Rli Ins. Co. v. Southern Union Co.

• Decision Date: 31 May 2011
• Docket Number: WD 71972.,Nos. WD 71851,WD 71874,s. WD 71851
• Citation: 341 S.W.3d 821
• Parties: RLI INSURANCE COMPANY, Appellant–Respondent,v.SOUTHERN UNION CO., d/b/a Missouri Gas Energy, Respondent–Appellant.
• Court: Missouri Court of Appeals

341 S.W.3d 821

RLI INSURANCE COMPANY, Appellant–Respondent,

v.SOUTHERN UNION CO., d/b/a Missouri Gas Energy, Respondent–Appellant.

Nos. WD 71851

WD 71874

WD 71972.

Missouri Court of Appeals, Western District.

May 31, 2011.

Nikki Cannezzaro, Kansas City, MO, for appellant-respondent.David R. Schlee, Vincent R. McCarthy and Truman K. Eldridge, Jr., Kansas City, MO, for respondent-appellant.

Before Division Two: JAMES M. SMART, JR., Presiding Judge, MARK D. PFEIFFER, Judge and CYNTHIA L. MARTIN, Judge.

CYNTHIA L. MARTIN, Judge.

This is an appeal by RLI Insurance Company (“RLI”) from an order granting summary judgment in favor of Southern Union Company doing business as Missouri Gas and Energy (“MGE”) on a subrogation claim originally asserted by RLI's insured, Triumph Foods LLC (“Triumph”). MGE has filed a cross appeal. Because we conclude that MGE was an intended third party beneficiary of a waiver of subrogation provision in a contract Triumph signed, we affirm.

Facts and Procedural History

On October 12, 2005, a natural gas explosion destroyed a portion of a hog processing plant (“Plant”) owned by Triumph in St. Joseph, Missouri. The Plant was under construction at the time. The explosion was caused by the ignition of leaking gas inside the Plant. The report from the Missouri Division of Fire Safety relating to the explosion stated, in part, “[t]he cause of this explosion and fire was listed as accidental due to the evidence that a natural gas valve in the kitchen had been installed and left open and uncapped.” The suspect valve was not installed or opened by MGE.

RLI was Triumph's builder's risk insurer. As a result of the explosion at the Plant, RLI paid Triumph $7,990,000.00 for the cost to reconstruct the Plant. Triumph also claimed that it sustained consequential and lost business income damages from the explosion which were not covered by the RLI policy.

Triumph filed suit against MGE and several other defendants. Counts seven through ten of Triumph's third amended petition asserted various theories of recovery against MGE, and sought to recover Triumph's consequential and lost business income damages (“Lost Business Income Damages”) and the $7,990,000.00 paid by RLI to Triumph under the builder's risk insurance policy (“Subrogation Damages”).¹ In response to the third amended petition, MGE asserted an affirmative defense of waiver of subrogation.

Prior to the explosion, and in order to undertake construction of the Plant, Triumph retained a construction manager, A. Epstein and Sons International, Inc. (“Epstein”). Triumph used a standard American Institute of Architects (“AIA”) A101/CMa form of contract to enter into several contracts with contractors whose efforts were required to construct the Plant (“AIA Contract”). In each AIA Contract, Triumph was named as “Owner,” the entity with whom Triumph contracted was named as “Contractor,” and Epstein was named as the Construction Manager.

Each AIA Contract incorporated General Conditions of the Contract for Construction (“General Conditions”). The General Conditions contained a “Waiver of Subrogation” provision at paragraph 11.3.7 which provided:

The Owner and Contractor waive all rights against each other and against the Construction Manager, Architect, Owner's other Contractors and own forces described in Article 6,

if any, and the subcontractors, sub-subcontractors, consultants, agents and employees of any of them, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 11.3 or other property insurance applicable to the Work, except such rights as the Owner and Contractor may have to the proceeds of such insurance held by the Owner as fiduciary and except for damages caused by the Contractor's breach of the Contract or damages covered by any insurance maintained, or required, under this Contract to be maintained, or required under this Contract to be maintained by Contractor. The Owner or Contractor, as appropriate, shall require of the Construction Manager, Construction Manager's consultants, Architect, Architect's consultants, Owner's separate contractors described in Article 6, if any, and the subcontractors, sub-subcontractors, agents and employees of any of them, by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated herein. The policies shall provide such waivers of subrogation by endorsement or otherwise. A waiver of subrogation shall be effective as to a person or entity even though that person or entity would otherwise have a duty of indemnification, contractual or otherwise, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged.

(Emphasis added to italicized and bold text; underlined text in original.)

Paragraph 6.1.1 of the General Conditions addressed the “Owner's Right to Perform Construction with Own Forces and to Award Other Contracts,” and provided:

The Owner reserves the right to perform construction or operations related to the Project with the Owner's own forces, which include persons or entities under separate contracts not administered by the Construction Manager. The Owner further reserves the right to award other contracts in connection with other portions of the Project or other construction or operations on the site under Conditions of the Contract identical or substantially similar to these including those portions related to insurance and waiver of subrogation. If the Contractor claims that delay or additional cost is involved because of such action by the Owner, the Contractor shall make such Claim as provided elsewhere in the Contract Documents.

(Emphasis added.)

Triumph separately contracted with MGE on July 1, 2005 (“MGE Contract”). The MGE Contract required MGE to transport natural gas to the Plant. Triumph and MGE did not use the AIA Contract form to enter into the MGE Contract. The MGE Contract did not discuss or identify Triumph's use of a Construction Manager.

MGE constructed a gas distribution line from its existing gas main to the Plant, and constructed and installed a gas meter and pressure regulating equipment at the northeast corner of the Plant. The MGE Contract did not expressly require MGE to undertake these construction activities. MGE did not charge Triumph for construction of the gas distribution line or for installation of the meter and pressure regulating equipment. MGE continued to own the gas line and equipment after it was installed. The MGE Contract provided that Triumph was solely responsible for installing “[a]ny and all piping, appliances, equipment or facilities ... required to utilize gas service beyond the point of delivery.”

The MGE Contract incorporated a Gas Rate Schedule LV and MGE's “general terms and conditions for gas service.” The MGE Contract did not incorporate the AIA Contract or the General Conditions. The MGE Contract did not contain a waiver of subrogation provision, and was silent on the subject of subrogation.

MGE filed a motion for summary judgment on July 17, 2009. With respect to the Subrogation Damages, MGE alleged that it was a third party beneficiary to the waiver of subrogation provision in the General Conditions.² MGE also asserted that its tariff on file with the Missouri Public Service Commission imposed complete responsibility on Triumph for natural gas issues arising after the point of delivery, and served as a complete defense to all claims and damages asserted by Triumph. MGE also asserted that there was no legal basis for Triumph to recover its Lost Business Income Damages, to recover its attorneys' fees, or to recover on a claim for breach of the express warranty of merchantability.

On September 23, 2009, the trial court entered an order granting in part and denying in part MGE's motion for summary judgment (“Summary Judgment Order”). The trial court held that MGE was entitled to judgment as a matter of law on the Subrogation Damages (sought in each of counts seven through ten). The trial court held that MGE was entitled to judgment as a matter of law on the breach of express warranty of merchantability claim (count eight), and on Triumph's claim for attorney's fees (sought in each of counts seven through ten). The trial court denied the motion for summary judgment with respect to MGE's argument that its tariff served as an absolute defense to each of Triumph's claims, and with respect to MGE's argument that Triumph could not recover Lost Business Income Damages.

As a result of the Summary Judgment Order, counts seven, nine, and ten seeking consequential and Lost Business Income Damages were left unresolved. The unresolved issues were set for trial in November, 2009. In early November, 2009, counsel for MGE and Triumph requested removal from the trial docket, and advised the trial court that they had reached a settlement agreement. The settlement agreement reserved Triumph's right to appeal the Summary Judgment Order's entry of judgment in MGE's favor on the Subrogation Damages. Triumph and MGE could not yet stipulate to dismissal of the unresolved issues set for trial, however, as the settlement agreement remained subject to formal approval by MGE's board of directors. The trial court set the case on its dismissal docket on December 4, 2009, and advised the parties that if a stipulation of dismissal was not filed by that date “there will be a dismissal entered by the Court without prejudice.”

On November 23, 2009, the trial court entered an interlocutory judgment and order dismissing with prejudice all of Triumph's claims against defendants other than MGE based on a stipulation filed by the involved parties.

By December 4, 2009, Triumph and MGE had not filed a stipulated dismissal of the unresolved issues set for trial. The trial court denied a request for additional time to complete the documentation of ...