of counsel and on the brief).

     The opinion of the court was delivered by

OSTRER, J.A.D.
      This appeal requires us to interpret the waiver-of-subrogation provisions

of a widely used form construction contract – the American Institute of

Architects (AIA) form A201 – 2007 General Conditions of the Contract for

Construction (A201). 1    Contending the trial court misread the contract,

plaintiff ACE American Insurance Company (ACE) appeals from summary

judgment dismissing its subrogation action against defendant American

Medical Plumbing, Inc. (American).          We affirm, based on A201's plain

language, its evident goal to transfer the risk of construction-related losses to

insurers and preclude lawsuits among contracting parties, and persuasive o ut-

of-state authority.

                                       I.

      For purposes of ACE's motion, the following facts are undisputed.

ACE's insured, Equinox Development Corporation (Equinox Development),

contracted in March 2012 with Grace Construction Management Company,

LLC (Grace Construction), to build the "core and shell" of a new health club in

1
   The AIA revises the A201 contract every ten years. See Am. Inst. of
Architects, AIA Document Commentary to A201 – 2007 General Conditions
of the Contract for Construction 1 (2007) (AIA Commentary to A201). For
convenience, "A201" will refer to the 2007 version. We will include the year
when referring to previous versions.

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Summit.2 American was a plumbing subcontractor. Sometime in April 2013,

after the work under the contract was completed, a water main failed and

flooded the health club.

      When the flood occurred, ACE provided Equinox Holdings and its

subsidiaries, including Equinox Development, with blanket all-risk insurance

including multiple forms of coverage for its operations in the United States.

The policy term was September 2012 to September 2013, with coverage of $32

million per occurrence. Among other coverages, the policy insured Equinox's

interest in its real and personal property, including "[p]roperty while in the

course of construction and/or during erection, assembly and/or installation." It

also included any interests of contractors and sub-contractors for which

Equinox would assume liability by contract.        Regarding subrogation, the

policy stated, "In the event of any payment under this policy, except where

subrogation rights have been waived, the Insurer shall be subrogated to the

extent of such payment to all the Insured's rights of recovery therefore." ACE

had provided Equinox with similar coverage, with a limit of $30 million, the

preceding annual period.

2
  Equinox Development is described as a subsidiary of Equinox Holdings, Inc.
(Equinox Holdings). Where the record does not clearly distinguish between
the two, we will simply use "Equinox."

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      ACE paid Equinox almost $1.2 million for the net damages to its real

and personal property. Less than $8,000 was for repairs to the "core and shell"

construction covered by the A201 contract.       The rest was apparently for

damage to internal construction, furnishings and equipment.

      ACE eventually filed suit against American, claiming it was at fault for

the water-main break and seeking recovery of its payments to Equinox.

American promptly answered, invoking A201's subrogation-waiver provisions.

Soon thereafter, American filed its motion for summary judgment, which the

trial court granted, relying mainly on an unpublished federal district court

opinion.

                                      II.

      We review the trial court's order de novo, applying the same standard as

the trial court. Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010).

The dispositive issue before us is one of contract interpretation. Absent an

ambiguity arising from disputed facts, interpretation of A201, like of any

contract, involves a question of law, which we review de novo. Kieffer v. Best

Buy, 205 N.J. 213, 222-23 & n.5 (2011).

      To fulfill our interpretative mission, we determine "the reasonably

certain meaning of the language used, taken as an entirety, considering the

situation of the parties, the attendant circumstances, the operative usages and

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                                      4
practices, and the objects the parties were striving to achieve." George M.

Brewster & Son, Inc. v. Catalytic Constr. Co., 17 N.J. 20, 32 (1954); see also

Hardy ex rel. Dowdell v. Abdul-Matin, 198 N.J. 95, 103 (2009) (stating that

"[a] basic principle of contract interpretation is to read the document as a

whole in a fair and common sense manner"). In so doing, we strive to give

effect to "all parts of the writing and every word of it," to the extent possible.

Washington Constr. Co. v. Spinella, 8 N.J. 212, 217 (1951) (quoting 9

Williston on Contracts § 46, at 64 (rev. ed. 1936)).         Our objective is to

determine the parties' intent. Kieffer, 205 N.J. at 223. But "[i]t is not the real

intent but the intent expressed or apparent in the writing that controls."

Friedman v. Tappan Dev. Corp., 22 N.J. 523, 531 (1956).

                                       III.

      We describe first A201's overall scheme. In broad terms, A201 requires

the owner and contractor to procure, respectively, property and liability

insurance; and requires the owner and contractor and its subcontractors (and

sub-subcontractors, agents and employees) to waive all rights against each

other for damages covered by the required property insurance policy. A201

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also extends the subrogation waiver to certain other forms of insurance that the

owner may procure at its own option for losses during and after construction. 3

      Specifically, the contract requires an owner to procure "builder's risk

'all-risk'" insurance for the benefit of itself and its contractors. 4 A201 § 11.3.1.

The policy must cover not only the amount the owner owes for the "Work" –

that is, the construction and services covered by the contract – but the value of

the entire "Project," which may include construction by other contractors.

Ibid. See also id. §§ 1.1.3, 1.1.4 (defining "Work" and "Project"). In this case,

the Work – which consisted of the health club's "core and shell" – was

evidently only a part of the total Project, which included furnishings and

3
  We note that the parties do not dispute the enforceability of a subrogation
waiver in principle, which is well-settled. See George M. Brewster & Son, 17
N.J. at 28 (stating that "parties may by agreement waive or limit the right" of
subrogation); see also Sch. Alliance Ins. Fund v. Fama Constr. Co., 353 N.J.
Super. 131, 140 (Law Div. 2001), aff'd o.b., 353 N.J. Super. 1 (App. Div.
2002).
4
  See Bryan Constr. Co. v. Emp'rs Surplus Lines Ins. Co., 116 N.J. Super. 88,
97 (App. Div. 1971) (stating that a builder's risk policy "is ordinarily issued to
a contractor or a property owner in order to insure him against loss occurring
during the construction, repair or alteration of a building"), aff'd in part and
rev'd in part, 60 N.J. 375 (1972); see generally 11 Couch on Insurance §§
155:42 - :49 (3d ed. 2017) (describing builder's risk insurance). Section
11.3.1.1 of A201 states that the "all-risk" policy must insure "against the perils
of fire . . . and physical loss or damage including . . . flood."

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                                         6
interiors, as well. 5 The insurance must cover the "interests of the Owner, the

Contractor, Subcontractors, and Sub-subcontractors in the Project." A201 §

11.3.1. The owner's insurance obligation subsists as long as contractors are

unpaid or have an insurable interest in the Project. 6 Ibid. As we discuss

below, Equinox satisfied the mandate of section 11.3.1 through its pre -existing

blanket all-risk policy from ACE, which included builder's risk coverage for

all Equinox construction sites across the United States.

5
   ACE insists without citing competent evidence in the record that the Work
and Project were "coextensive." However, it acknowledges that, in addition to
the Work, Equinox hired other contractors for interior construction, or "fit-up."
6
    Section 11.3.1, under the heading, "PROPERTY INSURANCE," states:

             11.3.1 Unless otherwise provided, the Owner shall
             purchase and maintain . . . property insurance written
             on a builder's risk "all-risk" or equivalent policy form
             in the amount of the initial Contract Sum, plus value
             of subsequent Contract Modifications and cost of
             materials supplied or installed by others, comprising
             total value for the entire Project at the site on a
             replacement cost basis without optional deductibles.
             Such property insurance shall be maintained . . . until
             final payment has been made as provided in Section
             9.10 or until no person or entity other than the Owner
             has an insurable interest in the property required by
             this Section 11.3 to be covered, whichever is later.
             This insurance shall include interests of the Owner,
             the Contractor, Subcontractors and Sub-subcontractors
             in the Project.

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                                        7
      A201 also requires an owner to purchase insurance for boilers and

machinery during installation and until final acceptance. A201 § 11.3.2. At its

option, the owner may purchase loss-of-use insurance. A201 § 11.3.3. The

owner must also maintain its "usual liability insurance." A201 § 11.2.

      A201 imposes an insurance requirement on the contractor, too.           The

contractor must obtain insurance to protect itself from claims arising out of its

operations or those of its subcontractors, agents or employees.          A201 §

11.1.1.5. The contractor's policy must cover "[c]laims for damages, other than

to the Work itself, because of injury to or destruction of tangible property,

including loss of use resulting therefrom." Ibid. The contractor's coverage

must name the owner as an additional insured for claims arising out of the

contractor's negligence. A201 § 11.1.4.

      The waiver-of-subrogation clause bars recovery of damages from the

owner, contractor, and subcontractors "to the extent" the damages are covered

by two forms of property insurance. The first is property insurance an owner

obtains "pursuant to" section 11.3, which includes the builder's risk insurance

that section 11.3.1 references. 7 The second is any "other property insurance

7
   The phrase "insurance obtained pursuant to this Section 11.3" plainly refers
to insurance that section 11.3 requires the owner to obtain, including builder's
risk, see § 11.3.1, and boiler and machinery insurance, see § 11.3.2. The
parties do not present the issue whether the phrase also encompasses insurance
                                                                    (continued)

                                                                         A-5395-16T4
                                       8
applicable to the Work" that the contract does not require. Section 11.3.7

states:

            11.3.7 WAIVERS OF SUBROGATION

            The Owner and Contractor waive all rights against . . .
            each other and any of their subcontractors, sub-
            subcontractors, agents and employees, each of the
            other . . . for damages caused by fire or other causes of
            loss to the extent covered by property insurance
            obtained pursuant to this Section 11.3 or other
            property insurance applicable to the Work, except
            such rights as they have to proceeds of such insurance
            held by the Owner as fiduciary.

            [(Emphasis added).]

      The contractor must obtain similar waivers from its subcontractors. The

insurance policy "shall provide such waivers of subrogation by endorsement or

otherwise." Ibid. The "waiver of subrogation shall be effective as to a person

or entity . . . whether or not the person or entity had an insurable interest in the

property damaged." Ibid.

      Section 11.3.5 extends the waiver of subrogation to damages that

additional, optional insurance policies may cover.         The waiver extension

applies to two forms of insurance policies, which section 11.3.5 describes in

(continued)
that section 11.3 does not require but which it addresses – such as loss-of-use
insurance, see § 11.3.3, and insurance described in section 11.3.5, which we
discuss below.

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                                         9
terms of when they are procured, what they cover, and their relation to other

policies.   The first is an insurance policy procured "during the Project

construction period," which covers real or personal property at or adjacent to

the Project site, and is "separate" from the policy insuring the Project. A201 §

11.3.5. The second is an insurance policy provided "after final payment,"

which covers the completed Project, and is "other than" the policy that insured

the project during construction. Ibid. Section 11.3.5 states:

            If during the Project construction period the Owner
            insures properties, real or personal or both, at or
            adjacent to the site by property insurance under
            policies separate from those insuring the Project, or if
            after final payment, property insurance is to be
            provided on the completed Project through a policy or
            policies other than those insuring the Project during
            the construction period, the Owner shall waive all
            rights in accordance with the terms of Section 11.3.7
            for damages caused by fire or other causes of loss
            covered by this separate property insurance. All
            separate policies shall provide this waiver of
            subrogation by endorsement or otherwise.

            [(Emphasis added).]

                                      IV.

      We turn now to ACE's claim on appeal. At bottom, ACE argues that its

claim against American is not the kind that A201 subjects to a subrogation

waiver. ACE contends that the subrogation waiver under section 11.3.7 has a

spatial limit, applying only to claims for damage to the Work itself but not

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                                       10
adjacent property, as well as a temporal limit, applying only to claims arising

before construction is complete. Since the bulk of the water damage affected

not the health club's "core and shell" but its internal construction and

furnishings, and since the claim here arose after the Work was completed,

ACE concludes that section 11.3.7 does not restrict it from suing American.

      Regarding section 11.3.5, which expressly applies the subrogation

waiver to certain post-completion insurance, ACE contends that its insurance

policy was not "other than" a policy that insured the Project during

construction.8   Noting that the record does not disclose the exact date

construction began and ended, ACE contends that its 2012-2013 policy simply

extended its 2011-2012 policy and was thus not a policy "other than" the one

8
  We reject ACE's contention that American conceded this point in responding
to ACE's statement of material facts. ACE asserted, "The property damage
giving rise to this claim was not insured under a policy or policies 'separate
from' or 'other than' that which insured the Project during the construction
period within the meaning of Section 11.3.5." Recognizing that ACE's
assertion was really a legal conclusion – contrary to Rule 4:46-2, which
requires a statement of material facts – American responded, "[W]e disagree
with the implied legal conclusion that the nature of Ace's insurance policy
removes it from the waiver of subrogation." Furthermore, only undisputed
factual assertions that are "sufficiently supported" are deemed admitted.
Claypotch v. Heller, Inc., 360 N.J. Super. 472, 488 (App. Div. 2003) (quoting
Rule 4:46-2(b)). The meaning of "a policy . . . other than those insuring the
Project during the construction period" is a legal issue for the court.

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                                      11
that insured the construction project. 9 Alternatively, ACE contends that even

if its policy qualified as post-completion coverage governed by section 11.3.5,

that section refers back to section 11.3.7 – "the Owner shall waive all rights in

accordance with the terms of Section 11.3.7" – and section 11.3.7 does not

apply to claims for damage to non-Work property.

      We are unpersuaded by these arguments. ACE misconstrues the basic

structure of the two subrogation-waiver provisions. Section 11.3.7 applies the

waiver to any insured damage, whether occurring during or after construction,

whether to the Work, to the Project, or to other insured property – so long as

the policy covering the damage falls within one of the two categories

identified: "property insurance obtained pursuant to this Section 11.3" or

"other property insurance applicable to the Work."          Augmenting section

11.3.7, section 11.3.5 extends the waiver even to damage insured by a discrete

policy. Thus, the waiver applies "[i]f during the Project construction period

the Owner insures properties, real or personal or both, at or adjacent to the site

by property insurance under policies separate from those insuring the Project."

9
   In light of the analysis that follows, we need not decide whether a policy
extension qualifies as "other than" a prior policy. However, a strong argument
can be made that a policy extension that covers a different time period,
includes different coverage limits, and presumably has a different premium, is
"other than" its predecessor-policy, even if its terms were otherwise
unchanged.

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(Emphasis added). The waiver also applies "if after final payment, property

insurance is to be provided on the completed Project through a policy or

policies other than those insuring the Project during the construction period."

(Emphasis added).

      ACE's blanket all-risk policy fell within both categories of coverage

subject to section 11.3.7.   Its builder's risk coverage constituted "property

insurance obtained pursuant to this section 11.3" because it met the builder's

risk insurance requirement. See Bd. of Comm'rs v. Teton Corp., 30 N.E.3d

711, 716 (Ind. 2015) (holding, with respect to identical provisions of A201 -

1987, that pre-existing all-risk property insurance policy "that covers both the

entire existing property and the work" constitutes "property insurance obtained

pursuant to this Paragraph 11.3"); Haemonetics Corp. v. Brophy & Phillips

Co., 501 N.E.2d 524, 526 (Mass. App. Ct. 1986) (stating that "[t]he preexisting

insurance policy the owner had . . . was the insurance the owner chose to

provide to comply with § 11.3 even though that policy may have been more

extensive than what was required"). Moreover, inasmuch as the ACE policy

exceeded the coverage required by section 11.3.1, it was also "other property

insurance applicable to the Work." See Lloyd's Underwriters v. Craig & Rush,

Inc., 32 Cal. Rptr. 2d 144, 146 & n.4 (Ct. App. 1994) (stating that an existing

all-risk property insurance qualified as "insurance applicable to the Work");

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                                      13
Emp'rs Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493 (Minn. 1998)

(stating that "[t]he owner has the option of purchasing an all-risk policy

specifically to cover the 'work' or can rely on any existing property insurance

which would cover the 'work'").

      Since the all-risk coverage both satisfied A201's insurance requirement

and was "applicable to the Work," section 11.3.7 waived all claims for

damages "to the extent covered" by the policy. As the Indiana Supreme Court

persuasively observed in reviewing the identical language from A201-1987,

"The positioning and plain meaning of the word "covered" restricts the scope

of the subrogation waiver based on the source and extent of the property

insurance coverage, not the nature of the damages or the damaged property."

Bd. of Comm'rs, 30 N.E.3d at 716. Therefore, if one of the two identified

policies provides coverage for the loss, then subrogation is waived, even if the

policy provides broader coverage than required. See also Emp'rs Mut. Cas.

Co., 580 N.W.2d at 493 (stating, "[I]f the owner relies on an existing policy

which is so broad that it covers both 'work' and 'nonwork' property, it waives

the right to sue for all damages done as long as that damage is covered by the

policy.").   Thus, even where the damages are almost entirely non-Work-

related, as they were here, the subrogation waiver applies, because the policy

also covered the Work-related damages.

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      Reading sections 11.3.5 and 11.3.7 together supports our interpretation.

Section 11.3.5 extends the subrogation waiver to damage covered by a policy

"separate from those insuring the Project" that covers "properties, real or

personal or both, at or adjacent to the site." It would be absurd to extend the

waiver to damage to non-Project property only if the policy covering it were

completely "separate from" the policy that the owner is required to obtain. As

the Nebraska Supreme Court observed, considering the identical provisions of

A201-1997, "We see no reason why the parties would intend a different result

when, instead of purchasing two separate policies, the owner relied on one

policy covering both the Work and the non-Work property." Lexington Ins.

Co. v. Entrex Commc'n Servs., Inc., 749 N.W.2d 124, 135 (Neb. 2008).

Rather, section 11.3.5 "shows that the contracting parties were not opposed to

waiving damages to non-Work property." Ibid. In other words, section 11.3.5

is designed to extend the waiver related to non-Work property even when

covered by separate policies. Cabining these sections as ACE proposes would

leave a dead zone where the waiver, inexplicably, would not apply – where

damage occurred to non-Work property covered not by a "separate" policy but

by the same policy that covered the Work.

      Our interpretation is also consistent with the majority view of other

courts that have rejected the argument, pressed here by ACE, that the section

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11.3.7 subrogation waiver is limited to damage to the Work. See, e.g., Lloyd's

Underwriters, 32 Cal. Rptr. 2d at 148 (stating that "[t]he waived claims are not

defined by what property is harmed (i.e. 'any injury to the Work'); instead, the

scope of waived claims is delimited by the source of any insurance proceeds

paying for the loss (i.e. whether the loss was paid by a policy 'applicable to the

Work'")); Bd. of Comm'rs, 30 N.E.3d at 712-13 (adopting, along with "the

majority of jurisdictions," the "'any insurance' approach," under which the

Owner waives subrogation "based on the extent and source of the coverage,

not the nature of the property damaged") (citing cases); Emp'rs Mut. Cas., 580

N.W.2d at 493 (stating its interpretation followed "the majority of

jurisdictions" and citing cases); Lexington Ins. Co., 749 N.W.2d at 133-35 &

n.30 (adopting the "majority interpretation" applying the waiver "to all

damages – including Work and non-Work damages," and citing cases);

Westfield Ins. Grp. v. Affinia Dev., LLC, 982 N.E.2d 132, 140, 144 (Ohio Ct.

App. 2012) (adopting the "majority approach" that A201 "define[s] the waived

claims by the source of the insurance proceeds, not by the property damaged,"

whether "Work or non-Work property," and citing cases).

      ACE's attempt to place a temporal limit on the waiver fails, as well. By

its terms, the subrogation waiver under section 11.3.7 also continues after

completion of construction if the policy that satisfied section 11.3.7 remains in

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force. The plain language of section 11.3.7 includes no temporal limitation.

Thus, ACE's argument that the section 11.3.7 waiver is limited to damages

incurred while construction was underway lacks textual support.

      Nor does section 11.3.7 imply a temporal limitation. Where an owner

chooses to continue a policy that both satisfied and exceeded the coverage

required by section 11.3, the subrogation waiver continues, too. In Town of

Silverton v. Phoenix Heat Source Sys., 948 P.2d 9, 13 (Colo. Ct. App. 1997),

the town maintained insurance during and after installation of a new roof on

the town hall.      A post-completion fire triggered a claim against a

subcontractor. Id. at 10. The court held that to the extent the town's insurance

exceeded what section 11.3.1 required – meaning that it constituted "other

property insurance applicable to the Work" – the subrogation waiver subsisted

as long as the insurance remained in force.      Id. at 13. "[T]he fact that a

contractor had finished its work and had no remaining insurable interest in the

property did not terminate the waiver of subrogation rights." Ibid. "Because

property insurance applicable to the work, other than that obtained pursuant to

paragraph 11.3.1, may remain in effect after the final completion date, so too

may a waiver of subrogation rights under paragraph 11.3.7 remain in effect."

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Ibid.10 The court noted that the "Work" that an owner insures means "the

construction and services required by the Contract Documents, whether

completed or partially completed." Ibid. (citing A201-1987 § 1.1.3) (emphasis

added).

      That section 11.3.7 waives subrogation for post-completion damages is

also evident from its relationship with section 11.3.5. Section 11.3.5 extends

the waiver to separate policies an owner may procure post-completion to

insure the Project. See A201 § 11.3.5 (waiving subrogation where "after final

payment property insurance is to be provided on the completed Project through

a policy or policies other than those insuring the Project during the

construction period."); see also, e.g., Colonial Props. Realty Ltd. P'ship v.

Lowder Constr. Co., 567 S.E.2d 389, 391-92 (Ga. Ct. App. 2002) (applying the

subrogation waiver where the owner obtained "a separate policy covering the

completed project after final payment was made"); Middleoak Ins. v. Tri-State

Sprinkler Corp., 931 N.E.2d 470, 471 n.2, 472 (Mass. App. Ct. 2010) (holding,

where the owner procured insurance policy two years after construction was

complete, "the contractual provision for waiver of subrogation applies to

10
    We recognize that the Colorado court adopted the minority view as to
whether the subrogation waiver extends to damages to non-Work. Town of
Silverton, 948 P.2d at 12; see also Copper Mountain, Inc. v. Indus. Sys., Inc.,
208 P.3d 692, 697 (Colo. 2009) (approving Silverton approach to non-Work
damages). As to that aspect of the court's decision, we respectfully disagree.

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                                      18
postconstruction losses as well as to losses during construction"); TX. CC.,

Inc. v. Wilson/Barnes Gen. Contractors, Inc., 233 S.W.3d 562, 571 (Tex. Ct.

App. 2007) (stating that "as long as property insurance covered the damages to

the structure, whether completed or not, the waiver applies").

      If the section 11.3.7 waiver did not apply to post-completion damages

insured by the same policy insuring the Project, yet extended under section

11.3.5 to such damages when covered by discrete policies, the waiver

provisions would leave a temporal gap as implausible as the spatial gap we

noted above.     The evident purpose of section 11.3.5 is to preserve the

subrogation waiver for post-completion damages, even if the owner happens to

shift policies or insurers after construction is complete.

      Reading section 11.3.7 as waiving subrogation for non-Work damage is

also consistent with the waiver's general purpose, to avoid post-insurance-

claim litigation. As the AIA's commentary to section 11.3.7 explains: "The

purpose of the required property insurance is to transfer the risk of insured

losses from the owner and contractor to the insurance company. It would

defeat this purpose if the insurance company were allowed to sue either party

to recover such losses." AIA Commentary to A201, at 46. See also Bd. of

Comm'rs, 30 N.E.3d at 714 (stating that A201's waiver and insurance

provisions are designed to "ensure that the parties resolve damages disputes

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through insurance claims, not lawsuits"); cf. Sch. Alliance Ins. Fund, 353 N.J.

Super. at 140 (stating generally that "[t]he purpose behind a mutual waiver of

subrogation is to assure that, to the extent any loss is covered by a policy, the

insurer should bear the risk of loss, regardless of any fault on the part of one or

both of the parties"). Our interpretation, as the court in Haemonetics pointed

out, "has the potential for avoiding litigation not only over liability issues

related to the . . . cause of damage to the owner's property, but also over the

issue whether the claimed loss is to the 'Work' or not." 501 N.E.2d at 526.

      The commentary to section 11.3.5 also rejects the spatial and temporal

gaps ACE advocates. The commentary states, "[Section 11.3.5] extends the

provisions for waiver of subrogation to other property insurance the owner

may purchase. Such policies may cover property at or adjacent to the project,

or they may replace the property insurance that was in effect on the work

during construction." Ibid. (emphasis added). Describing section 11.3.5 as an

extension implies that its purpose is to fill the gaps left by section 11.3.7 by

continuing the waiver for any property and for any period that the owner’s required

or Work-related insurance may not cover but that it nonetheless insures through a

separate policy. Together, the two provisions ensure a seamless waiver that shields

the contracting parties from suit by subrogees.

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                                         20
      We reject ACE's argument that applying the subrogation waiver here is

inconsistent with the contractor's obligation to obtain liability insurance. ACE

contends the liability insurance requirement would be unnecessary if the

subrogation waiver shields the contractor from suit by the owner's insurer. We are

unpersuaded. The contract expressly recognizes that the subrogation waiver takes

precedence over the contractor's insurance obligation. Section 11.3.7 states that

the "waiver of subrogation shall be effective as to a person or entity even though

that person or entity would otherwise have a duty of indemnification, contractual

or otherwise . . . ." Accord Lexington Ins., 749 N.W.2d at 136 (noting the identical

provision in A201-1997 in rejecting a similar argument); Chadwick v. CSI, Ltd.,

629 A.2d 820, 826 (N.H. 1993) (noting that this language in Section 11.3.7

"reconciles any inconsistency" between the contractor's duty to indemnify and the

subrogation waiver).11

      The contractor's liability insurance serves an important purpose by providing

an additional layer of coverage for damage that the owner's property insurance may

not reach.   For example, if the owner's losses exceed its policy limit, the

11
    Section 10.2.5 requires the Contractor to "promptly remedy damage and
loss . . . to property referred to in Sections 10.2.1.2 and 10.2.1.3" – including
"the Work and materials and equipment" and "other property at the time or
adjacent thereto" – that the contractor or subcontractor causes "in whole or in
part." However, the same section carves out "damage or loss insured under
property insurance required by the Contract Documents." A201 § 10.2.5.

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contractor's liability insurance could cover at least part of the balance. The liability

insurance would also provide a source of compensation to injured third parties,

who might otherwise seek remedies from the owner.

      In sum, notwithstanding that most of the damage affected non-Work

property and occurred after construction was completed, the subrogation waiver

bars ACE's action against American, since its blanket all-risk insurance satisfied

A201's requirements and covered the Work.

      Affirmed.

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