U.S. Automatic Sprinkler Corp. v. Erie Ins. Exch.

Decision Date29 March 2022
Docket NumberCourt of Appeals Case No. 21A-CT-580
Parties U.S. AUTOMATIC SPRINKLER CORPORATION, Appellant-Defendant, v. ERIE INSURANCE EXCHANGE, Travelers Indemnity Company of Connecticut a/s/o Sycamore Springs Surgical Center, LLC, Dr. Nancy Pruett, D.D.S., and 3D Exhibits, Inc., Appellees-Plaintiffs
CourtIndiana Appellate Court

Attorneys for Appellant U.S. Automatic sprinkler Corporation: Crystal G. Rowe, Katherine E. Tapp, Kightlinger & Gray, LLP, New Albany, Indiana, Thomas J. Jarzyniecki, Jr., Kightlinger & Gray, LLP, Indianapolis, Indiana

Attorneys for Appellee Travelers Indemnity Company of Connecticut a/s/o Sycamore Springs Surgical Center: James M. Weck, Clausen Miller P.C., Michigan City, Indiana, Joseph J. Ferrini (pro hac vice), Clausen Miller P.C., Chicago, Illinois

Attorney for Appellee Erie Insurance Exchange: Kevin L. Moyer, Moyer Law Firm, P.C., Indianapolis, Indiana

Attorneys for Appellees Dr. Nancy Pruett, D.D.S. and 3d Exhibits, Inc.: Nelson Nettles, LeBlanc Nettles Law, LLC, Brownsburg, Indiana, Matt R. Lefler (pro hac vice), Evans & Dixon, St. Louis, Missouri

Vaidik, Judge.

Case Summary

[1] Sycamore Springs Surgery Center, L.L.C. ("Surgery Center") was a tenant in an office building, and it contracted with U.S. Automatic Sprinkler Corporation ("Automatic Sprinkler") to inspect and test the building's sprinkler system. In December 2016, Automatic Sprinkler was called to the building by the landlord—not by Surgery Center—to address a leak. Without consulting or seeking approval from Surgery Center, an Automatic Sprinkler employee made some adjustments to the sprinkler system. A few days later, the system failed and flooded the building, causing property damage to Surgery Center and other tenants. Surgery Center's insurer, Travelers Indemnity Company of Connecticut ("Travelers"), covered Surgery Center's losses and then filed a subrogation action against Automatic Sprinkler. Automatic Sprinkler was also sued for the damage to the other tenants.

[2] Automatic Sprinkler sought summary judgment against all plaintiffs. Regarding Travelers, as subrogee of Surgery Center, Automatic Sprinkler relied on a subrogation waiver in its contract with Surgery Center. As to the other tenants, Automatic Sprinkler argued it did not have a duty because it had no contract with them and therefore was not in privity with them. The trial court denied both motions, and Automatic Sprinkler appeals.

[3] As to Travelers, we affirm. Because Automatic Sprinkler did the work at issue pursuant to a request from the landlord, not under its contract with Surgery Center, the subrogation waiver in the contract does not apply. However, regarding the other tenants, we reverse. While our Supreme Court has abolished the requirement of privity for personal-injury claims against contractors, it has not done so in the property-damage context. Therefore, Automatic Sprinkler did not have a duty to the other tenants.

Facts and Procedural History

[4] Surgery Center, Dr. Jane Chen, D.D.S., Dr. Nancy Pruett, D.D.S., and 3D Exhibits, Inc. were tenants in an office building in Indianapolis. At some point, a sprinkler system was installed in the building for the benefit of Surgery Center. Surgery Center signed an amendment to its lease that included a provision making it responsible for the system and its maintenance and requiring it to carry adequate insurance to cover any damage caused by the system. Appellant's App. Vol. II p. 116. Consistent with these lease obligations, Surgery Center entered into a Fire Protection Inspection Agreement ("Inspection Agreement") with Automatic Sprinkler to periodically inspect and test the sprinkler system. Id. at 70-74. "Repairs, replacement, and emergency services" were generally excluded from the agreement but could be authorized by Surgery Center. Id. at 71 (Coverage ¶3); see also id. at 74 (addressing "Emergency Services").

[5] On November 28, 2016, Automatic Sprinkler performed a regular test of the sprinkler system and determined it was operating properly. On December 12, however, a maintenance worker for the building owner/landlord discovered a leak in the sprinkler system. Despite Surgery Center being responsible for the system, the maintenance worker contacted Automatic Sprinkler directly. An Automatic Sprinkler employee went to the building, made some adjustments to the sprinkler system, and left. There is no evidence Surgery Center was consulted about the leak or authorized the work.

[6] Within days, multiple pipes froze and burst, causing damage to all the tenants. Several parties later sued Automatic Sprinkler for negligence. Surgery Center's insurer—Travelers—and Dr. Chen's insurer—Erie Insurance Exchange ("Erie")—after covering those tenants’ losses, sued Automatic Sprinkler in subrogation.1 And while most of Dr. Pruett's and 3D Exhibits's losses were also covered by insurance, they sued Automatic Sprinkler directly.

[7] The cases were consolidated, and Automatic Sprinkler moved for summary judgment. It filed one motion against Travelers, as subrogee of Surgery Center, arguing Travelers has no right to sue because the Inspection Agreement includes the following subrogation waiver and agreement to insure: "No insurer or other third party will have any subrogation rights against [Automatic Sprinkler]. [Surgery Center] will be responsible for maintaining all liability and property insurance." Id. at 71 (General Terms and Conditions ¶2). Automatic Sprinkler filed a separate motion against Erie (as subrogee of Dr. Chen), Dr. Pruett, and 3D Exhibits, whom Automatic Sprinkler refers to as the "Non-Contract Tenants" because they were not parties to the Inspection Agreement. Automatic Sprinkler argued that, because of this lack of contractual privity, it had no duty to the Non-Contract Tenants. The trial court denied both motions, and Automatic Sprinkler sought and received permission to bring this interlocutory appeal.

Discussion and Decision

[8] Automatic Sprinkler contends the trial court erred by denying its motions for summary judgment. We review such motions de novo, applying the same standard as the trial court. Hughley v. State , 15 N.E.3d 1000, 1003 (Ind. 2014). That is, "The judgment sought shall be rendered forthwith if the designated evidentiary matter shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Ind. Trial Rule 56(C).

I. Travelers

[9] Automatic Sprinkler contends it is entitled to summary judgment against Travelers, as subrogee of Surgery Center, because of the subrogation waiver and agreement to insure in the Inspection Agreement. It argues this provision evinces a "clear intent to transfer the risk of loss to Surgery Center's insurer." Appellant's Br. p. 21. It cites Board of Commissioners of County of Jefferson v. Teton Corp. , where our Supreme Court explained that a subrogation waiver and agreement to insure "work in tandem to ensure that the parties resolve damages disputes through insurance claims, not lawsuits." 30 N.E.3d 711, 714 (Ind. 2015).

[10] Travelers's response is simple. It contends the Inspection Agreement, including the provision relied on by Automatic Sprinkler, is inapplicable because the December 12 work was done not under the Inspection Agreement but rather pursuant to a separate request by the landlord.

[11] For purposes of summary judgment, Automatic Sprinkler doesn't dispute it did the December 12 work at the request of the landlord and therefore "outside" the Inspection Agreement. See Appellant's Br. pp. 25, 28; Appellant's Reply Br. p. 5; see also Tr. p. 20. However, it contends Travelers's argument in this regard "invokes the same ‘work versus non-work’ distinction previously rejected by the Indiana Supreme Court in Teton ." Appellant's Br. p. 19. Automatic Sprinkler did not make this Teton "work versus non-work" argument during the summary-judgment proceedings in the trial court and therefore waived it for purposes of appeal. See Shenmei Yuan v. Wells Fargo Bank, N.A. , 162 N.E.3d 481, 488 (Ind. Ct. App. 2020). Waiver notwithstanding, the distinction Travelers makes here—between work done under a contract and work done outside a contract—is not the distinction the Supreme Court rejected in Teton .

[12] Teton involved a contract between Jefferson County and Teton Corporation for the repair of part of the county courthouse. The contract included a subrogation waiver under which the county waived all rights "for damages caused by fire or other perils to the extent covered by property insurance...." Teton , 30 N.E.3d at 713. During the work, a subcontractor started a fire that damaged not only "the work" (i.e., the part of the building that was being worked on under the contract) but also "non-work property" (i.e., other parts of the building that were not being worked on under the contract). Id. at 714. The county's property insurance covered all the damages, but the county sued Teton and others "to recover damages caused to its property outside the scope of the work[.]" Id. The defendants argued the action was barred by the subrogation waiver, since those damages were "covered by property insurance."

[13] Our Supreme Court framed the issue as follows:

[W]hether we should interpret the subrogation waiver according to either (1) the "Work versus non-Work" approach, under which the Owner waives subrogation only for losses related to "the Work" (i.e., the contracted-for construction and services); or (2) the "any insurance" approach, under which the Owner waives subrogation for all losses covered by Owner's insurance policy "applicable to the Work," regardless of whether the damage was to work or non-work property.

Id. at 713. The Court rejected the "Work versus non-Work" approach and adopted the "any insurance" approach, holding that the subrogation waiver was "based on the source and extent of the property insurance coverage , not the nature of the damages or of the damaged...

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  • U.S. Automatic Sprinkler Corp. v. Erie Ins. Exch.
    • United States
    • Supreme Court of Indiana
    • March 6, 2023
    ...Travelers, finding that the Inspection Agreement did not apply because the allegedly negligent work fell outside the agreement's scope. Id. at 449. And the reversed the trial court's denial of Automatic Sprinkler's motion against the Non-Contract Tenants, reasoning that Automatic Sprinkler ......

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