S.S.D.W. Co. v. Brisk Waterproofing Co., Inc.

• Decision Date: 12 June 1990
• Citation: 76 N.Y.2d 228,557 N.Y.S.2d 290,556 N.E.2d 1097
• Parties: , 556 N.E.2d 1097 S.S.D.W. CO., Respondent, v. BRISK WATERPROOFING COMPANY, INC., Appellant and Third-Party Plaintiff-Appellant; Coyne Electrical Contractors, Inc., Third-Party Defendant-Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 290

557 N.Y.S.2d 290

76 N.Y.2d 228, 556 N.E.2d 1097

S.S.D.W. CO., Respondent, v. BRISK WATERPROOFING COMPANY, INC., Appellant and Third-Party Plaintiff-Appellant Coyne Electrical Contractors, Inc., Third-Party Defendant-Appellant.

Court of Appeals of New York.

June 12, 1990.

Lynne M. Fischman, New York City, for appellant and third-party plaintiff-appellant.

Irwin H. Haut, New York City, for third-party defendant-appellant.

Morton Greenwald and Roberta Burman, New York City, for respondent.

OPINION OF THE COURT

HANCOCK, Judge.

Plaintiff, the owner of an apartment building, contracted with defendant to do some corrective work. A fire broke out causing extensive damage not only to portions of the building covered by the contract but to other areas as well. Plaintiff's insurer paid plaintiff for the full extent of the damage, and in this negligence action, suing in the name of plaintiff as its subrogee, seeks reimbursement for its loss. The narrow issue in this appeal, requiring an interpretation of the subrogation waiver clause in the agreement between plaintiff owner and defendant contractor, is whether that clause bars the subrogation claim for damage to those portions of the building not included in the Work under the contract. For reasons stated hereafter, we agree with the Appellate Division that the waiver clause applies only to damage to the areas within the limits of "the Work" and that, therefore, the subrogation claim is, except for such damages, not barred. Accordingly, there should be an affirmance.

I

Plaintiff, the owner of Carnegie Towers in Manhattan, contracted with defendant, a waterproofing contractor, to do certain corrective work on the exterior of the building and the parking garage floor. The relevant provisions of the contract, a standard American Institute of Architects (AIA) form contract for "construction projects of limited scope", are these.

Under article 1 (the Work), the specific work required to be performed is described as follows: "Corrective Work to the Masonry and Concrete Portions of Exterior Walls and the Parking Garage Floor Slab for Carnegie Towers 115 East 87th Street New York, New York".

The general provision describing the Work, set forth in article 7.4, is as follows: "The Work comprises the completed construction required by the Contract Documents and includes all labor necessary to produce such construction, and all materials and equipment incorporated or to be incorporated in such construction."

Under article 17 (Insurance) the following provisions are pertinent:

Article 17.1 requires that the contractor purchase and maintain: "liability insurance * * * to protect [it] * * * from claims for damages, other than to the Work itself, to property which may arise out of or result from the Contractor's operations under this Contract" (emphasis supplied).

Article 17.3 requires that the owner: "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" (emphasis supplied).

Article 17.6 provides: "[t]he Owner and Contractor waive all rights against each other for damages caused by fire or other perils to the extent covered by insurance obtained pursuant to this Article or any other property insurance applicable to the Work" (emphasis supplied).

On May 24, 1984, a fire started in a shed constructed by defendant on a fifth-floor terrace, causing approximately $140,000 in damages to the interior hallways, apartments and to the exterior of the building. Seven months after the fire, plaintiff was paid $139,351.74 for the loss by its property insurer which has brought this action as subrogee to recover its loss from defendant. Defendant, in turn, has commenced a third-party action against its subcontractor, Coyne Electrical Contractors.

Relying on the waiver provision contained in article 17.6, defendant moved to dismiss the complaint. Supreme Court granted defendant's motion and, sua sponte, dismissed the third-party action, citing Trump-Equitable Fifth Ave. Co. v. H.R.H. Constr. Corp., 106 A.D.2d 242, 485 N.Y.S.2d 65, aff'd for reasons stated below 66 N.Y.2d 779, 497 N.Y.S.2d 369, 488 N.E.2d 115. The Appellate Division, with one Justice dissenting, modified on the law by reinstating the complaint to the extent that it seeks damages for losses to portions of the building not included in the contractual work and reinstated the third-party complaint. The Appellate Division distinguished Trump-Equitable and held that, under the contract here, plaintiff was required to obtain coverage only for "the Work" and that "[a]ny other coverage the owner may have had for the property was not, by the terms of [article] 17.6, subject to the waiver of subrogation therein" (153 A.D.2d 476, 478, 544 N.Y.S.2d 139. The Appellate Division certified to this court the questionS "Was the order of the Supreme Court, as modified by this Court, properly made?" We answer the question in the affirmative.

II

Our decision turns on a construction of article 17.6 in the contract in which the owner agreed to waive all rights against the contractor for damages caused by fire "to the extent covered by insurance obtained pursuant to this Article or any other property insurance applicable to the Work". The question is: Does the owner's waiver under article 17.6 bar the subrogation claim of its insurer for damages caused by the contractor in areas of the building outside the limits of the Work?

In addressing the legal issue of what the parties intended, we note that we are dealing with a commercial construction contract between business entities. The owner and contractor in article 17.6 (the waiver clause), article 17.1 (requiring the contractor to insure its potential liability for non-Work property damage) and article 17.3 (requiring the owner to provide property insurance for the contractor's Work) have agreed upon an allocation of their respective responsibilities, risks and insurance obligations pertaining to the possibility of property damage occurring during the contract and to the contractor's potential liability stemming from its operations. Neither party claims that the contract is ambiguous nor raises any claim of misunderstanding, overreaching or unconscionability. No policy consideration or other reason has been suggested why the parties should not abide by their agreed-upon allocation of the risks and responsibilities, once the meaning of their agreement has been determined (see, Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 14, 537 N.Y.S.2d 787, 534 N.E.2d 824; Kalisch-Jarcho, Inc. v. City of New York, 72 N.Y.2d 727, 732, 536 N.Y.S.2d 419, 533 N.E.2d 258; Simons v. Fried, 302 N.Y. 323, 324, 98 N.E.2d 456).

The allocation of the risks and responsibilities, according to plaintiff, is that the owner must provide property insurance protection covering the contractor's Work (art. 17.3) and the contractor, in turn, must provide liability insurance covering whatever property damage it may cause other than to the Work itself (art. 17.1). The waiver clause (art. 17.6), plaintiff says, permits the owner's insurer to proceed against the contractor for property damage caused by its negligence but not for damage covered by insurance which the owner has provided to protect the contractor's interest--i.e., damage resulting to the contractor's Work. As to such damage, there can be no subrogation. In the event of a loss, such as the one here, involving fire damage to the Work and areas beyond the Work, the damages may be shared between the owner's insurer (which is responsible for so much of the damage as occurs to the Work) and the contractor's liability insurer (which, assuming there is liability, must bear ultimate responsibility for damages outside the Work).

The agreement, as the defendant and third-party defendant view it, allocates a greater share of the risk and responsibilities to the owner and ultimately to the owner's insurer. Under their construction, the waiver clause (art. 17.6) prevents the owner's insurer from proceeding against the contractor for its negligence not only for damage occurring to the Work but to other areas of the building, provided that the damage "arose out of, or was related to, the Work itself." (Brief of third-party defendant, at 13.) Thus, in the event of a fire arising out of the contractor's operations which results in damage both to the Work and areas outside the Work, the owner's insurance carrier's right to subrogate is totally barred. In addition to the loss for damage to the Work, the owner's carrier must also bear the loss for damage to other areas which, under the contrary construction urged by plaintiff, would ultimately have been borne by the liability insurer of the contractor.

Our analysis of the contract supports plaintiff's construction. The waiver clause (art. 17.6) bars the claim of the owner's subrogee to the extent that the damages sought are covered either by: (1) "insurance obtained pursuant to [art. 17]" or (2) "any other property insurance applicable to the Work" (emphasis added). The first alternative (insurance obtained pursuant to art. 17) refers to insurance which the owner has procured under article 17.3 in which it is obligated to provide insurance "upon the entire Work at the site" (emphasis added) and to include therein the interests of the contractor and subcontractors "in the Work" (emphasis added). The second speaks for itself. It refers only to other insurance "applicable to the Work" (emphasis added). It makes no difference whether the policy under which subrogation is sought is one which the owner purchased specifically to insure the Work pursuant to article 17.3 or some other policy covering the owner's property in which the owner has also provided coverage for the Work. In either event,...