Court Opinion

ID: 1004952
Source: CourtListenerOpinion
Date Created: 2013-07-04 18:49:20.898098+00
Date Added: 2024-06-11T09:11:40.778310
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

AMERICAN HOME INSURANCE                
COMPANY; ZURICH INSURANCE
COMPANY; ST. PAUL FIRE AND
MARINE INSURANCE COMPANY;
COMMONWEALTH INSURANCE
COMPANY; INTERESTED
UNDERWRITERS AT LLOYDS OF
LONDON; GERLING GLOBAL INSURANCE
COMPANY, as Subrogees of PCS                    No. 00-1590
Phosphate Company, Incorporated,
              Plaintiffs-Appellants,
                 v.
MONSANTO ENVIRO-CHEM SYSTEMS,
INCORPORATED,
              Defendant-Appellee.
                                       
           Appeal from the United States District Court
     for the Eastern District of North Carolina, at New Bern.
               Malcolm J. Howard, District Judge.
                          (CA-99-28-4-H)

                      Argued: December 6, 2000

                      Decided: August 3, 2001

  Before WILKINSON, Chief Judge, WIDENER, Circuit Judge,
    and William L. GARWOOD, Senior Circuit Judge of the
      United States Court of Appeals for the Fifth Circuit,
                     sitting by designation.

Affirmed by unpublished opinion. Senior Judge Garwood wrote the
opinion, in which Chief Judge Wilkinson and Judge Widener joined.
2        AMERICAN HOME INS. v. MONSANTO ENVIRO-CHEM SYS.
                              COUNSEL

ARGUED: Jay M. Goldstein, COZEN & O’CONNOR, Charlotte,
North Carolina, for Appellants. Scott J. Szala, WINSTON &
STRAWN, Chicago, Illinois, for Appellee. ON BRIEF: James L.
Gale, SMITH, HELMS, MULLISS & MOORE, L.L.P., Raleigh,
North Carolina, for Appellee.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

                              OPINION

GARWOOD, Senior Circuit Judge:

   In this negligent failure to warn suit, plaintiffs-appellants American
Home Insurance Co., Zurich Insurance Co., St. Paul Fire and Marine
Insurance Co., Commonwealth Insurance Co., Interested Underwrit-
ers at Lloyd’s of London and Gerling Global Insurance Co. (collec-
tively, American) appeal the district court’s grant of summary
judgment in favor of defendant-appellee Monsanto Enviro-Chem Sys-
tems, Inc. (Enviro-Chem). We affirm.

               FACTS AND PROCEEDINGS BELOW

   In 1984-85, Enviro-Chem designed and built chemical plant num-
ber 6 for a company now known as PCS Phosphate Co. (PCS).1 In
1992-93, Enviro-Chem designed and built a heat recovery system for
plant number 6. On October 12, 1997, an implosion at plant number
6 caused the tower of the heat recovery system to collapse. A similar
accident occurred in 1986 at another chemical plant (not owned by
PCS) that had been designed and constructed by Enviro-Chem. After
    1
   The corporation was known as Texasgulf at the time of the agreement
to construct the heat recovery system. In 1995, PCS’s parent company
purchased Texasgulf’s stock from Texasgulf’s corporate parent.
        AMERICAN HOME INS. v. MONSANTO ENVIRO-CHEM SYS.                3
investigating the 1986 accident, Enviro-Chem recommended to that
plant’s owner a change in the way it was operated.

   American insured PCS’s plant number 6. American paid PCS $5.6
million for the damage caused by the implosion. American claims that
the cause of both accidents was a vacuum created by steam from a
boiler leak, that Enviro-Chem knew of this risk and of procedures to
minimize the risk, and failed to warn PCS of proper operating proce-
dures. Accordingly, American seeks to exercise subrogation rights
against Enviro-Chem to recover the amount it paid to PCS.

   Enviro-Chem argues that American has waived its subrogation
rights. Advancing this theory, Enviro-Chem moved for summary
judgment against American. This motion was granted on April 6,
2000. American appeals.

                            DISCUSSION

                       I. Standard of Review

  This Court reviews the district court’s grant of summary judgment
de novo. Deans v. CSX Transportation, Inc., 152 F.3d 326, 330 (4th
Cir. 1998).

                 II. Waiver of Subrogation Rights

  Paragraph 34 of plaintiff-appellant Gerling Global Insurance Co.’s
policy with PCS provides, in relevant part:

    Any release from liability entered into by the Insured prior
    to loss shall not affect the right of the Insured to recover nor
    shall the Insurers have any right of subrogation against:

    ....

    (f) Any other party for whom the Insured has agreed in
        writing to obtain such a waiver.

   Similarly, paragraph 38 of the policy between PCS and all of the
other plaintiffs-appellants provides, in relevant part:
4        AMERICAN HOME INS. v. MONSANTO ENVIRO-CHEM SYS.
    Insurers on paying a loss hereby waive their right of subro-
    gation against:

    ....

    (c) any other company and/or person and/or organization
        where the Insured has provided a waiver contractually.

   The question, then, is whether PCS has agreed, in a written con-
tract, to provide a waiver of subrogation in favor of Enviro-Chem.
Article 8(B) of Enviro-Chem’s contract with PCS to design and con-
struct the heat recovery unit provides:

    Owner [PCS] shall carry Builder’s Risk Insurance "all risk"
    type coverage fully protecting Owner, Enviro-Chem, Leon-
    ard and their contractors and subcontractors as their interests
    may appear, against all physical loss or damage to the Plant,
    the Work, or any part thereof, and to all labor, material,
    equipment and other items incorporated into or intended for
    incorporation into any part of the Plant, or to be used in the
    course of the Work, while in transit to the site of the Plant,
    while at the site of the Plant, during erection and until com-
    pletion and acceptance of the Work by the Owner pursuant
    to Paragraph A of Exhibit B hereto or until termination of
    this Agreement, whichever shall first occur. After such
    Builder’s Risk Insurance shall have terminated, Owner shall
    maintain insurance covering, or assume the risk of, loss and
    damage to the Plant and the Work, however caused, and
    shall provide a waiver of subrogation in favor of Enviro-
    Chem and Leonard under such insurance.

   The district court found that the subrogation waiver, encompassing
"loss and damage to the Plant and the Work, however caused" was
sufficiently broad to prevent American from having standing to assert
its negligent failure to warn claim. American argues that: 1) the term
"however caused" is ambiguous (and thus a trial is needed); 2) the
district court erred in applying the familiar rule that ambiguities in a
contract will be resolved against an insurance company to the waiver
provision in the PCS Enviro-Chem contract; 3) to construe "however
caused" to bar an assertion of subrogation rights in this case would
         AMERICAN HOME INS. v. MONSANTO ENVIRO-CHEM SYS.              5
result in the subrogation waiver exceeding the scope of the "Work";
and 4) in any case, the subrogation waiver was only operative during
the twelve month "shakedown" period immediately following com-
pletion of the heat recovery unit.

   First, we find no ambiguity in the phrase "however caused". Amer-
ican may now be displeased that, through its policies with PCS and
PCS’s contract with Enviro-Chem, it has agreed to an unequivocal
waiver of such breadth, but that it is so bound cannot now be called
into question. Second, American is correct that the district court, in
adopting Enviro-Chem’s construction of the phrase "however
caused", invoked the rule of Lanning v. Allstate Insurance Co., 420
S.E.2d 180, 185 (N.C. 1992), wherein the North Carolina Supreme
Court observed that if a term in an insurance policy is subject to more
than one reasonable interpretation, any doubt about the meaning of
that term will be resolved against the insurance company in favor of
the policyholder. Specifically, the district court held that "[w]hen
viewed under the standard articulated in Lanning, the court finds that
‘however caused’ is capable of but one interpretation, that of an all
encompassing term that includes failure to warn." American argues
that this rule should not be applied when the term in question appears
in a contract negotiated by the counsel of two sophisticated corpora-
tions. See Joyner v. Adams, 361 S.E.2d 902, 905-906 (N.C. App.
1987). We have already explained that we find no ambiguity in the
phrase "however caused", and thus have no occasion to consider the
propriety of the district court’s application of Lanning. In other
words, because there is no doubt as to the correct interpretation of the
phrase "however caused", it is not necessary to pass on the district
court’s reliance upon Lanning’s ambiguity rule. The judgment of the
district court is clearly proper notwithstanding whether or not it was
mistaken in the view that application of Lanning was appropriate.

   Third, American is correct that waivers of subrogation should not
be enforced outside of their context. American forcefully asserts that:
1) the subject of the Enviro-Chem-PCS contract was the design and
construction of a heat recovery unit; 2) its common law negligent fail-
ure to warn claim does not arise from this contract and has nothing
to do with the design or construction of the heat recovery unit; and
3) therefore, to bar American’s exercise of subrogation rights here
would be to enforce the waiver of subrogation outside of its context.
6        AMERICAN HOME INS. v. MONSANTO ENVIRO-CHEM SYS.
American opines that to apply the subrogation waiver here would
require applying it if a truck operated by Enviro-Chem, not engaged
in PCS-related business, crashed into PCS’s plant. We disagree. Here,
the alleged failure to warn concerned the operation of the heat recov-
ery system that was the subject of the PCS-Enviro-Chem contract.
This is quite different than the truck accident scenario presented by
American. As mentioned, American is correct that, at some point,
remoteness from the subject matter of the contract will prevent even
an extremely broad subrogation waiver from operating. But American
is incorrect that the alleged failure to warn here is so remote. The
cases American cites for support are easily distinguished and, there-
fore, do not support its contention that its negligent failure to warn
claim is outside the context of the PCS-Enviro-Chem contract.

   Continental Insurance Co. v. Faron Engraving Co., 179 A.D.2d
360, 361 (N.Y. App. Div. 1992), aptly observed that "a waiver of sub-
rogation clause cannot be enforced beyond the scope of the specified
context in which it appears". In Continental, the contract between the
insured contained two relevant provisions. Paragraph Nine contained
a subrogation waiver concerning damage to the premises which ren-
dered the premises unusable. Paragraph Eight specifically held the
landlord responsible for damage to the tenant’s property resulting
from the landlord’s negligence. Because the insurer was alleging that
the landlord’s negligence had resulted in damage to the insured’s
property, the subrogation waiver concerning destruction of the prem-
ises did not apply. Id. Here, the subrogation waiver is broader and
there is no competing provision that specifically holds Enviro-Chem
responsible for damage resulting from its negligence.

   Town of Silverton v. Phoenix Heat Source System, Inc., 948 P.2d
9, 11 (Colo. Ct. App. 1997), involved narrow interpretation of a sub-
rogation waiver found within a form contract drafted by the American
Institute of Architects (AIA). In Silverton, the town contracted with
the defendants for a new roof on the town hall. After the roof was
completed, the town hall was damaged in a fire that the town con-
tends was caused by the snow melting system which was designed,
manufactured and supplied by one of the defendants. Id. at 11. The
trial court granted the defendants’ motion for summary judgment. The
town made three arguments on appeal: 1) the waiver was limited spa-
tially, i.e. to the new roof only; 2) the waiver was limited temporally,
         AMERICAN HOME INS. v. MONSANTO ENVIRO-CHEM SYS.                7
to the period during construction; and 3) the waiver does not extend
to breach of warranty or products liability causes of action. The
Silverton court agreed only with the first argument. Like other courts
interpreting the AIA form contract, it found that the subrogation
waiver applied only to the construction work being performed under
the contract.2 This resulted in the subrogation waiver only applying
to damage to the roof of the town hall. The PCS-Enviro-Chem subro-
gation clause explicitly applies to any damage to the Plant or the
Work (which is the entire heat recovery system). Moreover, in dispos-
ing of the town’s third contention, Silverton rejected the very argu-
ment that American now advances, namely that an unqualified
subrogation waiver only applies to certain causes of action or types
of claims. Id. at 13.

   In Interested Underwriters at Lloyds v. Ducor’s, Inc., 103 A.D.2d
76, 77 (N.Y. App. Div. 1984), the court refused to enforce a broad
waiver of subrogation clause when "the dereliction of duty with
which the defendant is charged is completely extraneous to any duty
or obligation encompassed by the parties’ agreement and the relation-
ship created thereunder." In Ducor’s, the tenant’s premises sustained
fire damage as a result of a fire in a vacant, adjoining premises that
just happened to be owned by the landlord. This fire was deemed an
act unrelated to the landlord-tenant relationship and, therefore, the
subrogation clause would not serve to shield the landlord. Id. at 79.
Three things must be noted: 1) Judge Silverman’s dissent is persua-
sive; 2) the court properly construed any ambiguity against the land-
lord, who supplied the form lease in question; and, most importantly,
3) the negligent failure to warn cause of action is not "completely
extraneous" or "wholly unrelated" to the relationship between the par-
ties that is contemplated by the PCS-Enviro-Chem agreement. Thus,
even under Ducor’s, subrogation is not proper here.

  Finally, S.S.D.W. Co. v. Brisk Waterproofing Co., Inc., 556 N.E.2d
1097 (N.Y. 1990), is another case involving interpretation of an
  2
   The subrogation waiver provision in the AIA form contract provided
that the parties waived all rights against each other, including subroga-
tion, "for damages caused by fire or other perils to the extent covered by
property insurance obtained pursuant this Paragraph 11.3 or other prop-
erty insurance applicable to the Work." Id.
8        AMERICAN HOME INS. v. MONSANTO ENVIRO-CHEM SYS.
American Institute of Architects form contract. Significantly, in Brisk
the insurer’s right of subrogation, i.e. its right to assert any claims its
insured could assert, was not at issue. Rather, the issue was whether
the insured had waived the claims against the defendant that the
insurer was asserting.3 The court held that the owner’s waiver only
applied to damages to the Work. Id. at 1098. Unlike the PCS-Enviro-
Chem contract, the Brisk contract contained provisions requiring both
the owner and the contractor to insure against certain risks of pre-
completion loss. Id. at 1098-99. The contractor had to insure against
damage its activities caused to parts of the building not constituting
the Work. The owner had to insure the Work itself. Id. The contractor
and owner waived all rights against each other for damages "to the
extent covered by insurance obtained pursuant to this Article or any
other property insurance applicable to the Work." Id. at 1098. The
court interpreted this waiver as applying only to damages that the
party was responsible for insuring against. Id. at 1100-01. In other
words, the owner had waived only claims against contractor for dam-
ages the contractor caused to the Work. Brisk was relying on an insur-
ance burden-sharing arrangement that is not present here. The PCS-
Enviro-Chem contract places all of the risk of post-completion loss
to the Plant and the Work with PCS or PCS’s insurer. Thus, Brisk
poses no barrier to affirmance.

   Finally, American points to nothing in the PCS-Enviro-Chem con-
tract that supports its contention that the subrogation waiver applied
only during the twelve month "shakedown" period. A plain reading
of Article 8(B) reveals that the waiver is operative after the Builder’s
Risk insurance terminates. The "shakedown" period is simply a
twelve month period during which Enviro-Chem made certain work-
manship and design guarantees. As mentioned, the issues of Enviro-
Chem’s potential liability to PCS and whether American has standing
to assert any claims based thereon are separate and distinct. The
workmanship and design guarantees set forth in Article 6(C) of the
contract relate only to the former.
    3
   For this reason, this case is much more relevant to our alternative
holding in Part II, infra. We discuss Brisk here only to point out the error
of American’s reliance upon it as regards the subrogation issue.
        AMERICAN HOME INS. v. MONSANTO ENVIRO-CHEM SYS.             9
   Because American waived its right to subrogation, it lacked stand-
ing to assert any claims against Enviro-Chem on PCS’s behalf.

            III. Enviro-chem’s Lack of Liability to PCS

   In the alternative, even if American had standing to assert claims
against Enviro-Chem on PCS’s behalf, summary judgment for
Enviro-Chem would still have been proper. This is because, in addi-
tion to agreeing in Article 8(B) to provide a waiver of subrogation on
Enviro-Chem’s behalf, PCS waived any claims, including negligence
claims, against Enviro-Chem for damage to the Plant and the Work.
Article 7(B) provides, in relevant part:

    Enviro-Chem and Leonard shall not be liable to Owner
    under this Agreement or otherwise for:

    ....

    3. After Enviro-Chem has either fulfilled or been relieved
       of its obligations hereunder, or after this Agreement
       shall have been terminated, and Enviro-Chem and its
       subcontractors have left the site of the Plant, Enviro-
       Chem and Leonard shall not thereafter be obligated or
       liable to Owner because of any loss or damage occur-
       ring to the Plant, the Work, or Owner’s other facilities
       or property at, or adjacent to, the site of the Work.

Similarly, Article 14 provides, in relevant part:

    B. Except to the extent covered by any insurance carried
    by Enviro-Chem pursuant to Article 8 hereof, Enviro-Chem
    and Leonard shall not be obligated or liable to Owner under
    this Agreement (including, without limitation, any guarantee
    or remedy hereunder) or otherwise for loss of use, loss of
    profits, business interruption or other consequential, indi-
    rect, special, incidental or punitive damages, however the
    same may be caused, including, without limitation, damages
    related to patent infringement, breach of contract, breach of
    warranty, misrepresentation or the negligent acts or omis-
10       AMERICAN HOME INS. v. MONSANTO ENVIRO-CHEM SYS.
     sions, strict liability or other tort of Enviro-Chem or Leon-
     ard.

     C. Limitations of liability expressed in this Agreement
     shall apply even in the event of the fault, negligence or strict
     liability of Enviro-Chem or Leonard.

These provisions manifest the unmistakable intent of the parties that
Enviro-Chem not be liable to PCS in the event of an accident such as
occurred here, even if the accident results from a negligent act or
omission on the part of Enviro-Chem related to or arising out of the
construction or operation of the plant or the heat recovery system.
Thus, even if American had standing to assert PCS’s rights against
Enviro-Chem, American could not recover because PCS had waived
any and all rights that might have enabled recovery.

                            CONCLUSION

   In its policies with PCS, American waived its right to subrogation
against any party that PCS had agreed to provide such a waiver for.
In its contract with Enviro-Chem, PCS agreed to provide a subroga-
tion waiver on Enviro-Chem’s behalf for "loss and damage to the
Plant and the Work, however caused". Accordingly, American does
not have standing to assert claims against Enviro-Chem on PCS’s
behalf. Alternatively, even if American did have such standing, PCS
has waived any right to recovery it may have had. The judgment of
the district court is

                                                            AFFIRMED.