Reliance Nat. Indem. v. Knowles Ind. Ser.

• Decision Date: 23 February 2005
• Citation: 868 A.2d 220,2005 ME 29
• Parties: RELIANCE NATIONAL INDEMNITY et al. v. KNOWLES INDUSTRIAL SERVICES, CORP. et al.
• Court: Maine Supreme Court

868 A.2d 220

2005 ME 29

RELIANCE NATIONAL INDEMNITY et al. v. KNOWLES INDUSTRIAL SERVICES, CORP. et al.

Supreme Judicial Court of Maine.

Argued: November 18, 2004.

Decided: February 23, 2005.

A. Richard Bailey, Esq. (orally), Cozen O'Connor, Philadelphia, PA, Neal F. Pratt, Esq., Peter S. Black, Esq., Verrill & Dana, LLP, Portland, for plaintiffs.

Gerard O. Fournier, Esq. (orally), Portland, for Knowles Industrial Services Corp.

David P. Very, Esq. (orally), Norman, Hanson & DeTroy, Esq., Portland, for Nutec Industrial Chemical, Inc.

David P. Silk, Esq. (orally), Patricia A. Hafener, Esq., Curtis Thaxter Stevens Broder & Micoleau LLC, Portland, for Camger Chemical Systems, Inc.

Philip M. Coffin, Esq. (orally), Teresa M. Cloutier, Esq., Lambert Coffin, Portland, for Clarence E. Smith, Inc.

Panel: SAUFLEY, C.J., and CLIFFORD, RUDMAN, ALEXANDER, CALKINS, and LEVY, JJ.

LEVY, J.

[¶ 1] This appeal stems from claims associated with a fire that destroyed Saco's First Parish Congregational Church, UCC, in August 2000. The fire was caused by an employee of Knowles Industrial Services, Corp., which had contracted to remove lead paint from and repaint the exterior of the Church. Reliance National Indemnity, Federal Insurance Co., Fireman's Fund Insurance Co., and Wassau Employers Insurance Co. — subrogating insurers of the Church — appeal from a summary judgment entered in the Superior Court (York County, Fritzsche, J.). The court found that the waiver of subrogation in the Church's contract with Knowles barred the insurers' claims. The insurers argue that the summary judgment was improper because (1) the court made impermissible determinations of fact; (2) the court erred in enforcing the waiver of subrogation because it is void as against public policy; and (3) the court erred in applying the waiver of subrogation to Nutec Industrial Chemical, Inc., Clarence E. Smith, Inc., and Camger Chemical Systems, Inc. We affirm the judgment.

I. BACKGROUND

[¶ 2] The construction contract between the Church and Knowles contains the following provision: "The Owner and Contractor waive all rights against each other, separate contractors, and all other subcontractors for damages caused by fire or other perils to the extent covered by Builder's Risk or any other property insurance, except such rights as they may have to the proceeds of such insurance."

[¶ 3] The paint stripper used by Knowles to remove the lead paint from the exterior of the Church was manufactured and distributed by Nutec Industrial Chemical, Inc., Clarence E. Smith, Inc., and Camger Chemical Systems, Inc. (hereinafter referred to collectively as "the chemical defendants").¹ A Knowles employee caused the fire that destroyed the Church by bringing a cigarette or open flame within ten feet of a section of the Church to which large quantities of the paint stripper had been applied earlier that day.

[¶ 4] The Church submitted claims for its losses to Reliance National Indemnity, Federal Insurance Co., Fireman's Fund Insurance Co., and Wassau Employers Insurance Co. (hereinafter referred to collectively as "Reliance") totaling almost $15,000,000 and received payments from the insurers for about half that amount. As a subrogee, Reliance then brought a suit in the Church's name against Knowles and the chemical defendants seeking to recover damages pursuant to M.R. Civ. P. 17(a). As to Knowles, the complaint alleged willful and wanton misconduct, negligence, breach of contract, and breach of warranty. As to the chemical defendants, the complaint alleged strict liability, negligence, and breach of warranty.

[¶ 5] Knowles and the chemical defendants moved for a summary judgment. The court entered a partial summary judgment in favor of Knowles and the chemical defendants, and against the Church, to the extent that the Church's damages were covered by property insurance. The court found that the waiver of subrogation barred the Church's claims.

[¶ 6] Upon Reliance's motion, the court later joined Reliance as a named party to the suit. Then, after all of the Church's claims had either been dismissed or settled, the court issued its final judgment. The court ordered that its prior partial summary judgment against the Church was now final against Reliance because Reliance's claims were subrogated claims for which judgment had previously been entered in favor of Knowles and the chemical defendants, and because all of the Church's claims had been dismissed with prejudice. This appeal followed.

II. DISCUSSION

[¶ 7] We review an entry of summary judgment for errors of law, viewing the evidence in the parties' statements of material facts and any record references therein in the light most favorable to the party against whom the judgment was entered. Stanley v. Hancock County Comm'rs, 2004 ME 157, ¶ 12, 864 A.2d 169, 174. We uphold the judgment "if there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law." Rodrigue v. Rodrigue, 1997 ME 99, ¶ 8, 694 A.2d 924, 926. An issue is "genuine if there is sufficient evidence supporting the claimed factual dispute to require a choice between the parties' differing versions of the truth at trial." Univ. of Me. Found. v. Fleet Bank of Me., 2003 ME 20, ¶ 20, 817 A.2d 871, 877 (quotation marks omitted). A fact is "material if it could potentially affect the outcome of the case." Id.

A. Whether the Court Made Impermissible Determinations of Fact

[¶ 8] Reliance argues that the court's entry of summary judgment was improper because the court made impermissible determinations of fact. Reliance contends that genuine issues of material fact exist with respect to whether Knowles misrepresented its qualifications and intentions in order to obtain the contract from the Church. As subrogee of the Church, Reliance is bound by the Church's statement of material facts and record references.

[¶ 9] Whether Knowles misrepresented its qualifications and intentions is material because Reliance argues that Knowles's misrepresentation is cause to void the contract between Knowles and the Church. Misrepresentation is an affirmative defense for which the Church had the burden of proof. See Kuperman v. Eiras, 586 A.2d 1260, 1261 (Me.1991)

. When a plaintiff has the burden of proof on an issue, a court may properly grant summary judgment in favor of the defendant if it is clear that the defendant would be entitled to a judgment as a matter of law if the plaintiff presented nothing more than was before the court at the summary judgment hearing. Champagne v. Mid-Me. Med. Ctr., 1998 ME 87, ¶ 9, 711 A.2d 842, 845. Because it had the burden of proof with respect to misrepresentation, the Church had to establish a prima facie case for each element of the defense in order to avoid a summary judgment. See id.

[¶ 10] Reliance predicates its misrepresentation argument on two assertions. First, Reliance asserts that Knowles misrepresented its intent to comply with all pertinent federal and state regulations because Knowles was unaware that a distinct body of standards applied to the restoration of historic properties. Second, Reliance asserts that Knowles misrepresented its qualifications because, although Knowles warranted that it would employ only qualified personnel, none of the workers assigned to the Church project had any experience in historic preservation.

[¶ 11] Assuming for the sake of argument that the project constituted "historic preservation," as Reliance claims, the Church's statement of material facts and supporting record references neither alleged nor pointed to any evidence that Knowles was unaware of any pertinent regulations,² that Knowles's employees were not qualified, or that Knowles misled the Church regarding its qualifications. In other words, the Church alleged that it relied on Knowles's representations, but it never expressly asserted that Knowles misrepresented itself. The fact that Knowles was subsequently negligent does not establish that it had previously misrepresented its qualifications and intentions.

[¶ 12] Because the Church failed to adduce evidence that Knowles misrepresented its qualifications or its intentions in its statement of material facts, it failed to establish a prima facie case for misrepresentation. Furthermore, the contract between Knowles and the Church contains an integration clause that precludes the implication of any extrinsic promises. Thus, the court did not make impermissible determinations of fact in its entry of a summary judgment.

B. Whether the Waiver of Subrogation Is Void As Against Public Policy

[¶ 13] A waiver of subrogation is a provision by which parties to a contract relieve each other of liability to the extent each is covered by insurance, thereby shifting the risk of loss to an insurer. See Acadia Ins. Co. v. Buck Constr. Co., 2000 ME 154, ¶ 16, 756 A.2d 515, 519

; Emery Waterhouse Co. v. Lea, 467 A.2d 986, 994-95 (Me.1983). We have held that "waivers of subrogation are encouraged by the law and serve important social goals: encouraging parties to anticipate risks and to procure insurance covering those risks, thereby avoiding future litigation, and facilitating and preserving economic relations and activity." Acadia Ins. Co.,

2000 ME 154, ¶ 18,

756 A.2d at 520. Reliance attempts to carve out a public policy exception to the general rule that waivers of subrogation are enforceable. Specifically, Reliance contends that public policy precludes the enforcement of the waiver of subrogation in this case based on Knowles's willful and wanton misconduct or its violation of a positive statutory duty, or because enforcement will be harmful to the interests of society.

1. Willful and Wanton Misconduct

[¶ 14] Reliance argues that the waiver of subrogation is unenforceable because of Knowles's willful and wanton misconduct.³ Reliance observes, "[I]t is well settled that an exculpatory clause is unenforceable in the face of claims of gross...