Ace Am. Ins. Co. v. Am. Med. Plumbing, Inc.
| Decision Date | 04 April 2019 |
| Docket Number | DOCKET NO. A-5395-16T4 |
| Citation | 206 A.3d 437,458 N.J.Super. 535 |
| Parties | ACE AMERICAN INSURANCE COMPANY, Plaintiff-Appellant, v. AMERICAN MEDICAL PLUMBING, INC., Defendant-Respondent. |
| Court | New Jersey Superior Court — Appellate Division |
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).
Before Judges Koblitz, Ostrer and Currier.
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 out-of-state authority.
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 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.
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.
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, 9 A.3d 882 (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, 14 A.3d 737 (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 practices, and the objects the parties were striving to achieve." George M. Brewster & Son, Inc. v. Catalytic Constr. Co., 17 N.J. 20, 32, 109 A.2d 805 (1954) ; see also Hardy ex rel. Dowdell v. Abdul-Matin, 198 N.J. 95, 103, 965 A.2d 1165 (2009) (). 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, 84 A.2d 617 (1951) (). Our objective is to determine the parties' intent. Kieffer, 205 N.J. at 223, 14 A.3d 737. 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, 126 A.2d 646 (1956).
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 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 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.
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 applicable to the Work" that the contract does not require. Section 11.3.7 states:
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 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:
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