Miller-Davis Co. v. Ahrens Constr., Inc.

• Decision Date: 15 April 2014
• Docket Number: Calendar No. 5.,Docket. No. 145052.
• Citation: 495 Mich. 161,848 N.W.2d 95
• Parties: MILLER–DAVIS COMPANY v. AHRENS CONSTRUCTION, INC.
• Court: Michigan Supreme Court

495 Mich. 161

848 N.W.2d 95

MILLER–DAVIS COMPANY

v.AHRENS CONSTRUCTION, INC.

Docket. No. 145052.

Calendar No. 5.

Supreme Court of Michigan.

Argued Nov. 7, 2013.

Decided April 15, 2014.

Gemrich Law PLC (by Alfred J. Gemrich) and Scott Graham PLLC (by Scott Graham) for Miller–Davis Company.

Field & Field, PC, Kalamazoo (by Samuel T. Field), for Ahrens Construction, Inc.

MARY BETH KELLY, J.

After nearly a decade of litigation and alternative dispute resolution proceedings, the indemnification contract underlying the troubled natatorium roof in this case again wends its way to this Court. We previously held that the six-year period of limitations of MCL 600.5807(8) applies to the parties' indemnification contract. We now hold that the indemnity clauses in the parties' subcontract apply here, because the plain language of the indemnification clauses extends to Ahrens's failure to undertake corrective work as obligated by the subcontract. We further hold that Sherman Lake YMCA made a “claim” upon Miller–Davis which triggered Ahrens's liability under the indemnity clauses. Ahrens's failure to indemnify therefore caused the damages Miller–Davis sustained in undertaking the corrective work itself. Finally, we hold that Miller–Davis's claim was not barred by the six-year statute of limitations found in MCL 600.5807(8). Rather, Miller–Davis's breach of contract claim for Ahrens's failure to indemnify is distinct from its breach of contract claim based on Ahrens's failure to install the roof according to specifications, and Miller–Davis's indemnity action necessarily accrued at a later point. We therefore reverse that portion of the Court of Appeals' opinion discussing Miller–Davis's indemnity claim, and remand this case to the Kalamazoo Circuit Court for entry of judgment in Miller–Davis's favor and to determine whether Miller–Davis is entitled to attorney's fees under the relevant indemnification clauses.

I. FACTS AND PROCEDURAL HISTORY

Miller–Davis Company was an “at risk” contractor ¹ for the Sherman Lake YMCA's natatorium project.² Miller–Davis hired defendant Ahrens Construction, Inc., as a subcontractor to install similar roof systems on three rooms, including the natatorium. The contract incorporated by reference the applicable project plans and specifications, the American Institute of Architects General Conditions (AIA A201), the project manual, and a written guarantee of Ahrens's work.³ AIA A201 required the subcontractor to “assume toward the Contractor all the obligations and responsibilities which the Contractor, by these Documents, assume[d] toward the Owner and Architect.” ⁴ It further obligated Ahrens to “bear costs of correcting such rejected Work, including additional testing and inspections and compensation for the Architect's services and expenses made necessary thereby,” ⁵ and to correct at its expense any work “found to be not in accordance with the Contract Documents” within one year of Substantial Completion. ⁶ Ahrens agreed to install all products in accordance with the manufacturer's instructions and the requirements of the plans and specifications. Ahrens further agreed to indemnify Miller–Davis from and against any liabilities, claims, damages, losses, actions, and expenses arising out of the subcontract.

Ahrens substantially completed the work on June 11, 1999, at which point its Written Guarantee commenced. The Guarantee provides in relevant part:

[Ahrens] hereby agree[s] that all work furnished to the project is guaranteed against deficiencies and defects in materials and/or workmanship for a period of one (1) year, as described in the Contract Documents.

* * *

We agree to satisfy such obligations, which appear within the guarantee period without cost to the Owner.

* * *

Nothing contained in this agreement shall be construed to establish a period of limitation with respect to any other obligation we may have under the Contract Documents or to alter any longer period of time as may be prescribed by law of the Contract Documents.

A certificate of substantial completion issued on June 25, 1999. During the winter season of 1999–2000, Sherman Lake YMCA experienced excessive condensation in the natatorium, which it termed the “natatorium moisture problem” (NMP). As a result of the accumulated condensation, it sometimes appeared to be raining within the natatorium. Miller–Davis notified Ahrens of the NMP on January 28, 2000, and Ahrens returned to the project to undertake remedial work not contemplated in the original design. Ahrens received its final payment on February 17, 2000, but the NMP persisted.

In February 2003, the project architects opened the roof and discovered significant deficiencies with Ahrens's installation of the roof system, namely inch-wide gaps between the Styrofoam blocks and sub-T supports, and many gaps and tears in the vapor barrier. The architects determined that the installation was not in substantial compliance with the contract, and directed reinstallation of the roof system using salvageable materials to the extent possible. The corrective work contained three elements not contained in the original design: Procor, a waterproofing agent; expanding foam insulation; and butyl caulk sealant.

By letter dated April 2, 2003, Miller–Davis notified Ahrens that the roof system was not installed in accordance with the manufacturer's requirements and the subcontract guidelines. Miller–Davis's May 5, 2003 letter to Merchants Bonding Company, Ahrens's surety, explicitly declared Ahrens in default and requested a conference within fifteen days. The parties met on June 27, 2003, and Ahrens agreed to review the corrective work plans and provide a plan for performance within a week. Neither Ahrens nor its bonding company provided such a plan. On July 15, 2003, Miller–Davis gave Ahrens notice of default, terminated Ahrens's right to perform the contract, and demanded the bonding company perform under the bond. In that letter, plaintiff noted that Sherman Lake YMCA was “considering declaring a Contractor Default....” The bonding company notified Miller–Davis that Ahrens had waived the surety's right to perform under the bond.

Miller–Davis and Sherman Lake YMCA entered into an Agreement for Corrective Work on August 27, 2003. Pursuant to the agreement and at the direction of the architects, Miller–Davis installed Procor, expanding foam insulation, and butyl caulk. On December 8, 2003, an independent contractor certified that Miller–Davis had completed the corrective work. Sherman Lake YMCA has not since experienced the NMP.

Miller–Davis filed suit in the Kalamazoo Circuit Court against Ahrens and its bonding company in May 2005, alleging breach of contract and seeking indemnification and bond collection.⁷ Following a bench trial, the circuit court found that Ahrens's work was deficient and that it caused the NMP. The court rejected Ahrens's assertion that it had ceased involvement with the project before July 2003, noting that the parties had engaged in a series of meetings regarding corrective work from March to July 2003. Although the court found that “no claims, suits, actions, recoveries, or demands were ever made or recovered” by Sherman Lake YMCA against Miller–Davis, it found that Miller–Davis had nonetheless suffered damages as a result of Ahrens's deficient work and awarded Miller–Davis damages of $348,851.50.

On appeal, Ahrens argued that the circuit court erred by not granting summary disposition in its favor based on the contractor's statute of repose, MCL 600.5839(1).⁸ The Court of Appeals agreed.⁹ We reversed, holding that the general statute of limitations for contract actions set forth in MCL 600.5807(8)¹⁰ applies to this case rather than the contractor's statute of repose, which applies only to tort actions against a contractor.¹¹ We remanded to the Court of Appeals for application of the proper statute of limitations and for consideration of any remaining issues.¹²

On remand, the Court of Appeals explained that MCL 600.5827 provided that Miller–Davis's claim accrued at the time of the wrong upon which it was based rather than the time when damage resulted.¹³ According to that distinction, the Court of Appeals determined that “the underlying basis for [Miller–Davis's] claim is that defendant breached a contract provision providing that ‘[a]ll ... work furnished on this order shall comply with the terms and requirements of the plans and specifications....' ” ¹⁴ As a result, it held that Ahrens's breach occurred upon the date of substantial completion, which was beyond the six-year statute of limitations for breach of contract actions supplied by MCL 600.5807(8).

The Court of Appeals also held that the indemnity clauses did not affect its conclusion, explaining that “no one had brought a claim or demand against plaintiff within the meaning of the indemnification clause.” ¹⁵ The Court of Appeals found that “defendant did not breach [the indemnity] provision [s] of the contract,” and Miller–Davis could not use the date of defendant'salleged breach of the indemnity clause as an “alternative accrual date” for its underlying breach of contract claim.¹⁶ The Court of Appeals also concluded that even if Miller–Davis could show that Sherman Lake YMCA made a claim or demand against plaintiff, such a demand “arose out of the owner's contract with plaintiff, not plaintiff's subcontract with defendant.” ¹⁷ Finally, the Court of Appeals determined that Miller–Davis had failed to provide evidence causally linking Ahrens's nonconforming work to the NMP, which it considered to be the basis for Miller–Davis's claim for damages.¹⁸

We again granted Miller–Davis's application for leave to appeal, requesting that the parties brief:

(1) whether the indemnification clause in the plaintiff's contract with defendant Ahrens applies to this case; (2) if so, whether the plaintiff's action for breach of that provision was barred by the statute of limitations, MCL 600.5807(8); and (3)...