Court Opinion

ID: 4514769
Source: CourtListenerOpinion
Date Created: 2020-03-11 00:09:58.851125+00
Date Added: 2024-06-11T09:44:46.052110
License: Public Domain

IN THE SUPREME COURT OF MISSISSIPPI

                                NO. 2019-FC-01285-SCT

LIBERTY MUTUAL FIRE INSURANCE     PLAINTIFF – APPELLEE
COMPANY, AS SUBROGEE OF CHICKASAW
COUNTY SCHOOL DISTRICT

v.

FOWLKES PLUMBING, L.L.C., SULLIVAN DEFENDANTS – APPELLANTS
ENTERPRISES, INCORPORATED, AND
QUALITY HEAT AND AIR, INCORPORATED

ATTORNEYS FOR DEFENDANTS – APPELLANTS: RICHARD T. LAWRENCE
                                       MICHAEL O. GWIN
                                       BRIAN A. HINTON
                                       THOMAS M. WRIGHT
                                       SAMUEL C. KELLY
                                       R. LANE BOBO
                                       MARC A. BIGGERS
                                       STEVEN C. COOKSTON
ATTORNEYS FOR PLAINTIFF – APPELLEE:    JAY M. GOLDSTEIN
                                       ALBERT S. NALIBOTSKY
                                       LANA E. GILLON
NATURE OF THE CASE:                    CIVIL - FEDERALLY
                                       CERTIFIED QUESTION
DISPOSITION:                           CERTIFIED QUESTION
                                       ANSWERED - 02/20/2020
MOTION FOR REHEARING FILED:
MANDATE ISSUED:

       EN BANC.

       COLEMAN, JUSTICE, FOR THE COURT:

¶1.    In July 2015, fire destroyed the Houlka Attendance Center in Chickasaw County while

the school was undergoing renovations. Litigation ensued. The United States District Court

for the Northern District of Mississippi found that the waiver of subrogation in the case sub
judice applied only to damages to the “work” property. Liberty Mut. Fire Ins. Co. v.

Fowlkes Plumbing, LLC, No. 1:17-cv-010-GHD-DAS, 2018 WL 842169, at *7 (N.D. Miss.

Feb. 12, 2018). The court allowed Liberty Mutual to proceed in litigation for damages to the

“non-work” property. Id. The United States Court of Appeals for the Fifth Circuit allowed

an interlocutory appeal, certifying the following question to Supreme Court of Mississippi:

“[i]s the waiver of subrogation between the school district and Sullivan limited to damages

to the Work or does it also apply to damages to non-Work property?” Liberty Mut. Fire Ins.

Co. v. Fowlkes Plumbing, LLC, 934 F.3d 424, 428 (5th Cir. 2019).

                        FACTS AND PROCEDURAL HISTORY

¶2.    In May 2015, the Chickasaw County School District entered into a contract with

Sullivan Enterprises, Inc., for window restoration work on the Houlka Attendance Center.

In July 2015, during construction, a fire began that completely consumed the attendance

center. Liberty Mutual, the school district’s insurer, paid the school district $4.3 million for

the damage to the building. Liberty Mutual then filed a subrogation suit against Sullivan

Enterprises, Fowlkes Plumbing, LLC, and Quality Heat & Air, Inc. The United States

District Court for the Northern District of Mississippi found that the waiver of subrogation

did not apply to damages to the “non-Work” property, thus Liberty Mutual could proceed in

litigation as to “non-Work” property damages. Fowlkes Plumbing, LLC, 2018 WL 842169,

at *7. The United States Court of Appeals for the Fifth Circuit allowed an interlocutory

appeal and certified the question of whether the subrogation waiver applies to “non-Work”

property to the Supreme Court of Mississippi. Fowlkes Plumbing, LLC, 934 F.3d at 428.

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                                STANDARD OF REVIEW

¶3.    “This Court reviews questions of law de novo.” Equifax, Inc. v. Miss. Dep’t of

Revenue, 125 So. 3d 36, 41 (¶ 7) (Miss. 2013) (citing Hankins v. Md. Cas. Co./Zurich Am.

Ins. Co., 101 So. 3d 645, 652 (¶ 15) (Miss. 2012)). Additionally, “A de novo standard of

review is applied to questions of contract construction.” Epperson v. SOUTHBank, 93 So.

3d 10, 16 (¶ 16) (Miss. 2012) (citing A & F Props., LLC v. Madison Cty. Bd. of Supervisors,

933 So. 2d 296, 301 (¶ 11) (Miss. 2006)).

                                       DISCUSSION

¶4.    The question certified by the Fifth Circuit is an issue of first impression in

Mississippi. The certified question has split courts across the nation, and two opposite

approaches have developed. The question calls for an interpretation of several contractual

provisions in the American Institute of Architects (AIA) form A201-2007. The provisions

that are the subject of the dispute include the following, subparagraphs 11.3.7 and 11.3.5

respectively. Subparagraph 11.3.7 states,

       The Owner and Contractor waive all rights against . . . each other and any of
       their subcontractors . . . for damages caused by fire or other causes of loss 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
       they have to proceeds of such insurance held by the Owner as fiduciary.

Subparagraph 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, . . . the Owner shall waive all rights
       in accordance with the terms of Subparagraph 11.3.7 for damages caused by
       fire or other causes of loss covered by this separate property insurance.

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¶5.    When interpreting a contract, the court must first determine if the contract is

ambiguous. Epperson v. SOUTHBank, 93 So. 3d 10, 16 (¶ 17) (Miss. 2012) (citing Royer

Homes of Miss., Inc. v. Chandeleur Homes, Inc., 857 So. 2d 748, 752 (¶ 10) (Miss. 2003)).

“If the contract is unambiguous, ‘the intention of the contracting parties should be gleaned

solely from the wording of the contract[.]’” Epperson, 93 So. 3d at 16 (¶ 17) (quoting

Turner v. Terry, 799 So. 2d 25, 32 (¶ 16) (Miss. 2001)). “This Court must ‘accept the plain

meaning of a contract as the intent of the parties where no ambiguity exists.’” Epperson, 93

So. 3d at 16 (¶ 17) (quoting A & F Props., LLC v. Madison Cty. Bd. of Supervisors, 933 So.

2d 296, 301 (¶ 12) (Miss. 2006)).

¶6.    While the issue in the case sub judice is an issue of first impression in Mississippi,

the Court does have some guidance. The issue has split courts, and two opposite approaches

have developed. The majority approach seeks to determine the source of the insurance

proceeds. “[I]f the proceeds were paid from a policy provided . . . pursuant to” the contract,

then all damages, including “Work” and “non-Work” property, “are covered by the waiver.”

Fowlkes Plumbing, LLC, 2018 WL 842169, at *6. The minority approach considers the type

of property that was damaged. Under the minority approach, “damages to ‘Work’ property

are covered by the waiver and damages to ‘non-Work’ property are not.” Id.

¶7.    However, the Court does not need to look for guidance elsewhere, because the

language of the contract in the case sub judice is unambiguous. Subparagraph 11.3.7, titled

“Waiver of Subrogation,” operates as a blanket waiver of property damage to the extent the

property is covered by insurance. The provision makes clear that the owner, contractor, and

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subcontractors waive all rights against each other for damages caused by fire to the extent

the property is covered by insurance “obtained pursuant to this Paragraph 11.3 or other

property insurance applicable to the Work.” The phrase “to the extent the property is covered

by insurance” means that any damage that is paid for by insurance proceeds is covered.

Additionally, the phrase “applicable to the work” means any insurance that insures the work,

which is not a limit on recovery for only damages to work property, as the minority courts

argue. In ASIC II Ltd. v. Stonhard, Inc., the United States District Court for the District of

Maine held,

       If the property insurance actually procured covers more than just the location
       of a particular contractor’s own work, the waiver of subrogation must still be
       effective as to all fire damages covered by insurance, not just fire damage to
       the “Work” itself. NSC chose not to obtain separate insurance (i.e., “property
       insurance obtained pursuant to this Subparagraph”) but instead, relied on its
       existing policy (i.e., “other property insurance applicable to the Work”). The
       preexisting IRI insurance was the insurance that NSC chose to provide to
       comply with [11.3] even though that policy may have been more extensive
       than what was required. The waiver clause does not restrict the waiver of
       damages to “Work” but to the proceeds of any insurance provided under
       [11.3].

ASIC II Ltd. v. Stonhard, Inc., 63 F. Supp. 2d 85, 92 (D. Me. 1999).

¶8.    If subparagraph 11.3.5 is interpreted using the minority approach, the waiver is

effective when two separate polices were purchased, one covering the work and one covering

the non-work property. However, if there is a preexisting insurance that covers both work

and non-work property, according to the minority there would not be an effective waiver of

damages as to the non-work property. The logical fallacy in the minority’s argument is

pointed out by the Nebraska Supreme Court:

                                              5
       Subparagraph [11.3.5] reinforces our conclusion that the waiver in
       subparagraph [11.3.7] applies to all damages—including Work and non-Work
       damages—covered by the owner’s property insurance policy. An example is
       helpful. Suppose the owner purchased two separate property insurance
       policies: “Policy A” that covered only the Project (Work) and “Policy B” that
       covered only the non-Work property. Under subparagraph [11.3.7], the owner
       waives subrogation rights as to any damages covered by Policy A (damages to
       the Work property). Under subparagraph [11.3.5], the owner waives
       subrogation rights as to any damages covered by the separate Policy B
       (damages to the non-Work property). So, applying subparagraphs [11.3.5] and
       [11.3.7], the owner waives damages to both the Work and the non-Work
       property when the owner obtains two separate policies. 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., 275 Neb. 702, 718, 749 N.W.2d 124,

135 (2008).

¶9.    Subparagraph 11.3.5 is included in the contract for the limited purpose of waiving

subrogation rights when the owner did not have a preexisting policy that covered work and

non-work property. In the event that an owner did not have a preexisting policy and elected

to purchase one after the start of the work, they could choose to purchase a policy that

covered only the work, in which case there would be no waiver of subrogation rights as to

the non-work property. Additionally, if the owner had a preexisting insurance policy that

only covered the work property, they could choose to purchase another insurance policy to

cover non-work property. Subparagraph 11.3.5 provides that if an owner chose to do so, the

owner waives all rights for damages caused by fire “in accordance with the terms of Section

11.3.7.” Essentially, subparagraph 11.3.5 is a catch-all provision that allows a contractor the

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benefit of subrogation, even if the owner did not have a preexisting policy that covered the

non-work property.

¶10.   The interpretation of a majority of courts tracks the plain meaning of the contract

language and furthers the goal of the contract, to prevent litigation. Given the general waiver

of subrogation in subparagraph 11.3.7 and subparagraph 11.3.5, which provides subrogation

when the owner purchases a separate policy to cover non-work property, the only instance

when damage to non-work property would not be covered by a subrogation waiver is if the

owner did not have any policy insuring the non-work property. The waiver of subrogation

in the American Institute of Architects (AIA) form A201-2007 applies to both work and non-

work property.

                                      CONCLUSION

¶11.   Based on the plain meaning of the contract language, the waiver of subrogation

applies to work and non-work property.

¶12.   CERTIFIED QUESTION ANSWERED.

    RANDOLPH, C.J., KITCHENS AND KING, P.JJ., MAXWELL, BEAM,
CHAMBERLIN, ISHEE AND GRIFFIS, JJ., CONCUR.

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