Eng'g & Constr. Innovations, Inc. v. L.H. Bolduc Co.

• Decision Date: 23 January 2013
• Docket Number: No. A11–0159.,A11–0159.
• Citation: 825 N.W.2d 695
• Court: Minnesota Supreme Court
• Parties: ENGINEERING & CONSTRUCTION INNOVATIONS, INC., Respondent, v. L.H. BOLDUC CO., INC., Appellant, The Travelers Indemnity Company of Connecticut, Appellant.

825 N.W.2d 695

ENGINEERING & CONSTRUCTION INNOVATIONS, INC., Respondent,

v. L.H. BOLDUC CO., INC., Appellant,The Travelers Indemnity Company of Connecticut, Appellant.

No. A11–0159.

Supreme Court of Minnesota.

Jan. 23, 2013.

Syllabus by the Court

1. An endorsement in a subcontractor's insurance policy making a contractor an additional insured for liability “caused by the acts or omissions” of the subcontractor limits the additional insured's coverage to instances of vicarious liability for the subcontractor's negligence.

2. A contractual indemnification provision in a construction contract obligating a subcontractor to indemnify another party for damages not caused by the subcontractor's fault, unaccompanied by either a coextensive insurance agreement or a proper allegation under Minn.Stat. § 337.05, subd. 2 (2012), that the promisor has failed to procure the required insurance, violates Minn.Stat. § 337.02 (2012).

David D. Hammargren, Adina R. Bergstrom, Hammargren & Meyer, P.A., Bloomington, MN, for respondent.

Kay Nord Hunt, Bryan R. Feldhaus, Lommen, Abdo, Cole, King & Stageberg, P.A., Minneapolis, MN; and Louise A. Behrendt, Michael S. Kreidler, Stich, Angell, Kreidler, Dodge & Unke, P.A., Minneapolis, MN, for appellant L.H. Bolduc Co., Inc.William M. Hart, Charles E. Spevacek, Damon L. Highly, Meagher & Geer, P.L.L.P., Minneapolis, MN; and Daniel A. Haws, Stacy E. Ertz, John Paul J. Gatto, Murnane Brandt, Saint Paul, MN, for appellant The Travelers Indemnity Company of Connecticut.

Dale O. Thornsjo, Johnson & Condon, P.A., Minneapolis, MN; and Lee H. Ogburn, Steven M. Klepper, Kramon & Graham, P.A., Baltimore, MD, for amicus curiae The American Insurance Association.

Curtis D. Smith, Moss & Barnett, A Professional Association, Minneapolis, MN, for amicus curiae The American Subcontractors Association.

Curtis D. Ruwe, Beth A. Jensen Prouty, Arthur, Chapman, Kettering, Smetak & Pikala, P.A., Minneapolis, MN, for amicus curiae The Property Casualty Insurance Association of America.

OPINION

ANDERSON, G. BARRY, Justice.

This appeal asks us to determine whether appellants are obligated under an insurance policy and an indemnification provision in a construction contract to reimburse respondent Engineering and Construction Innovations, Inc. (“ECI”) for expenses ECI incurred in repairing a damaged sewer pipeline. Appellant L.H. Bolduc Company, Inc. (“Bolduc”), the subcontractor of ECI, damaged a sewer pipe during the course of a construction project. After ECI repaired the damage, it sought reimbursement from Bolduc's insurer, appellant The Travelers Indemnity Company of Connecticut (“Travelers”), under an endorsement to Bolduc's commercial general liability policy naming ECI as an additional insured for liability “caused by acts or omissions” of Bolduc. Travelers denied coverage. ECI then sued Bolduc and Travelers for negligence and breach of contract to recover the costs ECI paid to repair the pipe. A jury found that Bolduc was not negligent, and awarded ECI zero dollars in damages. Following trial, the district court granted summary judgment in favor of Travelers and Bolduc on ECI's breach of contract claims, concluding that Travelers and Bolduc had no obligation to reimburse ECI for damages not caused by Bolduc. The court of appeals reversed, determining that ECI was entitled to coverage as an additional insured without regard to Bolduc's fault. The court also concluded that Bolduc was required to indemnify ECI, and that the subcontract between ECI and Bolduc did not violate Minn.Stat. § 337.02 (2012), which prohibits indemnification for the fault of others in construction contracts. Because we conclude that ECI did not qualify as an additional insured with respect to the pipe damage and that Bolduc cannot be required to indemnify ECI without violating Minn.Stat. § 337.02, we reverse.

The Project

The Metropolitan Council Environmental Services (“Met Council”) hired Frontier Pipeline, LLC (“Frontier”) as the general contractor on a construction project involving the installation of an underground sewer pipeline in Hugo. After Frontier installed the pipeline, Frontier subcontracted with respondent ECI to install a lift station and force main access structures at specified locations along the pipeline. An access structure provides access to points where two sections of pipeline meet, and is built to allow sections of the pipe to be connected and to provide manhole access to the pipeline.

The Subcontract

In order to excavate pits to construct the access structures without danger of the walls of the pits collapsing, ECI subcontracted with Bolduc to build “cofferdams,”a shoring system created by driving metal sheeting into the ground to act as walls for the pits during excavation and construction. The sheets are driven separately but eventually interlock to form a rectangle shape, and provide lateral support to the walls of the pit.

In January 2007 ECI and Bolduc entered into a subcontract (the “subcontract”) drafted by ECI, which provided that Bolduc would “[f]urnish, drive, and remove six ... sheeting cofferdam[s]” over the pipeline at six locations. Under the subcontract, Bolduc was to drive the sheets “per ECI location.” ¹ Both ECI and Bolduc agree that “per ECI location” means that Bolduc was not responsible for determining where to drive the cofferdams, but that ECI would provide Bolduc with the location to place the access structures as well as the location of the underground pipeline.

Bolduc agreed, under the subcontract, to perform its work “efficiently, properly and promptly, in accordance with the terms and conditions of the General Contract, and in accordance with the schedule and sequence given it by ECI.” Moreover, the subcontract indicated that “[n]o advice, recommendations or assistance that representatives of the Owner or ECI may give to [Bolduc] shall operate to relieve [Bolduc] from complete responsibility for such work as an independent contractor.”

The subcontract also imposed insurance and indemnification obligations on Bolduc, including the following requirements:

[Bolduc] agrees to protect, indemnify, defend, and hold harmless ECI and Owner, to the fullest extent permitted by law and to the extent of the insurance requirements below, from and against (a) all claims, causes of action, liabilities, obligations, demands, costs, and expenses arising out of injury to any persons or damages to property caused or alleged to have been caused by any act or omission of [Bolduc], its agents, employees or invitees, and (b) all damage, judgments, expenses, and attorney's fees caused by any act or omission of [Bolduc] or anyone who performs work or services in the prosecution of the Subcontract. [Bolduc] shall defend any and all suits brought against ECI or Owner on account of any such liability or claims of liability. [Bolduc] agrees to procure and carry until the completion of the Subcontract, worker's compensation and such other insurance that specifically covers the indemnity obligations under this paragraph, from an insurance carrier which ECI finds financially sound and acceptable, and to name ECI as an additional insured on said policies.

....

[Bolduc] agrees to obtain, maintain and pay for such insurance coverage and endorsements as will insure the indemnity provisions and coverage limits above and to furnish ECI certificates of insurance evidencing the aforementioned coverage.

The subcontract identified specific dollar amounts of coverage that the insurance policy was required to provide.

Bolduc obtained commercial general liability insurance from Travelers, which provided coverage during the time period at issue in the amounts required by the subcontract.Bolduc's insurance policy specifies that Travelers “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The policy excludes coverage for bodily injury or property damage based on the insured's assumption of liability for such damages in a contract. But the policy does cover liability assumed in an “insured contract,” defined in part as:

That part of any other contract or agreement pertaining to your business ... under which you assume the tort liability of another party to pay for “bodily injury” or “property damage” to a third party or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.

Bolduc is the named insured under the policy. The policy also includes a Blanket Additional Insured (Contractors) Endorsement, making ECI an additional insured eligible for coverage with respect to certain liabilities specified in the endorsement. The endorsement provides, in relevant part, that:

1. WHO IS AN INSURED—(Section II) is amended to include any person or organization that you² agree in a “written contract requiring insurance”³ to include as an additional insured on this Coverage Part, but:

a) Only with respect to liability for “bodily injury”, “property damage” or “personal injury”; and

b) If, and only to the extent that, the injury or damage is caused by acts or omissions of you or your subcontractor in the performance of “your work” to which the “written contract requiring insurance” applies. The person or organization does not qualify as an additional insured with respect to the independent acts or omissions of such person or organization.

(Footnotes added.)

Damage to the Pipeline

In December 2007 ECI discovered the damage to the underground pipeline that gave rise to this dispute. At one of the cofferdam locations, one of Bolduc's metal sheets caused damage because it was driven through the edge of the pipe. All parties involved agree that Bolduc drove a sheet into the pipe, and that contact between the sheet and the pipe caused the resulting damage. At the site of the damage, ECI had provided the template and markings designating where Bolduc was to drive...