Travelers Ins. Companies v. Dickey, 70690

• Decision Date: 16 October 1990
• Docket Number: No. 70690,70690
• Citation: 1990 OK 109,799 P.2d 625
• Parties: The TRAVELERS INSURANCE COMPANIES, Plaintiff-Appellant, v. Dale DICKEY, d/b/a Dale Dickey Roofing and Sheet Metal, a Nul Tiel Enterprise, Defendant-Appellee.
• Court: Oklahoma Supreme Court

Page 625

799 P.2d 625

1990 OK 109

The TRAVELERS INSURANCE COMPANIES, Plaintiff-Appellant, v. Dale DICKEY, d/b/a Dale Dickey Roofing and Sheet Metal, a Nul Tiel Enterprise, Defendant-Appellee.

No. 70690.

Supreme Court of Oklahoma.

Oct. 16, 1990.

Mark T. Koss, Messrs. McNulty, Koss, Fulp & Bumgarner, Oklahoma City, for plaintiff-appellant.

Brad Smith, Messrs. Knowles, King and Smith, Tulsa, for defendant-appellee.

OPALA, Vice Chief Justice.

This certiorari petition tenders for review but two issues: 1) whether the roofing contractor (defendant at nisi prius), hired by the insured and alleged to have negligently caused damage to the latter's property, for which the insurer has paid, can be considered a co-insured whose status makes him immune from liability to the insurer on its subrogation claim and 2) whether the pre-loss mutual "waiver" of liability agreement between the contractor and the insured owner bars the insurer's subrogation claim against the contractor. We answer both questions in the negative.

An owner of commercial property [owner or insured] hired the individual defendant, Dale Dickey, d/b/a Dale Dickey Roofing and Sheet Metal [contractor or roofer], to replace the roofs of several office buildings. One night, before the project was completed, rain penetrated through one of the roofs then under repair and damaged the interior. The Travelers Insurance Companies [insurer] paid the owner's loss and brought this action against the roofer, alleging the water damage was caused by his negligence.

In support of its claim the insurer's petition refers to the roofer's breach of contractual duty to make sure "the roofs are maintained in a 'dried in' or watertight condition at the end of each days [sic] work and/or when weather conditions dictate." Responsibility for the "acts and omissions" of the workers is expressly placed upon the contractor, who must "indemnify and hold harmless the Owner ... from and against all claims, damages, losses or expenses resulting from the performance of the Work."

The contractor, who denied liability, moved for summary judgment, arguing the insurer's subrogation claim is not actionable. The basis for this contention is twofold: a) the contractor should be treated as a co-insured, based on his "interest" in the property covered by the owner's insurance policy and b) the insurer's subrogation claim is barred by the owner/contractor agreement to "waive all rights against each other for damages caused by fire or other perils to the extent covered by insurance."

When giving summary judgment for the contractor, the trial court ruled 1) the contractor is a "co-insured" under the owner's policy, 2) by the terms of the roofing contract the owner "waived" the right to enforce the liability in controversy and 3) the owner's waiver is "permitted" by the insurance policy. The Court of Appeals affirmed. The latter court construed the terms of the policy together with the contract, concluding that since no right of recovery exists in the owner (insured), none could be pressed by the insurer. Upon the insurer's petition, certiorari was granted.

I.

THE CONTRACTOR MAY NOT BE TREATED AS A CO-INSURED OF THE

OWNER'S POLICY

A co-insured is immune from liability on an insurer's subrogation claim. ¹ While the owner here is the named insured, the policy does not mention the individual roofer at all, let alone refer to him as an insured. The notion that he could be viewed as a co-insured has its source in that part of the construction contract which requires the owner to procure property insurance. The pertinent terms of the owner/roofer agreement provide:

"PROPERTY INSURANCE will be purchased and maintained by the Owner covering the completed value of the Work. Any loss will be adjusted with the Owner and made payable to the Owner as trustee for the Contractor. The Contractor shall be responsible for payment of the deductible amount in the event of a paid claim. The Owner and Contractor waive all rights against each other for damages caused by fire or other perils to the extent covered by insurance, except for such rights as they may have to the proceeds of such insurance held by the Owner as trustee. The Contractor shall require similar waivers in favor of the Owener [sic] and Contractor by subcontractors and sub-subcontractors." (Emphasis added.)

The policy, which the owner purchased in fulfillment of its obligation to the roofer, covers among other things,

"1. A. Any interest of the insured in all Real and Personal Property owned, used, leased, managed or intended for use by the insured, or hereafter constructed, erected, installed, or acquired, including during the course of construction, at described premises on file with this company, erection, installation, or assembly. In the event of loss or damage, this company will consider the insured as the sole and unconditional owner of improvements and betterments, notwithstanding any contract or lease to the contrary; and

"B. Any interest of the insured in the Real and Personal Property of others and the insured's liability imposed by law or assumed by contract for nonowned Real and Personal Property; and

" * * *

"D. Contractors' interest in property covered to the extent of the insured's liability imposed by law or assumed by written contract...." (Emphasis added.)

As the trial court did before it, the Court of Appeals considered the quoted excerpts from the policy and from the roofing contract, concluding that the roofer should be treated as an insured because he had an interest in at least some of the property covered by the policy. The appellate court also viewed the roofing contract as manifesting the parties' intent to shield the contractor from liability for any loss covered by the owner's insurance. Our analysis of the materials in the record compels a different conclusion.

The modification of an insurance policy is governed generally by contract principles. ² An insurer's undertaking cannot be altered or modified by an insured's agreement with a third party in the absence of the insurer's consent. ³ The roofing contract and the insurance policy in suit comprise two distinct agreements and give rise to two different and separate relationships. ⁴ The former establishes the owner-contractor relation; the latter, the insurer-insured bond. The roofing contract's requirement that the owner purchase insurance does not make the contractor a co-insured under the policy; neither does part 1(D) of the insurance policy (quoted above), which refers to "contractors' interest in property covered." Rather, as we view the quoted coverage, it affords the owner indemnity for a loss on the covered premises to property in which the contractor has an interest. In case of damage either to any of the completed work for which he has not yet been paid or to any of his tools or equipment, the roofer would be protected by the policy's coverage as a third-party beneficiary. ⁵

The contractor urges we should here follow the Court of Appeals' reasoning in Sutton v. Jondahl. ⁶ There, a landlord's insurer who sued the tenants claimed that the tenants' negligence caused the fire which damaged the rented premises. The court held the insurer's subrogation claim barred because the tenant, who had an insurable (possessory) interest in the damaged property, should be considered as a co-insured. ⁷ Although the Sutton facts might be perceived as somewhat similar to those in this case, we view the opinion as unpersuasive for clothing the roofer with the status of an insured and exonerating him from liability on the subrogation claim at bar. In Sutton the damage occurred to the tenants' dwelling itself, while here, there is no allegation that the loss in suit extends to any property other than that owned, possessed and used solely by the named insured (owner).

The construction contract contains a provision, quoted in Part II of this opinion, requiring the roofer to secure liability coverage. It also requires the roofer to

"[s]ubmit a certificate of insurance showing such policy or policies, with the Owner named as additional insured, to Owner or Owner's agent prior to the start of construction operation." (Emphasis added.)

While this clause requires the roofer to include the owner as a co-insured under its liability policy, there is no reciprocal obligation that the roofer be made a co-insured of the owner's policy. In fact, the construction contract expressly charges the owner with the duty to act as trustee for the contractor in the event of a paid loss for any funds that may be due the latter under the owner/roofer contract.

We cannot divine from either the policy or the contract any intent to confer indemnity rights on the roofer. Rather, it is the owner who stands protected from liability for loss to property situated on the covered premises in which the contractor may have an interest. Although the construction contract makes the owner responsible for securing coverage for the value of the work completed, no one alleges that the harm in suit affected any part of the roofer's contractual performance and, in any event, neither the policy nor the contract directs that any proceeds be paid to the roofer. Had the policy expressed an intent to cover the roofer's property or to make him a loss payee ⁸ under its terms, he would be considered a co-insured or a third-party beneficiary. ⁹ But even in that instance his indemnity interest would shield him from subrogation liability only to the extent that the value of his property or of his completed and unpaid performance stood insured from loss. The principle of subrogation is to be liberally applied for the protection of its "natural beneficiaries." ¹⁰

In short, assuming the roofer was a co-insured or a third-party beneficiary of the policy for indemnity against some losses, the attributes of that status would not afford him immunity from subrogation coextensive with the owner's entire coverage. ¹¹ While...