Colonial Properties Realty v. Lowder Const.

• Decision Date: 25 June 2002
• Docket Number: No. A02A0157.,A02A0157.
• Citation: 567 S.E.2d 389,256 Ga. App. 106
• Parties: COLONIAL PROPERTIES REALTY LIMITED PARTNERSHIP v. LOWDER CONSTRUCTION COMPANY, INC.
• Court: Georgia Court of Appeals

567 S.E.2d 389

256 Ga. App. 106

COLONIAL PROPERTIES REALTY LIMITED PARTNERSHIP v. LOWDER CONSTRUCTION COMPANY, INC.

No. A02A0157.

Court of Appeals of Georgia.

June 25, 2002.

Cozen & O'Connor, Michael A. McKenzie, David A. Cornelius, Atlanta, for appellant.

Finley & Buckley, Timothy J. Buckley III, Jonathan E. White, Seacrest, Karesh, Tate & Bicknese, Karsten Bicknese, Annarita M. Busbee, Atlanta, Daniel Bullard IV, for appellee.

MIKELL, Judge.

Plaintiff Colonial Properties Realty Limited Partnership ("Colonial") appeals the grant of summary judgment to defendant Lowder Construction Company, Inc. ("Lowder") in this subrogation action. For the reasons that follow, we affirm in part and reverse in part.

The record shows that in May 1996, Colonial hired Lowder to serve as the construction manager/contractor for an apartment complex in Macon. In June 1998, a year after the complex was completed, one of the buildings was extensively damaged by a fire inadvertently started by a resident. Colonial's insurer, Lexington Insurance Company, paid the loss, in return for which Colonial executed a loan receipt. Lexington then brought the instant subrogation action in Colonial's name against Lowder, asserting four counts: negligent supervision, negligence per se, gross negligence, and breach of contract.

Lowder moved for summary judgment, arguing that the terms of the contract¹ executed by Lowder and Colonial expressly mandated waiver of subrogation rights for damages occurring after final payment to Lowder, regardless of whether Lowder retained an insurable interest in the property. Lowder relied on Subparagraphs 11.3.5 and 11.3.7 of the contract. Subparagraph 11.3.5 provides that

if, 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 11.3.7 for damages caused by fire or other perils covered by this separate property insurance.

Subparagraph 11.3.7, entitled "Waivers of Subrogation," states as follows:

The Owner and Contractor waive all rights against each other and against the Construction Manager ... 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.... 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.

In opposing Lowder's motion, Colonial contended primarily that provisions waiving subrogation rights for damages arising after the completion of a project violate public policy. The trial court rejected Colonial's argument and granted summary judgment to Lowder. To this ruling Colonial assigns six enumerations of error.

1. Colonial first asserts that Lowder acted in the capacity of "construction manager" and not "contractor," as those terms were defined in the agreement. Therefore, Colonial argues, Lowder is not entitled to the benefit of the waiver of subrogation clause. This argument is based on the fact that the parties utilized the "1992 Construction Manager-Adviser Edition" of the American Institute of Architects standard form agreement, and Lowder's name is inserted in the appropriate spaces for "Construction Manager" as opposed to "Contractor."

This argument is meritless for several reasons. First, Colonial's breach of contract claim is premised upon Lowder's role as contractor. Colonial averred in this count of the complaint that "Lowder served as contractor with duties separate and apart from those as construction manager." This constituted a binding admission in judicio. " Under OCGA § 24-3-30, admissions in judicio in a party's pleadings bind the party so that they cannot put up evidence over objection to contradict such admissions."² Second, Subparagraph 11.3.7 expressly applies to the construction manager as well as the contractor. Finally, Colonial does not assert that any other entity served as contractor, and if Lowder did not, who did?

Colonial's argument that no consideration existed to support a waiver of subrogation in Lowder's favor in its role as contractor is not well founded in light of Colonial's admission that Lowder served in this capacity and was paid for its work.

2. Colonial next asserts that the waiver of subrogation clause is inapplicable because the loss occurred after the work was completed. In support of this argument, Colonial relies on Subparagraph 11.3.1, which states:

Unless otherwise provided, the Owner shall purchase and maintain ... property insurance in the amount of the initial Contract Sum as well as subsequent modifications thereto for the entire Work.... Such property insurance shall be maintained until final payment has been made ... or until no person or entity other than the Owner has an insurable interest in the property ..., whichever is earlier.

Based on this clause, Colonial argues that it was not required to maintain insurance after completion of the project and thus had not waived subrogation at the time the loss occurred. We disagree. "It is axiomatic that contracts must be construed in their entirety and in a manner that permits all of the terms contained therein to be consistent with one another. Of course, the terms and phrases contained in a contract must be given their ordinary meaning."³ Bearing in mind these cardinal rules of contract construction, we must endeavor to harmonize all relevant provisions of the contract at issue.

The contract defines "the Work" as "the construction and services required by the Contract Documents, whether completed or partially completed, and includes all other labor, materials, equipment and services provided or to be provided by the Contractor to fulfill the Contractor's obligations." (Emphasis supplied.) As previously noted, Subparagraph 11.3.5 also provides for a waiver of subrogation rights after final payment.

We interpret Subparagraph 11.3.1 as requiring Colonial to purchase and maintain insurance covering the project during its construction. Subparagraph 11.3.5 permitted, but did not require, Colonial to obtain a separate policy covering the completed project after final payment was made to Lowder. If Colonial obtained such a policy, then pursuant to this clause and Subparagraph 11.3.7, Colonial waived all subrogation rights for damages attributable to fire or other perils covered by this separate insurance. It follows that Subparagraph 11.3.1 is not inconsistent with Subparagraph 11.3.7 and that the parties intended to provide for waiver of subrogation rights for losses occurring after the project was completed.

Colonial correctly points out that the extension of subrogation clauses to cover post-project losses is an issue of first impression for this Court. However, the validity of clauses waiving subrogation for damages occurring during construction is well established.⁴ In Tuxedo Plumbing &c. Co. v. Lie-Nielsen,⁵ the Supreme Court held that OCGA § 13-8-2(b) does not prohibit subrogation clauses in construction contracts which shift the risk of loss to one party's insurance company regardless of who is at fault. In so holding, the Court noted that

it has been recognized by numerous authorities that where 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 exculpation 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.⁶

As neither Georgia appeals court has addressed the precise issue before us, we look to other jurisdictions for guidance. In Town of Silverton v. Phoenix Heat Source System,⁷ the Colorado Court of Appeals interpreted the same subrogation clauses as those at issue in the instant case. The case involved a contractor who installed a new roof on the town hall and a subcontractor who supplied an electric snow-melting system for the roof. After the roofing project was completed, the town hall was damaged by a fire allegedly caused by the snow-melting system, and the town sued the contractor and subcontractor. Summary judgment was granted to the defendants based on the waiver of subrogation clauses in the parties' contract, and the appeals court affirmed. The court held that under Subparagraph 11.3.7, the fact that a contractor had finished its work and had no remaining insurable interest in the property did not terminate the waiver of subrogation rights.

Because property insurance applicable to the work, other than that obtained pursuant to paragraph 11.3.1, may remain in effect after the final completion date, so too may a waiver of subrogation rights under paragraph 11.3.7 remain in effect. Thus, we conclude that the waiver of subrogation clause barred subrogation for insured losses to the work occurring after the final completion date and the date final payment was made.⁸

Town of Silverton is squarely on point, and we find its reasoning persuasive. Moreover, cases cited by Colonial are distinguishable. For instance, in Automobile Ins. Co. &c. v. United H.R.B. General Contractors,⁹ the contract contained a clause which specifically provided that the owner did not waive its claims against the contractor for faulty or defective work appearing after substantial completion.¹⁰ No such clause appears in the contract between Lowder and Colonial. The contract in Fairchild v. W.O. Taylor Commercial Refrigeration &c. Co.¹¹ was a simple one-page printed form which contained, in very small print at the bottom of the page, a sentence stating, "Owner...