Bd. of Comm'rs of the Cnty. of Jefferson v. Teton Corp.

• Decision Date: 13 May 2015
• Docket Number: No. 72S04–1410–CT–642.,72S04–1410–CT–642.
• Citation: 30 N.E.3d 711
• Parties: The BOARD OF COMMISSIONERS OF the COUNTY OF JEFFERSON, Appellant (Plaintiff), v. TETON CORPORATION, Innovative Roofing Solutions, Inc., Gutapfel Roofing, Inc., and Daniel L. Gutapfel, Appellees (Defendants).
• Court: Indiana Supreme Court

30 N.E.3d 711

The BOARD OF COMMISSIONERS OF the COUNTY OF JEFFERSON, Appellant (Plaintiff)

v.TETON CORPORATION, Innovative Roofing Solutions, Inc., Gutapfel Roofing, Inc., and Daniel L. Gutapfel, Appellees (Defendants).

No. 72S04–1410–CT–642.

Supreme Court of Indiana.

May 13, 2015.

Julia Blackwell Gelinas, Maggie L. Smith, Frost Brown Todd LLC, Indianapolis, IN, Attorneys for Appellant.

Richard T. Mullineaux, Crystal G. Rowe, Dustin L. Howard, Kightlinger & Gray, LLP, New Albany, IN, Attorneys for Appellee Teton Corporation.

Scott L. Tyler, Eric T. Eberwine, Waters, Tyler, Hofmann & Scott, LLC, New Albany, IN, Attorneys for Appellee Innovative Roofing Solutions, Inc.

Grover B. Davis, James T. Flanigan, McClure McClure & Davis, Indianapolis, IN, Attorneys for Appellees Gutapfel Roofing, Inc. and Daniel L. Gutapfel.

On Petition to Transfer from the Indiana Court of Appeals, No. 72A04–1302–CT–55

RUSH

, Chief Justice.

Property owners and contractors routinely agree to waive subrogation rights for damages. Here, the parties did so by incorporating an American Institute of Architects (“AIA”) standard form into their contract for the repair of the Jefferson County courthouse. While the repairs were underway, a fire severely damaged the courthouse. The AIA contract waives subrogation rights for all “damages caused by fire or other perils to the extent covered by property insurance.” The parties now dispute the meaning of the subrogation waiver. Owner seeks to subrogate all damages unrelated to repairs, arguing that the subrogation waiver applies only to construction-related damages. Contractor argues that all damages covered by Owner's property insurance policy are waived. Both parties cite other states' precedent to support their position, and the decision below created a split of authority in our own Court of Appeals. We granted transfer in this matter of first impression to establish the Indiana approach.

We hold the plain meaning of the contract defines the scope of the waiver based on the extent and source of coverage, not the nature of the property damaged. Accordingly, we agree with the majority of jurisdictions that have applied this plain meaning to bar recovery for all damages covered by the same property insurance policy used to cover construction-related damages—commonly referred to as the “any insurance” approach. Because Contractors have shown that Owner's insurance covered all damages, the subrogation waiver applies to bar Owner's claim. Accordingly, we affirm summary judgment in favor of Contractors.

Standard of Review

On summary judgment, our appellate review is de novo. Schwartz v. Heeter, 994 N.E.2d 1102, 1105 (Ind.2013)

. The meaning of the subrogation waiver is “particularly well-suited for de novo appellate review” because, like all matters of contract interpretation, it presents a pure question of law. Holiday Hospitality Franchising, Inc. v. AMCO Ins. Co., 983 N.E.2d 574, 577 (Ind.2013). Here, that question is whether we should interpret the subrogation waiver according to either (1) the “Work versus non-Work” approach, under which the Owner waives subrogation only for losses related to “the Work” (i.e., the contracted-for construction and services); or (2) the “any insurance” approach, under which the Owner waives subrogation for all losses covered by Owner's insurance policy “applicable to the Work,” regardless of whether the damage was to work or non-work property.

Facts and Procedural History

On May 20, 2009, a fire destroyed much of the Jefferson County courthouse, located in Madison, Indiana. Jefferson County alleged that the fire began while Daniel Gutapfel—a roofing subcontractor—was soldering copper

downspouts near the wood frame of the courthouse as part of a four-phase plan to remodel and renovate the entire building. The damages far exceeded the remodeling costs, but were fully covered by Jefferson County's property insurer, which paid Jefferson County under its policy after the fire. The parties now contest whose insurance company should cover the loss.

Seven months earlier, Jefferson County awarded the first phase of its courthouse remodeling plan to Teton Corporation, and both parties signed the contract on October 29, 2008. The contract was for repairs to the courthouse roof, flashing, gutters, and downspouts at a price of $87,280.00. Teton subcontracted to Innovative Roofing Solutions, Inc., which sub-subcontracted to Gutapfel Roofing, Inc.—owned and operated by Daniel Gutapfel. Jefferson County's contract with Teton incorporated a 1987 version of the AIA “Standard Form of Agreement Between the Owner and Contractor” (A101–1987) and “General Conditions of the Contract for Construction” (A201–1987) (collectively the “AIA contract”).

The AIA contract contains a broad waiver of subrogation provision for all damages covered by property insurance:

11.3.7 Waivers of Subrogation. The Owner and Contractor waive all rights ... for damages caused by fire or other perils 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.... A 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, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged.

(Emphasis added.) Jefferson County as Owner is required to obtain the property insurance that triggers the waiver—there is no comparable requirement for Teton as Contractor.¹ The AIA contract also requires each party to obtain its own liability insurance,² but such insurance has no impact on the subrogation waiver because (as we discuss below) waiver depends on the extent of coverage of property insurance, not liability insurance. The waiver and the insurance requirements work in tandem to ensure that the parties resolve damages disputes through insurance claims, not lawsuits. Am. Zurich Ins. Co. v. Barker Roofing L.P., 387 S.W.3d 54, 61 (Tex.Ct.App.2012)

.

Jefferson County could satisfy its property insurance requirements in one of two ways: either (1) procure a separate policy to cover only the renovations—commonly referred to as “builders-risk insurance”—or (2) rely on its existing “all-risk” property insurance policy to cover the entire courthouse, including the renovations. See ¶¶ 11.3.1, 11.3.1.1; 2 Philip L. Bruner & Patrick J. O'Connor, Jr., Bruner & O'Connor on Construction Law § 5:220 (2002). Jefferson County chose to rely on its existing “all-risk” policy that it maintained with St. Paul Fire and Marine Insurance Company (“St. Paul policy”).

After the fire, Jefferson County filed a subrogation claim (presumably on behalf of St. Paul) against Teton, Innovative Roofing, Gutapfel Roofing, and Daniel Gutapfel to recover damages caused to its property outside the scope of the work—that is, property unrelated to repairs to the roofing, flashing, gutters, and downspouts. Jefferson County claimed breach of implied warranty and negligence and/or gross negligence against all defendants, breach of contract against Teton and all subcontractors; and it sought to compel arbitration. All Defendants moved for summary judgment, arguing Jefferson County had waived its claim under the AIA waiver because its St. Paul policy covered all the damages. Jefferson County responded that it had waived subrogation rights only for damages to the work—not non-work property.

The trial court granted final summary judgment for Defendants on all claims and denied Jefferson County's motion for partial summary judgment as moot. It found that Jefferson County had waived subrogation rights for all claims because it had insurance that covered all the damages caused by the fire. Since the trial court found the waiver dispositive, it did not address any of the issues related to Gutapfel's gross negligence or Teton's or Innovative Roofing's vicarious liability. The trial court noted that the scope of its judgment was only “[t]he parties['] [sic] rights and responsibilities under their contract” and not “[t]he nature and cause of th[e] fire ....” The trial court also denied Jefferson County's subsequent motion to correct error.

The Court of Appeals affirmed in a split decision. Bd. of Comm'rs. v. Teton Corp., 3 N.E.3d 556 (Ind.Ct.App.2014)

. The majority adopted the “any insurance” approach to interpreting the subrogation waiver and held that the waiver barred Jefferson County's claims. Id. at 570–71. Judge Brown dissented, however, reasoning that Indiana should continue its recent trend of applying the “Work versus non-Work” approach and hold that Jefferson County waived claims for only work damages. Id. at 574–75 ; see

Midwestern Indem. Co. v. Sys. Builders, Inc., 801 N.E.2d 661 (Ind.Ct.App.2004), trans. denied;

Allen Cty. Pub. Library v. Shambaugh & Son, L.P., 997 N.E.2d 48 (Ind.Ct.App.2013). See also

Bhd. Mut. Ins. Co. v. Michiana Contracting, Inc., 971 N.E.2d 127 (Ind.Ct.App.2012). On the gross negligence issue, the majority simply noted in a footnote that “Jefferson County has not designated any evidence that would establish that Gutapfel or the other Appellee contractors were grossly negligent (or acted willfully or wantonly).” Teton Corp., 3 N.E.3d at 571 n. 10.

We granted transfer. Ind. Appellate R. 58(A). We summarily affirm the Court of Appeals on the gross negligence issue, id., and now affirm summary judgment in favor of Contractors and against Jefferson County.

Discussion and Decision

We must decide whether, under the plain meaning of the AIA contract, property owners waive subrogation rights for construction damages by maintaining “all-risk” property insurance policies that cover both their construction-related damages and their entire property. Our Court of Appeals has offered two competing approaches to...