St. Paul Fire & Marine Ins. Co. v. Freeman-White Associates, Inc.
| Decision Date | 06 April 1988 |
| Docket Number | FREEMAN-WHITE,No. 462A87,462A87 |
| Citation | 366 S.E.2d 480,322 N.C. 77 |
| Court | North Carolina Supreme Court |
| Parties | ST. PAUL FIRE & MARINE INSURANCE COMPANY and Charlotte-Mecklenburg Hospital Authority, Plaintiffs, v.ASSOCIATES, INC. and William Funderburk, Defendants, and Third-Party Plaintiffs, v. McCARTHY BROTHERS COMPANY, Third-Party Defendant. |
Yates, Fleishman, McLamb & Weyher by Barbara B. Weyher and Gary R. Poole, Raleigh, for plaintiffs-appellees.
Griffin, Cochrane, Marshall & Elger by Luther P. Cochrane, Jeanette R. Hait, and John Dean Marshall, Jr., Atlanta, and Jones, Hewson & Woolard by Robert G. Spratt, III, Charlotte, for defendants-appellants.
This contract issue comes before us in the setting of the construction industry. The question with which the Court is presented is whether certain provisions concerning insurance coverage in the contract between plaintiffs and defendants are ambiguous. The majority in the Court of Appeals concluded that they were. We affirm.
On 26 April 1983 defendant Freeman-White ("Architect") entered into a contract with plaintiff Charlotte-Mecklenburg Hospital ("Owner") to design a 130-bed hospital and medical center. Defendant Funderburk, who had consulted with Freeman-White on structural matters for many years, assisted in designing the project.
On 21 November 1983, while subcontractors of the construction manager were pouring concrete to form the project's south-wing roof, the south-wing collapsed, causing property damage in excess of $10,000.00. The Owner received compensation for damage to the project, which was covered by the Owner's Builders' Risk insurance policy, issued by plaintiff St. Paul Fire & Marine Insurance Company ("St. Paul").
The Owner and St. Paul as insurer-subrogee filed a complaint against the Architect, asserting two theories of recovery: (1) the Architect's negligence caused the collapse, and (2) the Architect had breached its contract with the Owner. The Architect moved for a Rule 12(b)(6) dismissal, alleging that the contract documents showed that the Owner had agreed to waive its rights of recovery against the Architect for this property damage. The trial court granted the Architect's motion and on 20 May 1986 entered an order dismissing the Owner's complaint.
The Owner appealed to the Court of Appeals. The majority of the panel in that court concluded that the contract provisions at issue appeared inconsistent with each other, or at least susceptible to more than one interpretation; thus, the case should have gone to the jury and dismissal on the Rule 12(b)(6) motion was error. The trial court's order was reversed and the case remanded. One judge dissented, stating that when the contract is construed as a whole, the provisions relating to insurance coverage are unambiguous, so that the waiver provisions of the policy prevented the Owner from bringing the action.
The contract between the Owner and the Architect was the 1980 Edition of the American Institute of Architects, AIA Document B141/CM, Standard Form Agreement Between Owner and Architect, Construction Management Edition, with some modifications. This contract incorporated by reference, in part, the 1980 Edition of the American Institute of Architects, AIA Document A201/CM, General Conditions of the Contract for Construction, Construction Management Edition. The contract is lengthy and detailed, but our perusal of the pertinent provisions that follow convinces us that the Court of Appeals' decision was correct.
Paragraph 11.4 of the contract between the Owner and the Architect (AIA Document B141/CM) provides:
The Owner and the Architect waive all rights against each other and against the contractors, consultants, agents and employees of the other, for damages covered by any property insurance during construction, as set forth in the 1980 Edition of AIA Document A201/CM, General Conditions of the Contract for Construction, Construction Management Edition. The Owner and the Architect shall each require appropriate similar waivers from their contractors, consultants and agents.
The applicable waiver provisions in the General Conditions incorporated by reference in the preceding paragraph constitute subparagraph 11.3.6:
The Owner and the Contractor waive all rights against (1) each other and the Subcontractors, Sub-subcontractors, agents and employees of each other, and (2) the Architect, the Construction Manager 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. The foregoing waiver afforded the Architect, the Construction Manager, their agents and employees shall not extend to the liability imposed by Subparagraph 4.18.3. The Owner or the Contractor, as appropriate, shall require of the Architect, the Construction Manager, separate contractors, Subcontractors and Sub-subcontractors by appropriate agreements, written where legally required for validity, similar waivers each in favor of all other parties enumerated in this Subparagraph 11.3.6.
Paragraph 11.3.1 of the General Conditions of the Contract for Construction (AIA Document A201/CM) provides in part:
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 Construction Manager, 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.
By separate document, the parties added a paragraph numbered 11.5 to the contract between the Owner and the Architect (AIA Document B141/CM). Paragraph 11.5 provides:
The Architect shall maintain in force an Architects and Engineers Professional Liability Insurance Policy providing coverage for errors and omissions of professional services in architecture, building design, HVAC, electrical, mechanical, structural engineering, that might be made pursuant to this Agreement and protecting the Owner from the direct and consequential results of such errors or omissions. Such insurance shall provide coverage on an occurrence and aggregate basis in amounts not less than $1,000,000 and $1,000,000 respectively. This insurance shall be maintained in force during the life of the Project and for that period of time following the date of final completion during which an action for professional liability on the part of the Architect for this Project may be brought by the Owner under North Carolina Law. The Architect may provide such insurance protection to the Owner through commercial insurance or other financial mechanisms acceptable to the Owner, and the Owner's acceptance shall not be unreasonably withheld.
The precise question with which the Court is presented is whether the contract documents clearly establish that the Owner agreed to waive its rights against the Architect, looking only to the Builders' Risk insurance policy it agreed to procure to cover damage to the project itself. Close examination of the pertinent contract provisions reveals, as the Court of Appeals majority pointed out, that they appear to be susceptible to more than one interpretation: (1) that the true intent of the parties was that the Owner would waive all claims against the Architect for damage against which the Owner had insured itself, or (2) that the Architect would provide its own insurance coverage for damage caused by its own errors and omissions, thereby negating waiver as to such losses. This conclusion is illustrated by the parties' contentions.
Plaintiffs contend that the provisions of the Owner-Architect Agreement and the General Conditions reveal an intent by the parties that de...
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