Hartford v. Phoebus

• Decision Date: 31 August 2009
• Docket Number: No. 758, September Term, 2008.,758, September Term, 2008.
• Citation: 979 A.2d 299,187 Md. App. 668
• Parties: HARTFORD UNDERWRITERS INSURANCE COMPANY v. Wilma I. PHOEBUS, et al.
• Court: Court of Special Appeals of Maryland

979 A.2d 299

187 Md. App. 668

HARTFORD UNDERWRITERS INSURANCE COMPANY v. Wilma I. PHOEBUS, et al.

No. 758, September Term, 2008.

Court of Special Appeals of Maryland.

August 31, 2009.

Edward A. Jaeger, Jr., (White & Williams, LLP on the brief), Philadelphia, PA, for appellant.

Sara Frey (Josh M. Greenbaum, Cozen O'Connor, Michael J. Scheyer, Seidman & Schreyer, LLC on the brief) David E.C. Grant (O`Connor, Grant & Samuels on the brief), Towson, for appellee.

Panel: SALMON, DEBORAH S. EYLER and GRAEFF, JJ.

DEBORAH S. EYLER, J.

In the Circuit Court for Calvert County, Hartford Underwriters Insurance Company ("Hartford"), the appellant, as subrogee of K.B.K., Inc. ("K.B.K."), sued John L. Mattingly Construction Co., Inc. ("Mattingly") and Wilma L. Phoebus d/b/a Wilma Phoebus Electric Company ("Phoebus"), the appellees, for negligence, breach of contract, and breach of warranties. After a hearing, the court granted summary judgment in favor of the appellees. The appellants challenge that ruling on appeal.

FACTS AND PROCEEDINGS

On October 18, 2002, K.B.K. as "Owner" and Mattingly as "Contractor" entered into an American Institute of Architects ("AIA") form contract number A107-1997 ("Contract") to build an Arby's Restaurant ("Restaurant") in Dunkirk. Mattingly hired various subcontractors, including Phoebus for electrical work. Construction was finished and the Restaurant opened for business in October 2003. K.B.K. made final payment on the Contract on January 30, 2004. Sometime thereafter, K.B.K. purchased a property insurance policy for the Restaurant from Hartford, with effective coverage dates of October 1, 2004, through October 1, 2005.

On May 8, 2005, a fire broke out in the Restaurant, causing substantial damage. K.B.K. submitted a claim to Hartford for property damage totaling $1,117,711.26. Hartford paid the claim, minus a $1,000 deductible paid by K.B.K.

In the Circuit Court for Calvert County, Hartford, as subrogee of K.B.K., sued Mattingly and Phoebus on theories of negligence, breach of contract, and breach of warranties, alleging that, during construction of the Restaurant, they installed and/or supervised the installation of defective electrical wiring, related components, and equipment, all of which caused the fire. After discovery began, Mattingly and Phoebus filed motions for summary judgment, asserting that a "Waivers of Subrogation" clause in the Contract barred Hartford from pursuing the liability claims against them. Specifically, they argued that K.B.K. had agreed in the Contract to look only to its own property insurance to cover perils such as fire, and therefore Hartford had no subrogation rights to enforce.

Hartford opposed the motions and also filed a cross-motion for partial summary judgment, arguing that the Waivers of Subrogation clause did not apply to the fire loss as the loss had occurred after the Restaurant was built and paid for. Mattingly filed a reply and an opposition to the cross-motion for partial summary judgment, and Phoebus filed a supplemental memorandum in support of its motion for summary judgment.

The circuit court conducted a hearing on the motions and held the matter sub curia. Thereafter, by memorandum and order, it granted summary judgment in favor of Mattingly and Phoebus and denied Hartford's motion for partial summary judgment.¹ Hartford noted this timely appeal.

DISCUSSION

Pertinent Contract Provisions and Ruling of the Circuit Court

The Contract is an "Abbreviated Standard Form of Agreement Between Owner and Contractor for Construction Projects of Limited Scope Where the basis of payment is a STIPULATED SUM." It designates K.B.K. as the "Owner" and Mattingly as the "Contractor" and states "the Project is" the Arby's Restaurant in Dunkirk. For our purposes, the following Contract provisions are relevant.

In Article 16, entitled "INSURANCE," Paragraph 16.4.1 required K.B.K. to have property insurance in place during construction:

Unless otherwise provided, the Owner shall purchase and maintain ... property insurance on an "all-risk" policy form, including builder's risk, in the amount of the initial Contract Sum, plus the value of subsequent modifications and cost of materials supplied and installed by others, comprising total value for the entire Project at the site on a replacement cost basis without optional deductibles. Such property insurance shall be maintained ... until final payment has been made as provided in Paragraph 14.5 or until no person or entity other than the Owner has an insurable interest in the property required by this [paragraph] to be covered, whichever is later.

(Emphasis added.) Section 16.5, entitled "WAIVERS OF SUBROGATION," then provides, at Paragraph 16.5.1:

The Owner and Contractor waive all rights against ... each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other ... for damages caused by fire or other causes of loss to the extent covered by property insurance obtained pursuant to Paragraph 16.4 or other property insurance applicable to the Work, except such rights as they have to proceeds of such insurance.... The policies shall provide such waivers of subrogation by endorsement or otherwise.

(Emphasis added.)

It is undisputed that the fire loss was not covered by the property insurance K.B.K. obtained pursuant to Paragraph 16.4, as that insurance no longer was in place when the fire occurred (nor should it have been). Whether, when the fire loss occurred, Hartford's subrogation rights were waived thus depends largely upon the meaning of "covered by ... other property insurance applicable to the Work," in Paragraph 16.5.1. "The Work" is defined at Contract section 6.3 to mean,

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. The Work may constitute the whole or a part of the Project.

(Emphasis added.)

It is also relevant that, in Section 14.5, entitled "FINAL COMPLETION AND FINAL PAYMENT," Paragraph 14.5.3 states:

The making of final payment shall constitute a waiver of claims by the Owner except those arising from:

.1 liens, claims, security interests or encumbrances arising out of the Contract and unsettled;

.2 failure of the Work to comply with the requirements of the Contract Documents; or

.3 terms of special warranties required by the Contract Documents.

(Emphasis added.) (We shall refer to this clause as the "Final Payment Waiver Exception.")

In support of their motions for summary judgment, Mattingly and Phoebus argued that K.B.K.'s property insurance policy with Hartford was "other property insurance applicable to the Work," within the meaning of the Waivers of Subrogation clause (Paragraph 16.5.1); therefore, Hartford, as K.B.K.'s subrogee, could not recover against Mattingly or Phoebus (or any other subcontractor) sums it paid K.B.K. on the property insurance claim. In other words, as long as K.B.K. had property insurance coverage for the Restaurant, the Waivers of Subrogation clause remained in effect, post-construction and post-final payment, and damage to the Restaurant from fire (or other perils) would be compensated only by the insurance, not by the parties to the Contract or their subcontractors or agents, notwithstanding fault.²

Hartford asserted in opposition that the temporal scope of the Waivers of Subrogation clause vis-à-vis losses to the completed Restaurant covered by Owner-obtained insurance is at best ambiguous, so that its meaning was a genuine dispute of material fact barring summary judgment. In its cross-motion for partial summary judgment, Hartford made the alternative argument that if the Waivers of Subrogation clause was not ambiguous, it only reasonably could be read as not applying to the completed Restaurant. Therefore, K.B.K.'s right of recovery against Mattingly and Phoebus for the fire loss remained intact, and Hartford was subrogated to that right.

The circuit court ruled that the pertinent Contract language was clear and the Waivers of Subrogation clause still governed the legal relationship between K.B.K. and Mattingly (and their subcontractors and agents) with respect to the fire loss to the completed Restaurant because K.B.K. had property insurance coverage in effect when the fire loss was sustained. It reasoned:

Based on the language in the [Contract], "Work" means construction, even after final payment. Thus, this court finds that there was "other insurance applicable to the Work [i.e., the Hartford policy]." Therefore, because the damages were caused by fire and were covered by other insurance applicable to the Work, [K.B.K.] waived all rights against [Mattingly and Phoebus] under paragraph 16.5.1 of the [Contract] .... [S]ince this court finds that K.B.K .... waived its right to bring suit, Hartford ... also cannot bring suit against [Mattingly and Phoebus].

(Emphasis added.)

Question Presented and Standard of Review

Hartford poses one question for review, which, stripped of argument, asks whether the circuit court erred in ruling that the Waivers of Subrogation clause in the Contract applied to the fire loss to the completed Restaurant. We review this question de novo, for two reasons. First, on appeal, a decision granting summary judgment always is subject to de novo review, as an issue of law. See Prison Health Servs., Inc. v. Baltimore County, 172 Md.App. 1, 8, 912 A.2d 56 (2006). Like the circuit court, we decide whether, on the summary judgment record, the forecasted facts do not generate a genuine dispute of material fact and, on the undisputed material facts, the moving party is entitled to judgment as a matter of law. See Miller v. Bay City Prop. Owners Ass'n, Inc., 393 Md. 620, 632, 903 A.2d 938 (2006). Second, the meaning of contract language, including whether language in a contract...