Industrial Risk Insurers v. Garlock Equipment Co.

• Decision Date: 08 February 1991
• Citation: 576 So.2d 652
• Parties: INDUSTRIAL RISK INSURERS, an unincorporated association v. GARLOCK EQUIPMENT COMPANY and Seyforth Roofing Company. GARLOCK EQUIPMENT COMPANY v. INDUSTRIAL RISK INSURERS, an unincorporated association. 89-1079, 89-1115.
• Court: Alabama Supreme Court

Page 652

576 So.2d 652

INDUSTRIAL RISK INSURERS, an unincorporated association v. GARLOCK EQUIPMENT COMPANY and Seyforth Roofing Company.

GARLOCK EQUIPMENT COMPANY v. INDUSTRIAL RISK INSURERS, an unincorporated association.

89-1079, 89-1115.

Supreme Court of Alabama.

Feb. 8, 1991.

Mark E. Spear and Thomas H. Nolan, Jr. of Brown, Hudgens, Richardson, Mobile, for appellant/cross-appellee.

Jean Seaburg and James E. Olds, Minneapolis, Minn., and William H. Mills of Redden, Mills & Clark, Birmingham, for appellee/cross-appellant Garlock Equip. Co.

Frank E. Lankford, Jr. of Huie, Fernambucq & Stewart, Birmingham, for appellee Seyforth Roofing Co.

MADDOX, Justice.

The primary issue presented by these appeals is whether an insurer who has paid to its insured, the owner, proceeds for damages incurred as a result of a fire that occurred during the construction of a shopping mall, is subrogated to the rights of the owner, and, if so, whether the insurer can sue a subcontractor that was allegedly negligent on the job and whose negligence, it argues, caused the fire.

The trial court determined, as a matter of law, that the insurer, Industrial Risk Insurers (hereinafter referred to as "IRI"), had no subrogation rights against a subcontractor on the job and therefore granted the motion for a directed verdict filed by a subcontractor, Seyforth Roofing Company. IRI appeals from that judgment. Garlock Equipment Company, the manufacturer of a tar kettle used by Seyforth, cross-appeals, contending that it is in the same legal position as Seyforth, and that although the jury returned a verdict in its favor, the trial court erred in denying its similar motion for a directed verdict. In deciding the primary issue, we must construe the provisions of IRI's "builder's risk" policy and determine, after a consideration of all the facts, whether Seyforth and Garlock were entitled to a judgment as a matter of law on IRI's claim of a right to be subrogated to the rights of its insured, the owner.

IRI insured Jim Wilson & Associates, Inc. (hereinafter referred to as "JWA"), under a "builder's risk" policy against hazards in connection with the construction of the Galleria Mall in Hoover, Alabama. JWA acted as the "authorized representative" for Riverchase Mall Associates, a partnership that owned the Galleria Mall.

On June 5, 1985, while the Galleria Mall was under construction, a fire occurred on the roof of the mall's office tower, causing extensive damage to the roof and to the top floors of the tower. IRI paid $417,000 to JWA pursuant to the builder's risk policy. IRI claims that it thereby became subrogated to any potential claims that JWA may have had against the party or parties responsible for causing the fire.

On May 30, 1986, IRI sued Seyforth, the roofing subcontractor, and Garlock, the manufacturer of an allegedly defective tar kettle used by Seyforth. IRI claimed that Seyforth had agreed to indemnify JWA for damage or destruction caused by or resulting from work performed by Seyforth and that Seyforth's negligence had caused or had combined to cause the fire and resulting damage.

The trial court denied both Seyforth's motion to dismiss and its subsequent motion for summary judgment. However, at the close of all of the evidence, the trial court directed a verdict in favor of Seyforth. The jury later returned a verdict in favor of Garlock. Judgment was entered for Seyforth and Garlock.

IRI argues on appeal that the trial court committed reversible error in directing a verdict for Seyforth and erred in its jury instructions regarding IRI's claims against Garlock. Garlock maintains on cross-appeal that the trial court erred in denying its motion for directed verdict. Garlock also argues that IRI is not a real party in interest; that JWA has no interest in the proceeds paid by IRI as the result of the fire; and that JWA was contributorily negligent and had assumed the risk, thus defeating the claims to which IRI asserts it is subrogated.

Essentially, we must determine whether the trial court properly directed a verdict for Seyforth; whether it erroneously failed to grant Garlock's similar motion for directed verdict; and, if the trial court properly refused Garlock's motion for directed verdict, whether it erroneously instructed the jury, thereby prejudicing IRI. Initially, we must interpret the language found in the "General Conditions of the Contract for Construction" in conjunction with the language found in Seyforth's subcontract.

JWA entered into a contract with Harbert International, Inc., whereby Harbert International would be the general contractor for the construction of the Galleria Mall and the adjoining office tower. Harbert International then entered into a subcontract with McDevitt & Street Co. for the construction of the office tower; McDevitt & Street then entered into a subcontract with Seyforth for the construction of the office tower roof. In performing its duties under the subcontract, Seyforth used a tar kettle manufactured by Garlock.

McDevitt & Street's subcontract with Seyforth provided as follows:

"11. Insurance. Before commencing the Work and until completion and final acceptance thereof by Owner, Subcontractor shall obtain and maintain, at its expense, at least the insurance coverages specified in Schedule E attached hereto, all from companies, and in form and substance, acceptable to Contractor....

"To the extent that Subcontractor maintains insurance coverage for loss or damage to property, Subcontractor hereby waives subrogation of claims against Contractor, Owner, other subcontractors, and their agents, employees and servants."

In paragraph 12 of this subcontract, Seyforth agreed to "defend, indemnify and save harmless Contractor and Owner, and their agents, servants and employees, from and against any claim, cost, expense, or liability."

IRI also points out that paragraph 14 required Seyforth to "comply with all statutes, ordinances, rules, regulations and orders" of the governmental body having jurisdiction over the construction. This paragraph mandated that Seyforth

"defend, indemnify and save harmless Contractor and Owner and their agents, servants and employees from and against any loss, liability or expense arising from any such violations and any citations, assessments, fines or penalties resulting therefrom."

Additionally, paragraph 25 of this subcontract stated that Seyforth "shall take reasonable precautions to protect the Work from loss or damage prior to acceptance by Owner." IRI argues that by the terms of the subcontract, Seyforth agreed to indemnify and hold the contractor and owner harmless from damage to or destruction of property. This, argues IRI, allows IRI the right of subrogation against Seyforth.

However, this subcontract also incorporates by reference JWA's "General Conditions of the Contract for Construction." Section 11.3.1 of the "General Conditions" states:

"Unless otherwise provided, the Owner shall 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 Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work and shall insure against the perils of fire and extended coverage and shall include 'all risk' insurance for physical loss or damage including, without duplication of coverage, theft, vandalism and malicious mischief...."

Section 11.3.6 of the "General Conditions" provides for a waiver of subrogation:

"The Owner and the Contractor waive all rights against (1) each other and the Subcontractors, Sub-subcontractors, agents and employees each of the other, and (2) the Architect and separate contractors, if any, and their subcontractors, sub-subcontractors, agents and employees, for damages caused by fire or other perils to the extent covered by insurance obtained pursuant to this Paragraph 11.3 or any other property insurance applicable to the Work, except such rights as they may have to the proceeds of such insurance held by the Owner as trustee...."

Seyforth maintains that its subcontract with McDevitt & Street acts in harmony with the incorporated "General Conditions"; that the language is clear and unambiguous with regard to the waiver of subrogation clause in the "General Conditions"; and that the trial court, by directing a verdict, correctly determined that as a matter of law IRI had contractually waived its right of subrogation against Seyforth. IRI contends that Seyforth's subcontract contains additional provisions contrary to Article 11 of the "General Conditions" and that those provisions in the subcontract take precedence over the "General Conditions" and that a material issue of fact is thus presented.

IRI relies on the case of United States Fidelity & Guaranty Co. v. Escambia Electric & Appliance Co., 384 So.2d 1073 (Ala.1980), in which this Court reversed a summary judgment entered in favor of a subcontractor that allegedly had deviated from the architectural plans when it installed, with the consent of the owner and with the architect's oral approval, a used heating/cooling system that allegedly caused a fire. The contractor in that case, Southern General, entered into a subcontract with Escambia Electric for the installation of a heating/cooling system in a high school athletic building under construction.

In Escambia Electric, Southern General had purchased a builder's risk insurance policy from U.S.F. & G. containing a "waiver of subrogation" clause similar to that incorporated by reference in Seyforth's subcontract with McDevitt & Street. When a fire damaged the building, U.S.F. & G. paid to Southern General the amount required to repair the structure. U.S.F. & G., as subrogee, then sued Escambia Electric, alleging that it had negligently installed the used heating/cooling system that allegedly caused the fire. Escambia moved for summary judgment, and the trial court granted the motion. U.S.F. & G....