Court Opinion

ID: 9745898
Source: CourtListenerOpinion
Date Created: 2023-08-27 13:41:32.333222+00
Date Added: 2024-06-11T07:25:06.098808
License: Public Domain

BAKER, Judge,
dissenting in part.
Though I agree with the majority's holding in Parts III and IV, I respectfully dissent from its determination that the waiver of subrogation clause in the parties' building contract applied to a completed building. Because insurance was not required by the building contract after construction was completed, I fail to see how the policy issued by Midwestern was contemplated to protect both parties.
Midwestern argues that the subrogation waiver clause applies only to insurance obtained while a building is being constructed. Midwestern notes that the contract's General Conditions sections states that insurance coverage must be maintained "until final payment has been made as provided in Paragraph 9.10 or until no person or entity other than Owner has an insurable interest in the property." Appellant's App. p. 86. The part of the contract that waives subrogation applies to "property insurance applicable to the Work." Appellant's Br. p. 11. Midwestern reasons, quite logically, that the waiver of subrogation could not possibly apply to a finished building because the contract itself only requires that an owner hold an insurance policy until final payment is made. Thus, Midwestern contends that the scope of the subrogation waiver cannot exeeed that of the insurance requirement itself.
On the other hand, Varco-Pruden claims that the subrogation waiver "is a widely used, standard provision taken directly from the American Institute of Architects' document A201." Appellees' Br. p. 8. Var-co-Pruden notes that several courts in other jurisdictions have stated that the clause bars an insurer from suing under its right of subrogation.
For instance, in Town of Silverton v. Phoenix Heat Source System, Inc., 948 P.2d 9 (Colo.Ct.App.1997), the Colorado Court of Appeals was presented with the same question before us today. The town of Silverton entered into a construction contract-containing subrogation language nearly identical to that of the contract in this case-with Phoenix for the installation of a new roof on the town hall. The roofing was completed, and a final payment was made to Phoenix. More than one year later, a fire damaged the roof. The Colorado public agency that insured the town hall exercised its right of subro-gation and brought an action against Phoenix, alleging contract-based claims. The trial court entered summary judgment for Phoenix because it found the subrogation waiver barred the suit. The Colorado Court of Appeals found that the Town's claim was barred by the subrogation waiver and held that there was a difference between regular property insurance and "insurance an owner is required to procure under paragraph 11.3.1." Id. at 12-18. The insurance called for under section 11.3.1, the court held, was a type of policy that ended upon final payment for the construction. Id. at 13. The insurance referred to in section 11.3.7 as "other property insurance applicable to the Work" was, the court held, regular property insurance that may continue in force even after construction is complete. Id. The court then reasoned that because "property insurance applicable to the work, other than that obtained pursuant to paragraph *67611.3.1, may remain in effect after the final completion date, so too may a waiver of subrogation." Id. Because "the town [did] not claim it obtained [the] insurance to comply with the [construction] agreement," the insurance policy provided by the public agency was deemed to be "other property insurance applicable to the work," and, thus, recovery was barred. Id.
The Georgia Court of Appeals took up the same issue in Colonial Properties Realty, L.P. v. Lowder Construction Co., Inc., 256 Ga.App. 106, 567 S.E.2d 389 (2002), and reached a similar result. In that case, Colonial hired Lowder to build an apartment complex, entering into a contract similar to that at issue here. One year after the apartments were built and placed into service, a fire destroyed part of a building. Colonial's insurer paid for the fire damage and brought a contract-based action against Lowder under its subrogation right. The trial court entered summary judgment for Lowder on account of the subrogation waiver provision in the construction contract. The insurance company appealed, and the Lowder court adopted the Silverton court's reasoning, adding:
[WJlhere parties to a business transaction mutually agree that insurance will be provided as a part of the bargain, such agreement must be construed as providing mutual exeulpation to the bargaining parties who must be deemed to have agreed to look solely to the insurance in the event of loss and not to liability on the part of the opposing party.
Id. at 392.
Varco-Pruden also argues that Indiana precedent provides for the allocation of risk through a waiver of subrogation clause. I am mindful that this court has addressed the issue of waiver of subrogation in South Tippecanoe School Bldg. Corp. v. Shambaugh & Son, Inc., 182 Ind.App. 350, 395 N.E.2d 320 (1979). In that case, Shambaugh, a builder, constructed a school for the Building Corporation. As part of the construction contract, which was an earlier version of the AIA's doeument A201, the Building Corporation was required to obtain "property insurance upon the entire Work at the site to the full insurable value thereof. This insurance shall include the interests of the Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work and shall insure against the peril of Fire, Extended Coverage, Vandalism and Malicious Mischief." Id. at 354-55, 395 N.E.2d at 3283. The contract also provided for the waiver of subrogation rights. The Building Corporation purchased builder's risk insurance, which, by its own terms, extended coverage only during the construction process. A fire damaged the building during construction, and-after indemnifying the Building Corporation-the insurer sought damages from Shambaugh under a negligence theory. We held that the insurer could not recover because "a severe conflict of interest would exist if an insurer were permitted to recover from one of its own insureds." Id., 182 Ind.App. at 364, 395 N.E.2d at 829 (quoting Baugh-Be-larde, 561 P.2d at 1214). Shambaugh was an "insured" because the contract required the Building Corporation to obtain insurance to protect "the interests of the Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work." Id., 182 Ind.App. at 354, 395 N.E.2d at 323 (emphasis added).
In my view, this case is inapposite to Silverton and Shambaugh because the policy issued by Midwestern was purchased after construction was completed. In Sil-verton, the town hall was insured at all times-before and after construction-by a *677state agency. Thus, the same instrumentality of insurance was providing coverage for the town hall from construction until the fire. In Shambaugh, the insurance contract-a builder's risk insurance policy-was issued before construction began. In both of these cases, the insurer issued its policy at a time when insurance was required by the building contract. A waiver of subrogation is appropriate in such instances, as recognized by the Sham-baugh court, because "a severe conflict of interest would exist if an insurer were permitted to recover from one of its own insureds." Id. at 364, 395 N.E.2d at 329 (quoting Baugh-Belarde, 561 P.2d 1211 at 1214). Moreover, requiring that insurance be procured before construction begins demonstrates that the parties "have agreed to look solely to the insurance in the event of loss." Lowder, 567 S.E.2d at 392. Thus, it is reasonable to conclude that when insurance is required before construction begins, it is meant to protect both parties. See id. at 371, 395 N.E.2d at 3838.
Here, however, Varco-Pruden is attempting to assert the subrogation waiver clause against Midwestern even though insurance was not necessary. The contract only required that insurance be maintained until construction ended. Appellant's App. p. 86. I fail to see how the insurance policy issued by Midwestern was contemplated to protect both parties, as it was not even required by the building contract.
The majority notes that Section 11.8.5 of the contract provides, in relevant part, that "[Ilf 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 Subparagraph 11.8.7 for damages...." Appellant's App. p. 263. The majority reasons, then, that since insurance was procured to insure the completed building after final payment, "Action Steel, and thus Midwestern, was bound to waive all rights against Varco-Pruden for damages...." Op. p. 670.
The majority would undoubtedly be correct if insurance was required after building completion. An insurance requirement in the contract would show that the parties "agreed to look solely to the insurance" to recover any losses. Lowder, 567 S.E.2d at 392. A statement such as "It shall be the duty of the Owner to procure insurance after completion" could have been included, and, thus, a waiver of subrogation would appropriately bind both parties because the parties' intent was evident. Here, however, the contract expressly required insurance only during construction. Appellant's App. p. 86. Such a requirement shows that the parties' intent was to protect both parties only during construction.
Moreover, the phrase "if ... insurance is to be provided on the completed Project" is key to Section 11.8.5. The qualifier "to be" is used "to express intention, obligation, or future action." Am. Heritage Dictionary 155 (4th ed.2000) (emphasis added). Thus, the phrasing in Section 11.3.5 simply means that if the construction contract creates an obligation in the owner to purchase insurance after construction is completed, then a waiver of subrogation results. Here, though, there is no obligation in the contract that insurance be provided after construction is completed. To the contrary, only insurance during construction was necessary. Hence, it is apparent to me that the provision in Section 11.3.5 cannot be read to extend a waiver of subrogation clause.
In sum, both parties did not agree to "look solely to the insurance" to recover any losses. Thus, I would reverse the trial *678court's entry of summary judgment for System Builders and Varco-Pruden on Midwestern's contract claim and remand this case for trial on the merits.