St. Paul Fire & Marine Ins. Co. v. Pearson Const. Co., 49A04-8705-CV-152

• Decision Date: 12 December 1989
• Docket Number: No. 49A04-8705-CV-152,49A04-8705-CV-152
• Parties: ST. PAUL FIRE & MARINE INSURANCE COMPANY and Insurance Company of North America, Appellees-Appellants, v. PEARSON CONSTRUCTION COMPANY and United Mechanical Contractors, Inc., Appellants-Appellees.
• Court: Indiana Appellate Court

Page 853

547 N.E.2d 853

ST. PAUL FIRE & MARINE INSURANCE COMPANY and Insurance Company of North America, Appellees-Appellants, v. PEARSON CONSTRUCTION COMPANY and United Mechanical Contractors, Inc., Appellants-Appellees.

No. 49A04-8705-CV-152.

Court of Appeals of Indiana Fourth District.

Dec. 12, 1989.

Opinion on Petition for Rehearing March 8, 1990.

James A. Goodin, Jon C. Abernathy, Goodin & Kraege, Indianapolis, for appellees-appellants.

Charles Gaddy, Gaddy & Gaddy, Rodney V. Taylor, Indianapolis, for appellants-appellees.

MILLER, Judge.

St. Paul Fire & Marine Insurance Company [St. Paul] and Insurance Company of North America [INA] (hereinafter referred to collectively as the Insurance Companies) paid $26,915.00 and $65,779.58 respectively for water damage to the property of their insured, J.C. Sipe [Sipe], a retail jeweler, allegedly caused by the failure of a valve in a cold water line in Sipe's tenant space in the AUL Tower, in Indianapolis. The Insurance Companies then brought this subrogation action against general contractor, Pearson Construction Company [Contractor] who contracted to do the finish work on Sipe's tenant space, and one of Contractor's subcontractor, United Mechanical Contractors [Subcontractor] who did the mechanical work and installed the valve, alleging negligence in the installation. ¹

After extensive discovery, Subcontractor filed a motion for summary judgment, claiming it was entitled to judgment as a matter of law because the work had been accepted by Sipe and there was no privity of contract between Subcontractor and Sipe. The motion was granted on September 2, 1986. INA filed a motion to correct error, which was denied, and INA appealed. ²

2]

After Subcontractor's motion was granted, the Insurance Companies moved for summary judgment against Contractor, and Contractor also filed for summary judgment. The trial court granted the Insurance Companies motion and denied Contractor's motion. Contractor perfected this appeal. ³

We affirm the trial court's denial of Contractor's summary judgment, reverse the grant of Subcontractor's summary judgment and the Insurance Companies' summary judgment and remand for further proceedings in accordance with this decision.

ISSUES

We have rephrased the issues as follows:

I. Whether the trial court erred in granting summary judgment to Subcontractor, because Sipe was a third-party beneficiary of the contract between Contractor and Subcontractor;

II. Whether the trial court erred in denying Contractor's summary judgment, because Contractor is not liable for the negligence of Subcontractor which was an independent contractor; and

III. Whether the trial court erred in granting the Insurance Companies summary judgment against Contractor because there are material facts in issue.

FACTS

In the spring of 1983, Contractor contracted with Sipe to do the finishing work on Sipe's tenant space in the AUL Tower in Indianapolis, Indiana. At that time, the AUL Tower, although substantially complete, was still under construction. Under the lease agreement between Sipe and AUL, Sipe was required to furnish its own heating, air conditioning and electrical systems, which were to be connected to the building's systems. The contract between Contractor and Sipe included the installation of these systems, as well as general decorating work such as installing carpeting. Contractor subcontracted with various contractors for portions of the work. Specifically, Contractor contracted with Subcontractor for the mechanical work.

As part of its work, Subcontractor installed an air vent valve in a cold water line. The water line was attached to one of the building's lines which carried water under high pressure. On August 20, 1983, after Contractor had completed work and Sipe had moved in, the valve failed, causing Sipe's space to be flooded and resulting in damage to Sipe's property. The valve was not rated for use on high pressure lines. The Insurance Companies paid for Sipe's property damage, pursuant to their insurance policies with Sipe.

Contractor also contracted with Robert Cougill, an engineer, who prepared plans and specifications to be used by Subcontractor. These plans were approved by the architect in charge of the construction of the AUL Tower. In his deposition, Robert Plummer, president of Contractor, testified he tried to get as-built plans and specifications for the basic building from the architects and contractors for the building, however he received no cooperation from them. Plummer indicated he believed they refused to cooperate because they wanted to do all of the finish work themselves. He also testified that he was unaware the pipes going into the Sipe tenant space were carrying water under high pressure, and that he believed it was unusual to have high pressure in a tenant area. He testified the plans drawn by Cougill did not indicate the pipes were carrying water under high pressure and he had not seen any other drawings which indicated the water was under high pressure. He also indicated that it was not possible to tell from the size or type of pipe used whether the water was under high pressure.

DECISION

Initially, we note that this is a negligence action. The Insurance Companies complaints clearly charge negligence, not breach of contract. In its appellant's brief (in its appeal against Subcontractor), INA acknowledges that it is not claiming breach of contract. In addition, although there is a suggestion in St. Paul's brief that the Insurance Companies are claiming that Contractor breached its contract with Sipe, we note that, pursuant to Ind.Rules of Procedure, Trial Rule 9.2: "When any pleading allowed by these rules is founded on a written instrument, the original or a copy thereof, must be included or filed with the pleading." No copy of the contract between Contractor and Sipe was filed with I. Subcontractor's SUMMARY JUDGMENT

the pleading nor is the contract to be found in the record. Therefore, we will consider only principles based on a negligence theory in our decision.

INA claims the trial court erred in granting summary judgment to Subcontractor, because Sipe was a third-party beneficiary of the contract between Contractor and Subcontractor, and therefore, Subcontractor owed Sipe a duty to perform the contract in a workmanlike manner. Subcontractor argues that Sipe cannot maintain an action against it because: (1) Sipe accepted the work; and (2) Subcontractor was not in privity with Sipe.

Generally, a contractor is not liable to third parties for mere negligence after the work has been accepted by the owner. ⁴ Citizens Gas & Coke Utility v. American Economy Insurance Co. (1985), Ind., 486 N.E.2d 998. Subcontractor argues that it was not in privity with Sipe and under Citizens Gas, supra, cannot be liable to Sipe or its insurers. We disagree.

In Citizens Gas, Citizens Gas installed a water heater in a residence without installing a drain for water which might leak from the heater. The drain was required by the Uniform Plumbing Code. However the owner of the residence did not want the drain installed because it would be necessary to go through a concrete floor and would have been very expensive. Citizens Gas explained that the heater could leak and cause water damage to the residence, however the owner agreed to and did execute a waiver for any damage resulting from the lack of the drain. The owner later sold the house to a third party. The water heater leaked, causing damage to the new owner's property. Our supreme court held that because there was no privity between Citizens Gas and the new owner, Citizens Gas was not liable.

Subcontractor claims that Sipe, like the new owners in Citizens Gas, is a third party to whom it owes no duty. The Insurance Companies claim Sipe is a third-party beneficiary of the contract between Contractor and Subcontractor and a duty to perform the work in a workmanlike manner arose from the contract.

Third-party beneficiaries may directly enforce a contract. Mogensen v. Martz (1982), Ind.App., 441 N.E.2d 34. A third-party beneficiary contract exists when (1) the parties intend to benefit a third party; (2) the contract imposes a duty on one of the parties in favor of the third party; and the performance of the terms of the contract render a direct benefit to the third party intended by the parties to the contract. Id.

As the court in Jackman Cigar Mfg. Co. v. John Berger & Son Co. (1944), 114 Ind.App. 437, 445-46, 52 N.E.2d 363, 367 explained:

To confer upon him the right to maintain an action based upon it, it must appear that it was the intention of one of the parties to it to require performance of some part of it in favor of such third party and for his benefit, and that the other party to the agreement intended to assume the obligations thus imposed. Reed et al. v. Adams Steel & Wire Works et al., 1914, 57 Ind.App. 259, 106 N.E. 882. Such an intention must clearly appear from the terms of the contract itself, E.I. DuPont DeNemours & Company, Incorporated v. Ferguson. 1927, 86 Ind.App. 429, 158 N.E. 488, and the question of the intention of the contracting parties, as distinguished from their motives, which are not controlling, should be gathered from the terms of the contract itself, considered in its entirety against the background of the circumstances known to and shown to surround the contracting parties at the time of its execution, Woodhead Lumber Co. v. E.G. Niemann, Investments, 1929, 99 Cal.App. 456, 278 P. 913; Hay v. Hassett, 1916, 174 Iowa 601, 156 N.W. 734; E. Nelson Mfg. & Lumber Co. v. Roddy, Tex.Civ.App.1930, 34 S.W.2d 624, and see Whicker v. Hushaw, 1902, 159 Ind. 1, 64 N.E. 460, and if, when so considered, the terms of the agreement evinces an intention to benefit third parties, their right to recover under it must be granted, but if inconsistent therewith, must be denied. Fosmire v. National Surety Co., 1920, 229 N.Y. 44, 127 N.E. 472.

Intent may be...