Ninth Circuit Enforces Waiver of Subrogation Clause in Design/Build Agreement Against Post-Construction Property Insurer (Travelers Insurance)
In general, waives of subrogation are enforceable. We have previously posted a blog that deals
with the waivers of subrogation as they apply to the construction industry
here:
Understanding Waivers
of Subrogation as they apply to the Construction Industry
Despite
these precedents and established law, the insurers will still file lawsuits so
that they avoid paying the damage claims.
In the case that follows it is obvious that Travelers’ lawyers are
making some pretty ridiculous assertions, as both the district court and the
court of appeals rejected these claims.
The Travelers’ lawyers could not even understand the difference between
waiver of subrogation and exculpatory clauses!
We attach the entire court opinion so that readers can see the magnitude
of the stupidity shown by these lawyers so that they avoid paying a claim for
damages.
Travelers Indem. Co. v. Crown Corr, Inc., 2014 U.S. App. LEXIS 21101 (9th Cir. 2014)
This action arose
out of the construction of the University of Phoenix Stadium (the “Stadium”),
home of the Arizona Cardinals. Tourism and Sports Authority (the “Owner”)
entered into a Design/Build Agreement with the Arizona Cardinals and Hunt
Construction Group (the “Contractor”) for the design and construction of the
Stadium (the “Prime Contract”). The Contractor then entered into a
subcontract with Crown Corr, Inc. (the “Subcontractor”) for the design of the
Stadium’s exterior enclosure system (the “Subcontract”).
Construction was completed and the Stadium opened in August
2006. Nearly four years later, a storm moving through Glendale, Arizona
caused metal panels to fall from the Stadium, resulting in an estimated $1.5
million in damages to its façade, retractable roofs and the sound system.
The Owner submitted the claim to its post-construction property insurer,
Travelers Indemnity Co. (the “Insurer”), who in turn brought suit as subrogee
of the Owner against the Subcontractor. The Insurer’s complaint alleged
that the failure of the panels and the subsequent damage caused by that failure
were a direct result of the Subcontractor’s negligent construction. The
Subcontractor responded by filing a motion to dismiss on the basis of the
following waiver of subrogation clause contained in the Prime Contract (the
“Waiver”):
“The Parties waive subrogation against one another, the
Design/Builder, Design Consultants, Subcontractors, and their respective agents
and employees on all property and consequential loss policies that may be
carried by any of them on adjacent properties and under property and
consequential loss policies purchased for the Facility.”
The district court dismissed the action after concluding
that the Waiver operated to preclude the Insurer’s claims, and the Insurer appealed
to the Ninth Circuit. On appeal, the Court addressed three
challenges raised by the Insurer to the findings below.
First, the Insurer argued that the district court erred in
interpreting the term “Facility” as used in the Waiver to mean “the Stadium
after it is fully operational.” The Insurer argued that the term
“Facility” referred to the structure during construction and not the completed
Stadium. Thus, the Insurer asserted that the Waiver had expired upon
substantial completion of the project, and did not apply to its
post-construction claims. In rejecting the Insurer’s temporal argument,
the Court found that the Insurer failed to put forth a persuasive reading that
showed that “Facility” refers only
to the Stadium before
substantial completion. The Court cited to other uses of the term in the
Prime Contract referring to “Facility” in a way that describes a
post-completion Stadium. For example, the Court noted a provision
forecasting that the Arizona Cardinals will play “at the Facility for thirty
(30) years.” Thus, the Court reasoned, that even if “Facility” could
possibly refer to pre-completion as the Insurer argued, at most, it only
established that the term refers to the Stadium both before and after substantial completion. The
Court held that the Waiver was therefore still applicable and not “reasonably
susceptible” to the Insurer’s more restrictive view.
Second, the Insurer challenged the district court’s
determination that the Owner could waive the subrogation rights of a property
insurer providing insurance years after the property in question was
completed. In rejecting this argument, the Ninth Circuit noted that
Arizona courts recognize the right of an insured, when the insured is waiving
its own rights, to waive its insurer’s subrogation rights. The Court
pointed to the insurance provision in the Prime Contract wherein the parties
waived their own subrogation rights with respect to the property insurance the
Owner was required to carry, and a similarly broad release contained in the
Subcontract having the same effect. Because these provisions also waived
the Owner’s rights to subrogation, the Court concluded that the Waiver applied
to the Insurer and barred its contract claims against the Subcontractor.
Third, the Insurer argued that, in any event, the Waiver
should not apply to its negligence claim on the grounds that exculpatory
clauses are disfavored and construed strictly in Arizona. The Court
disagreed, finding that a subrogation waiver is different from a true exculpatory
clause. The Court reasoned that subrogation waivers do not present the same
dangers as exculpatory clauses, because no risk exists that the injured party
will be left without compensation. The Court also highlighted the
important policy goals served by subrogation waivers as a matter of risk
allocation. While acknowledging that Arizona did not appear to have ruled
explicitly on whether a subrogation waiver applies to a tort claim, the Court
found no reason that Arizona would depart from the general rule that subrogation
waivers apply regardless of the nature of the claim. Thus, because the
Court concluded that the Owner waived its rights against the Contractor and
Subcontractors and that the Waiver applied against the Insurer as to its
contract claims, the Court also concluded that the Waiver applied to the
Insurer’s tort claim.
Consequently, the Court affirmed the district court’s
decision to enforce the Waiver and dismiss the Insurer’s action for recovery.
___________________________________________
THE TRAVELERS INDEMNITY COMPANY, as subragee of Tourism and
Sports Authority, DBA Arizona Sports & Tourism Authority, Plaintiff -
Appellant, v. CROWN CORR INC., an Indiana corporation, Defendant - Appellee.
No. 12-15170, No. 12-16663
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
2014 U.S. App. LEXIS 21101
March 11, 2014, Argued and Submitted, San Francisco,
California October 31, 2014, Filed
NOTICE: PLEASE REFER
TO FEDERAL RULES OF
APPELLATE PROCEDURE RULE 32.1
GOVERNING THE CITATION TO UNPUBLISHED OPINIONS.
PRIOR HISTORY: [*1] Appeal from the United
States District Court for the District of Arizona. D.C. No.
2:11-cv-00965-JAT. James A. Teilborg, Senior District
Judge, Presiding.
Travelers Indem. Co. v. Crown Corr, Inc., 2012
U.S.
Dist. LEXIS 90326 (D. Ariz., June 29, 2012)
Travelers Indem. Co. v. Crown Corr, Inc., 2011
U.S.
Dist. LEXIS 148529 (D. Ariz., Dec. 27, 2011)
DISPOSITION: AFFIRMED.
CASE SUMMARY:
OVERVIEW: HOLDINGS: [1]-An
insurer's parol evidence was properly rejected
in considering its contract
claim based on the subrogation waiver provision in an
agreement for the construction of a stadium
because the disputed contract
provision was not reasonably
susceptible to the insurer's proffered interpretation, and
thus consideration of the insurer's
interpretation of the provision and its parol evidence were not warranted; [2]-Under the parties' agreement,
the insured could waive
the subrogation rights of a property insurer hired after the property in question
was
completed,
and
thus,
the
subrogation waiver applied
to the insured and barred
its contract claims; [3]-The
contractual subrogation waiver, which was distinct from a disfavored
exculpatory clause, precluded the insured's tort claims, as well as contract
claims, and thus, the insured's
negligence claim was properly rejected.
OUTCOME: Decision affirmed.
COUNSEL: For THE
TRAVELERS INDEMNITY
COMPANY, as subragee
of Tourism and Sports
Authority, DBA Arizona Sports & Tourism Authority, Plaintiff - Appellant (12-15170): Susan Freeman,
Attorney, Lewis Roca Rothgerber LLP, Phoenix, AZ; James
Keller LaRoe, III, Esquire, Attorney,
Law Offices of James K. LaRoe
PC, Dallas, TX.
For CROWN CORR INC., an Indiana corporation, Defendant - Appellee (12-15170): James Lawrence Blair, Attorney, William W. Drury, Jr., Denise J. Wachholz, Renaud Cook Drury Mesaros, PA,
Phoenix, AZ.
For THE TRAVELERS
INDEMNITY COMPANY, as subragee of Tourism and Sports Authority,
DBA Arizona Sports & Tourism Authority,
Plaintiff - Appellant (12-16663): William
G. Voit, Attorney,
Susan Freeman, Attorney, Lewis Roca Rothgerber LLP, Phoenix, AZ;
Page 1
2014 U.S. App. LEXIS 21101, *1
Page 2
James Keller LaRoe, III, Esquire,
Attorney, Law Offices of James K. LaRoe PC, Dallas, TX.
For CROWN CORR INC., an Indiana corporation, Defendant - Appellee (12-16663): James Lawrence Blair, Attorney, William W. Drury,
Jr., Kevin Richard
Myer, Denise J. Wachholz, Renaud Cook Drury
Mesaros, [*2] PA, Phoenix,
AZ.
JUDGES: Before: THOMAS,
FISHER, and BERZON,
Circuit Judges.
OPINION
MEMORANDUM*
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th
Cir. R. 36-3.
Plaintiff-appellant The Travelers
Indemnity Co.
("Travelers") appeals the district court's decision to grant
defendant-appellee Crown Corr, Inc.'s ("Crown Corr") motion to dismiss Travelers' two contract claims and one tort
claim. Because the parties are familiar with the facts and
procedural history of the case, we need not recount them here.
We have jurisdiction under 28 U.S.C. § 1291.
"We review de novo a dismissal
under [Fed. R. Civ. P.] 12(b)(6) for failure to state a claim." Kaiser
Aluminum & Chem. Corp. v.
Catellus Dev. Corp., 976 F.2d 1338, 1340 (9th
Cir. 1992). We also "review a district court's application of state substantive law in diversity
actions de novo." Giles v. Gen. Motors Acceptance
Corp., 494 F.3d 865,
872 (9th Cir. 2007). For the reasons discussed
below, we affirm the district court's decision.
I A
The district court dismissed Travelers'
contract claims on the basis of the subrogation waiver in Section
11.4.6 of the Design/Build Agreement
("agreement"), which set out parameters for the construction of the University of Phoenix
Stadium
("stadium").
Section
11.4.6 reads, in its entirety:
The Parties waive
subrogation against one another,
the Design/Builder, Design
Consultants, Subcontractors, and their
respective agents and [*3] employees
on all property and consequential loss policies that may be carried by any of them
on adjacent properties and under property and consequential loss policies
purchased for the Facility.
When Arizona courts
interpret contracts, they "attempt to ascertain and give effect
to the intention of the parties
at the time the contract
was made if at all possible." Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz.
148, 854 P.2d 1134, 1139 (Ariz. 1993)
(internal quotation marks omitted). The Arizona Supreme
Court has instructed that a "judge first considers the offered
evidence and, if he or she finds that the contract language is 'reasonably susceptible' to the interpretation asserted by its proponent,
the evidence is admissible to determine the meaning intended by the parties." Id. at 1140.
However, a court "need
not waste much time if the asserted interpretation is unreasonable or the offered
evidence is not
persuasive." Id. at 1141.
The district court did not err in concluding that Section 11.4.6 was not
"reasonably susceptible" to Travelers' proffered interpretation and therefore rejecting Travelers' parol evidence. Travelers
contends that the district court erred in interpreting the term "Facility" in Section 11.4.6 to mean "the Stadium after it is fully operational." However,
Travelers fails to put forth a
narrower [*4] reading that shows the term refers only
to the stadium before substantial completion. At most,
Travelers establishes that the term refers to the stadium both before and after
substantial completion. For example, Travelers notes that in Recital
A of the agreement, "Facility" is used as a shorthand version of the term "multipurpose stadium
facility" and that the
Recital states that the Authority
is empowered to "construct, finance, furnish, maintain,
improve, own, operate, market and provide" the "Facility." Travelers argues that because the agreement envisions "construct[ing]" and "financ[ing]" the Facility, both of
which will occur before completion, the term could apply
to the stadium before completion. Similarly, Travelers argues that the terms "Work" and "Project," refer to the services necessary to complete
the stadium and the
construction process, not the precompletion stadium itself, so that "Facility" could still be used
pre-completion. Even if Travelers is correct as to both of
these arguments, it only succeeds
in showing that the
term applies to the stadium
before and after completion.
Indeed, if the fact that Recital A uses "construct" and "finance" in describing the early stages of the stadium
shows [*5] that the term "Facility" could
apply to the precompletion stadium, the fact that "maintain," "operate," and "market" are also used shows that "Facility" must also apply to the stadium after completion
and throughout its lifetime.
Travelers also cites several sections,
including Sections 1.5, 1.8.1, and 2.1.1, that use adjectives beyond the term "Facility" itself
to describe the "completed and fully operational Facility." It argues these phrases show that
"Facility" cannot refer only to the post-completion stadium. But, again, Travelers' argument does not establish that "Facility" refers only to the pre-completion stadium. Moreover, in other provisions, like Recitals A and
B, and Sections 1.7.1.10, 2.8.1.b,
11.4.1.m, the contract refers
to "Facility" in a way that describes a post-completion stadium.
Indeed, Recital B forecasts that the
Arizona Cardinals football team will play football games "at the Facility for thirty (30) years." In that context, the
term envisions a fully completed stadium
over the course of three decades. In short, the term
"Facility" means the stadium at any time. The waiver therefore still applies today and is not "reasonably susceptible" to
Travelers' more restrictive view.
The broader context of the Design/Build [*6] Agreement confirms our view of the subrogation waiver. Section 11.4.6 does not include any language as to how long
it will be in effect.
Travelers argues that the
agreement was written to facilitate construction of the stadium and, as a result, it only mentions
duration when a provision, like Section 2.2.20,
is meant to apply beyond substantial completion. See, e.g.,
Agreement § 2.2.20 ("The provisions of this Article [2] shall survive the
completion, suspension or termination of this
Agreement."). However, other
sections, like Section 11.4.1, explicitly state that they will apply through substantial completion only.
Other provisions in Section 11.4 are written narrowly as well.
Section 11.4.3 explains
the extent to which the Authority and the Cardinals
may occupy the partially
completed stadium (labeled
in this provision "the Work" and not "the Facility"). Section 11.4.5 contains
a waiver of rights due to loss or damage to equipment used during
construction. Section 11.4.4 includes a waiver of rights
"for damages caused by perils covered by insurance
provided under Section 11.4."
Section 11.4.6 is different from each of these
provisions. It contains a subrogation waiver by the Parties against all others involved, including subcontractors,
"under property or consequential loss policies purchased for the Facility." [*7] It does not limit itself to injuries or harm arising from "the Work," and it does not include
the Section 11.4.4 restriction that the waiver applies only to
"insurance provided under Section 11.4." Instead, the language is
far broader.
In sum, we conclude that Section 11.4.6
is not reasonably susceptible to Travelers' narrow interpretation. The district court
did not err in rejecting that interpretation and refusing to consider Travelers'
parol evidence.[1]
B
Travelers also challenges the
district court's conclusion, assuming
the subrogation waiver applies to Travelers, that the Authority
had the ability to waive the
subrogation rights of a post-construction property insurer.
Arizona courts recognize
the right of an insured, when the insured is waiving its own rights,
to waive its insurer's subrogation rights. Monterey Homes Ariz., Inc. v.
Federated Mut. Ins. Co., 221 Ariz. 351, 212 P.3d 43,
47 (Ariz. Ct. App. 2009) (noting that "an insurer's
right to subrogation derives
from its insured's
right to recover against a third party" and concluding that "if the insured
releases its claims against [*8] the third party--even
without the insurer's consent--the insurer
will be barred from asserting that claim against the third party by way
of subrogation").
The Authority waived its rights against Crown Corr.
Section 11.2, in general, requires the Design/Builder (i.e., Hunt) to carry liability insurance. In Section 11.2.5,
the agreement provides that Hunt, and its consultants and subcontractors via separate agreements, releases the
Authority and other "Released Parties" "from any and all
claims or causes of action" which Hunt or its consultants or subcontractors possess "resulting in or from or in any
way connected with any loss covered and actually paid . .
. by an insurance policy as agreed by the Parties
hereunder." In return, that same provision states that
[t]he Released Parties
. . . release the Design/Builder . . . [and]
Subcontractors . .
. from any and all claims or causes of action
whatsoever which any of the Released Parties might otherwise possess resulting in or from or in any way
connected with any loss to the extent it is covered
and actually paid by any insurance policy provided hereunder or any other insurance policy otherwise
available to the Released Party or that should have been covered by any insurance [*9] policy any Released Party was required to maintain.
Hunt's agreement with Crown Corr, at Section
8.3, contains a similarly
broad release provision.
Crown Corr also notes
that Travelers' insurance policy explicitly
acknowledges that an "Insured," like the Authority,
"may waive its rights against another
party by specific
written agreement." As a result, Travelers has implicitly
acquiesced to the subrogation waiver
in Section 11.4.6. Moreover, savvy insurers like Travelers have several
options available, when negotiating an insurance contract, for limiting
the effect of a subrogation waiver. See
Bakowski v. Mountain States Steel, Inc., 2002 UT 62, 52
P.3d 1179, 1186 (Utah 2002).
In sum, we conclude the district court did not err in determining that the Authority
could waive the subrogation rights of a property insurer
hired years after the
property in question
was completed. As a result,
we conclude that the subrogation waiver in Section
11.4.6 applies to Travelers and bars its contract claims
against Crown Corr.
II
The district court
rejected Travelers' negligence claim under Arizona's economic
loss doctrine. We affirm
on a
separate ground, namely that the subrogation waiver in Section 11.4.6. precludes tort
claims as well as contract claims. See Atel Fin. Corp. v. Quaker Coal Co., 321 F.3d 924,
926 (9th Cir. 2003) ("We may affirm the district
court's judgment on any ground
supported by [*10]
the record, whether or not the decision of the district
court relied on the same grounds or reasoning we adopt.").
Generally, subrogation waivers
apply "regardless of the nature of the claim." 2 Philip L. Bruner & Patrick J. O'Connor, Jr., Bruner & O'Connor on Construction Law, Analysis of AIA General
Conditions: Waivers of Subrogation, § 5:231 (2014). Travelers argues the waiver of
subrogation in this case nonetheless should not apply to
tort claims because:
(1) Arizona law requires waivers of liability for negligence to be expressed
in "clear and unequivocal terms," Sirek v.
Fairfield Snowbowl, Inc., 166 Ariz. 183, 800 P.2d 1291, 1295 (Ariz. Ct. App. 1990),
and the Design/Build Agreement does not contain the necessary language; (2) the Design/Build Agreement, in
Section 15.8.1, notes that nothing
in the agreement should be read to limit
rights and remedies
available to the parties by law; and (3) the Arizona
Constitution, article XVIII, section
5, requires that defenses in tort
cases of contributory negligence or assumption of risk be heard by a jury.
Travelers is correct
that exculpatory clauses,
which exempt a negligent
tortfeasor from liability
and leave a victim
with no recourse, are disfavored and construed
strictly in Arizona, because such clauses"may encourage carelessness." Sirek, 800 P.2d at 1294-96; see
also Bothell v. Two Point Acres, Inc., 192 Ariz. 313, 965 P.2d 47, 51 (Ariz. Ct. App. 1998);
Morganteen
v.
Cowboy
Adventures, Inc., 190 Ariz. 463, 949 P.2d 552, 553-56 (Ariz. Ct. App. 1997); Mauer v. Cerkvenik-Anerson Travel, Inc., 181 Ariz. 294, 890 P.2d 69, 73-74 (Ariz. Ct.
App. 1994).
However, subrogation waivers
are different from traditional exculpatory clauses. Subrogation waivers do not present
[*11] the same dangers as exculpatory
clauses, because no risk exists that the injured party will
be left without compensation, and subrogation waivers serve important policy goals. Lexington Ins. Co. v. Commc'n Servs., Inc., 275 Neb. 702, 749 N.W.2d
124, 130-31 (Neb. 2008); see also Am. Motorist Ins. Co. v. Morris Goldman Real Estate Corp., 277 F. Supp. 2d 304, 307-08 (S.D.N.Y. 2003) (noting that a "waiver of subrogation clause is an allocation
of risk provision, which places the ultimate risk of loss on the insurer," and that
subrogation waivers "are
not true exculpatory clauses").
The cases Travelers cites all relate
to exculpatory clauses. Although Arizona does not appear to have ruled
explicitly on whether a subrogation waiver applies to a
tort claim, Travelers cites no case law that would compel
us to conclude Arizona would depart from the general rule. Travelers points to language in the Arizona constitution and to language
in the Design/Build Agreement itself. But subrogation waivers
are also different from the assumption of risk waivers
contained in many form contracts and targeted by the Arizona Constitution, again because the injured party is not left
without recompense. And while Section
15.8.1 of the agreement clarifies that nothing
in the agreement serves as "a
limitation of any duties, obligations, right and remedies otherwise
imposed or available
at law," Travelers cites
no authority [*12]
that supports construing such a provision to constrain a subrogation
waiver--a common type of waiver found in many contracts in the construction context. Moreover, although neither is completely factually
analogous, both United States Fidelity and Guaranty Co. v. Farrar's
Plumbing and Heating Co., 158 Ariz. 354, 762 P.2d 641, 641-43
(Ariz. Ct. App. 1988), and Fire Insurance
Exchange v. Thunderbird Masonry,
Inc., 177 Ariz. 365, 868 P.2d 948, 952-53 (Ariz. Ct. App. 1993), lend support to the general proposition that a valid subrogation waiver encompasses
tort claims. Thus, because we conclude that the Authority waived its rights against
Hunt and subcontractors and that the subrogation waiver applies against Travelers as to its contract claims, we also conclude the waiver applies
to Travelers' tort claim.[2]
III
Because we affirm the district
court's decision to grant
Crown Corr's motion to dismiss,
we also affirm the court's
decision to grant attorneys' fees to Crown Corr.
AFFIRMED.
[1]
Both Travelers
and Crown Corr cite to a
number of cases from other states. These cases are of limited relevance because,
unlike this case, they all involve the American Institute
of Architects' ("AIA") form contract, or some close variation thereof.
[2]
Travelers also contends that, even if the
subrogation waiver applies
to its tort claim, "the scope of that waiver could extend only to damage
to property that was the subject of the
subcontractor's work" and not to other
property--such as the separate roof system and sound
system speaker clusters--that was allegedly damaged by the falling
roof panels in this case. We
conclude that the district court
did not err in
deciding that the subject of the Design/Build Agreement, and the subrogation waiver specifically, was the entire completed stadium and that Travelers
has not sufficiently supported its argument that certain portions
of [*13] the stadium are so separate
and distinct as to
constitute "other property" outside the scope
of the agreement and waiver.