Hemingway v. Constr. By Design Corp.

• Decision Date: 15 January 2015
• Docket Number: No. 20130955–CA.,20130955–CA.
• Citation: 342 P.3d 1135,2015 UT App 10
• Parties: Robert HEMINGWAY and Denise Hemingway, Plaintiffs and Appellants, v. CONSTRUCTION BY DESIGN CORPORATION and Clavell T. Anderson, Defendants and Appellees.
• Court: Utah Court of Appeals

342 P.3d 1135

2015 UT App 10

Robert HEMINGWAY and Denise Hemingway, Plaintiffs and Appellants

v.CONSTRUCTION BY DESIGN CORPORATION and Clavell T. Anderson, Defendants and Appellees.

No. 20130955–CA.

Court of Appeals of Utah.

Jan. 15, 2015.

Thomas M. Regan and Leslie A. Hulburt, for Appellants.

Terry M. Plant and Daniel E. Young, Salt Lake City, for Appellees.

Judge STEPHEN L. ROTH authored this Opinion, in which Judges GREGORY K. ORME and MICHELE M. CHRISTIANSEN concurred.

Opinion

ROTH, Judge:

¶ 1 Robert and Denise Hemingway appeal from the grant of summary judgment in favor of Clavell T. Anderson and his company, Construction By Design Corporation (collectively, Anderson).¹ The Hemingways claim that the district court improperly interpreted a damages waiver in a construction contract to preclude them from recovering for damage caused by a fire in their home. Alternatively, they assert that summary judgment was improper because there was an unresolved dispute regarding whether the waiver even applied in this case. We agree with the Hemingways on the latter issue, and we therefore reverse the grant of summary judgment and remand for further proceedings.

BACKGROUND

¶ 2 In October 2010, the Hemingways hired Anderson to remodel the kitchen and sun room of their residence in Cedar Hills, Utah. Anderson and the Hemingways entered into a written agreement (the Agreement) that outlined the scope of the remodel work and the responsibilities and liabilities of each party. Article 2 of the Agreement defines “[t]he term ‘Work’ as used in the Contract Documents” to include “all labor necessary to complete the project of construction or remodeling ..., and all materials and equipment to be incorporated therein.” Article 12 of the Agreement sets out the Hemingways' responsibilities regarding property insurance. Article 12.1 requires the Hemingways to “purchase and maintain property insurance upon the entire Work at the site to the full insurable value thereof. This insurance shall include the interests of the [Hemingways], [Anderson], and subcontractors in the Work² and shall insure against the perils of fire [and] extended coverage,” among other things. Articles 12.2 and 12.3 describe certain logistical aspects of this requirement that are not at issue on appeal. Finally, Article 12.4 contains a waiver of liability: “The [Hemingways] and [Anderson] waive all rights against each other for damages caused by fire or other perils to the extent covered by insurance provided under this Article [12].”

¶ 3 On December 28, 2010, while construction was ongoing at the Hemingway residence, the kitchen or an area near the kitchen caught fire, resulting in significant damage to both the Work and the rest of the house (the Non–Work). The Hemingways submitted a claim to their insurance carrier, Liberty Mutual Insurance Company (Liberty Mutual), for all of the damage to the home. Liberty Mutual denied payment for damage to the Work on the basis that “[t]he policy of insurance with Liberty Mutual did not cover ... any of the improvements and/or changes that were made by [Anderson].” However, the insurance company paid the Hemingways' claims for damage to the Non–Work in the amount of $532,370. Pursuant to a subrogation clause in the homeowners' insurance policy, Liberty Mutual then brought this suit, in the names of its insureds, to recover damages from Anderson.³

¶ 4 Anderson moved for summary judgment, asserting that the Article 12.4 waiver barred Liberty Mutual's subrogation claim. According to Anderson, it was reasonable to infer that because the Hemingways had not obtained any other insurance to fulfill their obligations under the Agreement, they intended the Liberty Mutual homeowners' policy (the preexisting homeowners' policy) to satisfy Article 12.1's condition that they obtain insurance to cover the Work. And because the preexisting homeowners' policy provided coverage for damage to the Non–Work, Anderson contended that Article 12.4's language relieving it of liability “for damages caused by fire ... to the extent covered by insurance provided ” should be broadly interpreted to preclude the Hemingways from seeking reimbursement for any claims that were within the homeowners' policy's scope of coverage, specifically the fire damage to the Non–Work. (Emphasis added.) In support of his position, Anderson referred the district court to cases from a number of jurisdictions that have adopted this approach, which the parties refer to as the “source of coverage” approach.

¶ 5 The Hemingways opposed summary judgment, arguing that the Article 12.4 waiver did not apply to the Non–Work damage for two reasons. First, they asserted that they did not procure an insurance policy of any kind to cover the Work as required by Article 12.1. Instead, the only policy they had that covered damage to the home was the preexisting homeowners' policy, and that policy covered only the Non–Work. They therefore contended that because Article 12.4 waived damages claims only “to the extent covered by insurance provided under [Article 12],” the waiver could not bar a subrogation claim under the preexisting homeowners' policy. The Hemingways supported this position with two declarations: one in which Mr. Hemingway asserted that he “did not purchase and/or maintain property insurance for [Anderson]'s work at [the Hemingway] home” and another in which a Liberty Mutual claims adjustor attested that “[t]he policy of insurance with Liberty Mutual did not cover, nor were the Hemingways paid[ ] for[,] any of the improvements and/or changes that were made by [Anderson].” Second, the Hemingways contended that the Article 12.4 waiver did not apply to the Non–Work damage, even if the preexisting homeowners' policy was the insurance contemplated by Article 12.1, because Article 12.4 waived claims only for damage to the Work itself, not all damage covered by whatever policy fulfilled their Article 12.1 insurance obligations. The Hemingways argued that the language of other portions of the Agreement supported this narrower reading of Article 12.4. In this regard, the Hemingways urged the district court to apply the approach that has been adopted by a handful of courts in other jurisdictions—which the parties refer to as the “type of damages” approach—rather than the “source of coverage” approach advanced by Anderson.

¶ 6 Following a hearing, the district court granted Anderson's motion for summary judgment, explaining that the undisputed facts demonstrated that the Hemingways were “relying on their Liberty Mutual policy to comply with [the Article 12.1] provision” requiring that they obtain insurance to cover damage to the Work. Then, applying the “source of coverage” approach, the district court concluded that Article 12.4, which exempted Anderson from liability for fire damage “to the extent covered by insurance provided under [Article 12],” waived subrogation for damage to any property covered by the preexisting homeowners' policy. (Emphasis added.) In other words, having determined that the preexisting homeowners' policy was intended to satisfy the Hemingways' obligation to obtain insurance to cover the Work and that the Article 12.4 waiver applied to any damages covered by such insurance—which in this case included the Non–Work—the court concluded that the Hemingways were precluded from seeking recovery from Anderson for any of the damages caused by the fire, whether to the Work or the Non–Work portions of the home. In reaching its conclusion, the district court did not address whether the preexisting homeowners' policy actually included coverage for the Work itself. The Hemingways appeal.

ISSUE AND STANDARD OF REVIEW

¶ 7 The Hemingways argue that summary judgment was improperly granted in favor of Anderson. Summary judgment is appropriate “only when all the facts entitling the moving party to a judgment are clearly established or admitted” and those facts “preclude[ ], as a matter of law, the awarding of any relief to the losing party.” Smith v. Four Corners Mental Health Ctr., Inc., 2003 UT 23, ¶ 24, 70 P.3d 904 (alteration in original) (citations and internal quotation marks omitted). We review the grant of summary judgment for correctness, viewing the facts and all reasonable inferences to be drawn therefrom in favor of the nonmoving party. Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600.

ANALYSIS

¶ 8 Pursuant to a subrogation clause in the preexisting homeowners' policy, Liberty Mutual (through its insureds, the Hemingways) seeks to recover the amount of money it paid the Hemingways for damage to real and personal property in the Non–Work portion of their home. “Subrogation is a doctrine conceived in equity that allows a person or entity [that] pays the loss or satisfies the claim of another under a legally cognizable obligation or interest to step into the shoes of the other person and assert that person's rights.” Bakowski v. Mountain States Steel, Inc., 2002 UT 62, ¶ 22, 52 P.3d 1179 (alteration in original) (citation and internal quotation marks omitted). In the case of a subrogation clause in an insurance agreement, “[t]he insurer succeeds to the insured's cause of action against a responsible third party.” Id. Because the insurer is assuming, through subrogation, the claims that the insured could have asserted, “the insurer can be subrogated to only such rights as the insured possesses.” Id. ¶ 23 (citation and internal quotation marks omitted). And “an insured can generally waive an insurer's subrogation rights against a particular third party through a pre-loss agreement.” Id. This means that “the insurer is subject to any viable defenses the third party can assert against the insured, including a release from liability or a waiver of a cognizable cause of action.” Id. (citations omitted).

¶ 9 Article 12.4 of the Agreement between the Hemingways and Anderson contains such a waiver. It reads, “The [Hemingways] and [Anderson] waive all rights against each other for damages...