Tri-State Ins. Co. v. COMMERCIAL GROUP WEST

• Decision Date: 22 June 2005
• Docket Number: No. 20050007.,20050007.
• Citation: 698 N.W.2d 483,2005 ND 114
• Parties: TRI-STATE INSURANCE COMPANY OF MINNESOTA, Plaintiff and Appellant v. COMMERCIAL GROUP WEST, LLC, a North Dakota Limited Liability Company; and Lawson, Inc., a North Dakota Corporation, d/b/a DL Enterprise Construction, Defendants and Appellees and Commercial Group West, LLC, Third-Party Plaintiff v. Dennis Lawson; Virginia Lawson; and Lawson, Inc., a North Dakota Corporation, d/b/a DL Enterprise Construction, Third-Party Defendants.
• Court: North Dakota Supreme Court

698 N.W.2d 483

2005 ND 114

TRI-STATE INSURANCE COMPANY OF MINNESOTA, Plaintiff and Appellant v. COMMERCIAL GROUP WEST, LLC, a North Dakota Limited Liability Company; and Lawson, Inc., a North Dakota Corporation, d/b/a DL Enterprise Construction, Defendants and Appellees and Commercial Group West, LLC, Third-Party Plaintiff v. Dennis Lawson; Virginia Lawson; and Lawson, Inc., a North Dakota Corporation, d/b/a DL Enterprise Construction, Third-Party Defendants.

No. 20050007.

Supreme Court of North Dakota.

June 22, 2005.

Collin P. Dobrovolny, McGee, Hankla, Backes & Dobrovolny, Minot, N.D., for plaintiff and appellant.

Steven A. Storslee, Storslee Law Firm, Bismarck, N.D., for defendants and appellees.

SANDSTROM, Justice.

[¶ 1] Tri-State Insurance Company of Minnesota ("Tri-State") appeals from a summary judgment dismissing its case against Lawson, Inc., a North Dakota Corporation doing business as DL Enterprise Construction ("Lawson"), seeking reimbursement for insurance payments made to Lake Metigoshe Properties, Inc. ("Metigoshe Properties") for damages to a motel building that resulted from a heavy rainstorm. We reverse and remand, concluding the insurance contract was unambiguous and Lawson was not a co-insured.

I

[¶ 2] On March 13, 2000, Commercial Group West, LLC ("CGW") contracted to build a motel for Metigoshe Properties. The motel was to be manufactured as modules, transported to Lake Metigoshe, and assembled. Each module, consisting of two motel rooms with a hallway in between, was built in Kenmare by CGW and transported to Lake Metigoshe, where the modules were placed together. Each module was wrapped in a plastic sheet when it left the factory, except for the roof, which was to be built after the modules were set in place at Lake Metigoshe.

[¶ 3] The name of an entity called Commercial Structures West, LLC ("CSW") started appearing in construction documents after Metigoshe Properties and CGW contracted to build the motel. CSW was created in case contractors could not be retained to build the motel on site at Lake Metigoshe. CGW and CSW, by separate contracts, hired Lawson as the subcontractor to finish the construction of the motel at Lake Metigoshe.

[¶ 4] Tri-State insured Metigoshe Properties under a builder's risk policy for the construction of the motel. Metigoshe Properties was the named insured on the insurance policy. CSW was listed as an additional insured in the application and in the binder. The builder's risk policy issued by Tri-State showed CSW as a loss payee rather than an additional insured.

[¶ 5] Lawson completed only a portion of the roof before a large rainstorm, on July 2, 2000, damaged the interior units of the motel. A large amount of water pooled on the plastic covering the modules and leaked into the interior, causing water damage. Tri-State paid Metigoshe Properties $270,000 for the damage. The insurance checks were made payable to Metigoshe Properties and CSW.

[¶ 6] CGW, CSW, and Metigoshe Properties were controlled by some of the same individuals, but Lawson was a separate entity and did not share any officers, shareholders, or employees with either CGW, CSW, or Metigoshe Properties. Lawson was owned by Virginia Lawson, and Dennis Lawson was the general manager.

[¶ 7] Tri-State sued Lawson to recover the insurance proceeds it paid to Metigoshe Properties for the water damage. Tri-State claimed that Lawson's negligence in constructing the roof of the motel caused the water damage and that it should be able to subrogate its claim against Lawson and obtain reimbursement from Lawson for the money it paid to Metigoshe Properties for the water damage. The district court granted Lawson's motion for summary judgment, holding that Tri-State, as the insurer of the owner of the building project, also intended to insure Lawson as a subcontractor.

[¶ 8] The district court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27-05-06. The appeal was timely under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. Const. art. VI, § 2, and N.D.C.C. §§ 27-02-04 and 28-27-01.

II

[¶ 9] Tri-State argues it did not intend to insure an unknown subcontractor when it issued the policy to Metigoshe Properties. It contends that the district court erred in holding Tri-State could not bring a subrogation action against Lawson and that summary judgment was inappropriate for several reasons. Tri-State claims the district court erred in granting summary judgment because the district court had to determine the intent of the parties, which is a question of material fact, and it had to find that Lawson was an implied co-insured under the insurance policy even though the subcontractor's identity was not known to the insurer and Lawson made no payment toward the insurance premium.

[¶ 10] "Summary judgment is appropriate when there is no dispute as to the material facts and only questions of law remain to be decided." Stuhlmiller v. Nodak Mutual Ins. Co., 475 N.W.2d 136, 137 (N.D.1991). "Even if a factual dispute exists, summary judgment is proper if the law is such that resolution of the factual dispute will not change the result." Gratech Co., Ltd. v. Wold Engineering, P.C., 2003 ND 200, ¶ 8, 672 N.W.2d 672 (citations omitted). "Interpretation of a written contract of insurance is a question of law for which summary judgment is an appropriate method of disposition." Stuhlmiller, at 137. We have summarized our standards for construing an insurance policy:

Our goal when interpreting insurance policies, as when construing other contracts, is to give effect to the mutual intention of the parties as it existed at the time of contracting. We look first to the language of the insurance contract, and if the policy language is clear on its face, there is no room for construction. "If coverage hinges on an undefined term, we apply the plain, ordinary meaning of the term in interpreting the contract." While we regard insurance policies as adhesion contracts and resolve ambiguities in favor of the insured, we will not rewrite a contract to impose liability on an insurer if the policy unambiguously precludes coverage. We will not strain the definition of an undefined term to provide coverage for the insured. We construe insurance contracts as a whole to give meaning and effect to each clause, if possible. The whole of a contract is to be taken together to give effect to every part, and each clause is to help interpret the others.

Nationwide Mut. Ins. Companies v. Lagodinski, 2004 ND 147, ¶ 8, 683 N.W.2d 903 (citations omitted).

Subrogation is an equitable remedy which provides for an adjustment between parties to secure the ultimate discharge of a debt by the person who, in equity and good conscience, ought to pay for it. Generally, when an insurer pays its insured for a loss, the insurer is subrogated to the insured's right of action against any third party responsible for the loss. However, an insurer is not entitled to subrogation from its own insured for a claim arising from the very risk for which the insured was covered.

American National Fire Ins. Co. v. Hughes, 2003 ND 43, ¶ 8, 658 N.W.2d 330 (citations omitted). "An insurer is not entitled to subrogation from entities named as insureds in the insurance policy, or entities deemed to be additional insureds under the policy." Id. This insurance principle is called the antisubrogation rule. Black's Law Dictionary 104 (8th ed.2004). "An entity not named as an insured in an insurance policy is considered an additional insured when, under the circumstances, the insurer is attempting to recover from the insured on the risk the insurer had agreed to take upon payment of premiums." Hughes, at ¶ 8.

III

[¶ 11] Tri-State argues the district court improperly extended the antisubrogation rule to Lawson. The district court concluded that Lawson was an implied co-insured because Lawson was hired instead of CSW to complete the construction project and that this change in companies did not alter the insurance agreement. The district court held that if Tri-State were permitted to recover from Lawson, Tri-State would, in effect, be recovering on the very risk that it had agreed to take upon payment of the premium by Metigoshe Properties.

[¶ 12] A builder's risk policy is a "property loss insurance contract by which a builder, whether the owner of or general contractor on a building, seeks to insulate himself from loss which he might suffer because of damage to or loss of a building in the process of construction." Jay M. Zitter, Annotation, Insurance: Subrogation of Insurer Compensating Owner or Contractor for Loss Under "Builder's Risk" Policy Against Allegedly Negligent Contractor or Subcontractor, 22 A.L.R.4th 701, 704 (1983).

[¶ 13] The coverage section of the insurance contract between Tri-State and Metigoshe Properties provides:

PROPERTY COVERED

1. Buildings and Structures—"We" cover direct physical loss caused by a covered peril to buildings and structures described on the "declarations" while in the course of construction, erection, or fabrication. This includes materials and supplies which will become a permanent part of the buildings or structures, foundations, excavations, grading, filling, attachments, and permanent fixtures.

2. Scaffolding and Construction Forms—"We" cover direct physical loss, caused by a covered peril, to scaffolding or construction forms provided the scaffolding or construction forms are located at the building or structure described on the "declarations."

. . . .

ADDITIONAL COVERAGES

1. Transit and Storage Locations— "We" cover direct physical loss caused by a covered peril to materials and supplies which will become a permanent part of buildings or structures described on the "declarations" while they are:

a. in transit; or

b. at an unscheduled storage location.

The most "we" pay under this coverage is $2,500 plus the "limit" indicated on the "declarations".

[¶ 14] Lawson argues the district court did...