ConstructLaw.com

September, 2007

IN THIS ISSUE
PA Court Holds Incorporation of Prime Contract Indemnity Provision Into Subcontract Insufficient to Require Subcontractor To Indemnify General Contractor For Its Own Negligence

New Jersey Court Holds Contract Clause Providing for Accrual of Statute of Limitations on Substantial Completion Cannot Be Circumvented By Application of Discovery Rule

Federal District Court In West Virginia Holds Pay-If-Paid Clause No Defense To Miller Act Claim

Federal District Court In Tennessee Holds Prime Contractor Has No Duty To Subcontractor To Verify Bid Pricing

Massachusetts Court Holds Architect May Be Liable to Worker for Injuries Resulting From Defects in Contractor’s Work Where Architect Is Contractually Obligated to Inspect Work for Conformity With Plans and Specifications

Fourth Circuit Court of Appeals Holds Owner’s Negligence Cause of Action Against Subcontractor Barred by the Economic Loss Rule

Federal Circuit Court of Appeals Reverses ASBCA Holding That ROICC Was Authorized to Commit Government To Compensable Contract Changes

Federal District Court in Illinois Holds “All Risk” Insurer’s Claim Against Contractor For Breach Of Contract And Negligence Defeated By A Waiver Of Subrogation With Respect To “[Insurance] Carried Or Required To Be Carried Pursuant To This Agreement” – Rejects Insurer’s Interpretation As To Scope Of Waiver As Too Restrictive - Indemnity Claim Survives

PA Court Holds Incorporation of Prime Contract Indemnity Provision Into Subcontract Insufficient to Require Subcontractor To Indemnify General Contractor For Its Own Negligence

Integrated Project Services v. HMS Interiors, Inc.
2007 Pa.Super 246, 2007 Pa.Super.LEXIS 2606 (Pa.Super Ct., April 16, 2007)

This is an appeal from a decision in the lower court wherein a general contractor, “Integrated Project Services, (“General Contractor”) sued a subcontractor, HMS Interiors, Inc. (“Subcontractor”) for a declaratory judgment that the Subcontractor was obligated to indemnify the General Contractor for the General Contractor’s negligence. The Subcontractor filed a motion for judgment on the pleadings which was granted by the lower court and the General Contractor appealed that decision.

The General Contractor entered into a contract (“Prime Contract”) with Wyeth-Ayerst Laboratories (“Owner”) to provide renovations for Owner’s building. The Prime Contract contained an indemnification clause that required the General Contractor indemnify the Owner from, inter alia, bodily injuries that resulted from performance of the work that are caused by the negligent acts of the General Contractor or any Subcontractor. The General Contractor entered into a contract (“Subcontract”) with the Subcontractor which contained general provisions for incorporating the Prime Contract into the Subcontract.

Subsequently, an employee of the Subcontractor was injured at the work site after falling off the roof of the building being renovated. The employee, barred by the worker’s compensation act from suing the Subcontractor, sued the Owner and General Contractor seeking damages for his injuries. The General Contractor then filed a complaint against the Subcontractor for, inter alia, a declaratory judgment that the Subcontractor was obligated to indemnify the General Contractor pursuant to the indemnification clauses.

The Superior Court of Pennsylvania affirmed the lower court’s decision, agreeing that the Subcontractor was not contractually obligated to indemnify the General Contractor for its liability because the Subcontract pass-through indemnification provisions were ineffective to require the Subcontractor to indemnify General Contractor for its own negligence. The lower court found, consistent with the Pennsylvania Supreme Court decision in Bernotas v. Super Fresh Food Markets, Inc., 581 Pa. 12, 863 A.2d 478 (Pa.2004), that the Subcontract, even though it incorporates the Prime Contract, “does not contain an unequivocally stated intention to have [Subcontractor] indemnify [General Contractor] for [General Contractor’s] own negligence; instead of being clear and specific, the Sub-Contract is, at best, ambiguous on the issue.”

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New Jersey Court Holds Contract Clause Providing for Accrual of Statute of Limitations on Substantial Completion Cannot Be Circumvented By Application of Discovery Rule

Trinity Church v. Atkin
925 A.2d 720, 2007 N.J.Super.LEXIS195 (N,J, Super, App. Div., June 27, 2007)

Contractual clauses providing for the date of accrual on construction projects are valid in New Jersey. The Superior Court of New Jersey, Appellate Division, affirmed summary judgment in favor of defendants who allegedly performed defective renovation and construction work on a historical building because the plaintiff failed to file a timely action within the period of the statute of limitations.

Plaintiff, Trinity Church, contracted with the defendants—an architect and general contractor—for the renovation and construction of its historically certified church. Both contracts contained clauses that provided that the statute of limitation for any cause of action under the agreement would run from the date of the project’s Substantial Completion. The work was performed, and on August 1, 1997, the parties signed a certificate of substantial completion. In April of 2000, the Church noticed defects in the mortar work and notified the architect. To resolve the problem, the parties held a series of meetings to discuss possible causes of the problem as well as a solution. Consultants were hired to investigate. At the conclusion of the investigation in 2002, the consultants issued a detailed report to the parties, including the Church.

On September 13, 2004, two years after the report was issued and seven years after substantial completion, the church filed suit alleging various construction defects. Defendants filed a motion for summary judgment seeking dismissal because the statute of limitations had run pursuant to the contract clause. In response, the church amended its complaint and added additional defendants. The trial judge granted summary judgment in favor of the defendants, concluding that the Church bargained away its right to use the discovery rule as a means of avoiding the bar imposed by the statute of limitations when its signed the contract that included the clause stating claims accrued on substantial completion.

On appeal, the court upheld and enforced the contract provisions. Adopting the reasoning of several other states, including Pennsylvania and Maryland, the court stated that the purpose of these types of limitations clauses was to void the discovery rule for the accrual of a cause of action. In essence, the freedom to contract allowed parties to limit the timeframe for which they were potentially liable for construction defects.

Despite the fact that the architect's and contractor's contracts were governed by different states with different statute of limitations, the clause still applied since the action was not filed within the limit of either state's statutes. On appeal, the church failed to challenge the contract clause itself, but argued that equitable principals dictated that the statute of limitations period should be tolled. While the court found the argument unpersuasive in this case, the court noted that these type of clauses are subject to equitable tolling in certain situations, particularly if a defendant acts improperly or conceals information from the plaintiff. Importantly, the court made clear that contractual clauses that limit the timeframe a plaintiff has to file suite, even if the problem is not yet discovered, are permissible in construction agreements.

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Federal District Court In West Virginia Holds Pay-If-Paid Clause No Defense To Miller Act Claim

U.S. ex. rel. Straightline Corp. v. American Casualty Corp.
2007 U.S. Dist. LEXIS 50688 (N.D. W.Va 2007)

The United States District Court for the Northern District of West Virginia held that a “pay-if-paid” clause was not a valid defense to a Miller Act claim. Straightline, involved a contract dispute between a general contractor’s surety (“surety”) and a subcontractor hired to work on the annex to the federal courthouse in Wheeling, West Virginia. The owner of the courthouse, the United States General Services Administration ("GSA"), entered into a construction agreement with a general contractor (“contractor”). Subsequently, contractor entered into a subcontract with subcontractor, which provided that subcontractor would furnish and install the interior architectural woodwork in the building for the sum of $511,520.00. Subcontractor claimed that during the course of the project, contractor directed it to perform additional work that was outside the scope of the parties' original subcontract. The cost and value of the additional work was allegedly $233,958.46. Subcontractor claimed that the contractor still owed it $232,079.76.

Contractor claimed that subcontractor was not paid for the extra work because it was either rejected by the GSA as being non-conforming or as constituting extras for which subcontractor was not entitled to payment. Contractor also claimed that subcontractor did not complete its work on schedule, and that, pursuant to the terms of the subcontract, the contractor backcharged the cost of completing the project and assessed liquidated damages against subcontractor.

Pursuant to the Miller Act, 40 U.S.C. §§ 3131-3134, contractor obtained and delivered a payment bond to GSA. Subcontractor sought to recover the amount it was allegedly owed from that payment bond. Surety argued that it was entitled to summary judgment, because the subcontract contained a “pay-if-paid” provision, which stated that "[r]eceipt of payment from [GSA] to the contractor for [subcontractor's] work is an absolute condition precedent to the [subcontractor’s] right to payment." Because the contractor was not paid by the GSA for the work for which subcontractor was seeking payment, surety argued that it was entitled to summary judgment on subcontractor's claims.

In support of its argument, surety cited a West Virginia Supreme Court of Appeals case, which held that "a pay-if-paid clause which prevents a subcontractor from proceeding against a contractor in the absence of the owner's payment to the contractor, also prevents the subcontractor from proceeding against the contractor's surety under a payment bond acquired by the contractor pursuant to W. Va. Code § 38-2-39 (2004)." Wellington Power Corp., 614 S.E.2d 680 (W.Va. 2005).

However, the Straightline court noted that Wellington involved a West Virginia statute, rather than the Miller Act and that the Miller Act must be construed according to federal law, as opposed to state law. Citing U.S. ex rel. T.M.S. Mech. Contractors, Inc. v. Millers Mut. Fire Ins. Co. of Tex., 942 F.2d 946, (5th Cir. 1991), the court denied contractor’s motion for summary judgment, holding that the Miller Act "conditions payment of the subcontractor not on payment by the GSA to the contractor, but rather on the passage of time from completion of the work or provision of materials."

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Federal District Court In Tennessee Holds Prime Contractor Has No Duty To Subcontractor To Verify Bid Pricing

Mactec, Inc. v. Bechtel Jacobs Co., LLC and Demco, Inc. v. Mactec, Inc
2007 U.S. Dist. LEXIS 60377 (E.D. Tenn. August 16, 2007)

The United States District Court for the Eastern District of Tennessee held that a private contractor had no duty to verify the pricing of a bid received from a subcontractor.

Defendant Bechtel Jacobs, LLC (“Bechtel Jacobs”) entered into a contract with the United States Department of Energy’s Oak Ridge Operations to demolish and dispose of several radioactively contaminated buildings in the main area of the K-25 Gaseous Diffusion Plant. Bechtel Jacobs issued a request for proposal inviting proposals from subcontractors to demolish and dispose of several radioactively contaminated buildings from the main plant. In response, Plaintiff MACTEC submitted a proposal in the amount of $3.99 million, which was later adjusted to a final contract price of $5.36 million. Bechtel Jacobs internal estimate for the cost of the project was $8.20 million. The next lowest proposal was $8.44 million. Bechtel Jacobs did not inform MACTEC that its proposal was significantly lower than Bechtel Jacobs internal estimate and significantly lower than the next lowest bidder. Bechtel Jacobs awarded MACTEC the subcontract.

Among other counts in MACTEC’s complaint against Bechtel Jacobs, MACTEC contends that Bechtel Jacobs breached its duty to verify the bid. Bechtel Jacobs moved for summary judgment seeking to have the count dismissed. MACTEC contended that the Federal Acquisition Regulation (FAR) required uniform procedures for all acquisitions which imposed a duty on Bechtel Jacobs to verify MACTEC’s bid. The Court found however, that Bechtel Jacobs was a private entity, not a federal agency, and thus Bechtel Jacobs was not subject to the provisions of the FAR. Moreover, the contract that Bechtel Jacobs signed with the government did not require Bechtel Jacobs to follow the FAR procedures for awarding subcontracts. Finally, the Court found that even if the FAR was applicable to Bechtel Jacobs, the provision relied on by MACTEC would be inapplicable. FAR 14.407-1, which MACTEC relied on, governs the award of contracts by sealed bidding. Bechtel Jacobs did not utilize a sealed bidding process where award is governed by price alone, but instead solicited both technical proposals and prices. Accordingly, the Court granted Bechtel Jacobs motion and dismissed MACTEC’s count for breach of the duty to verify its bid.

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Massachusetts Court Holds Architect May Be Liable to Worker for Injuries Resulting From Defects in Contractor’s Work Where Architect Is Contractually Obligated to Inspect Work for Conformity With Plans and Specifications

Mellon v. Shriners Hospitals for Children
2007 Mass. Super. LEXIS 188 (Mass. Super. Ct. June 26, 2007)

The Superior Court of Massachusetts recently considered whether an architect of record on a construction project owed a duty to a third party construction worker on the project for injuries sustained as a result of improper installation of grates. To resolve this issue, the Court found that the whether a duty was owed rested on the language of the architectural services agreement at issue and the level of control the Architect exerted on the job site.

O’Dell Associates, Inc. (“Architect”) was the architect of record for the construction of a hospital in Boston (the “Project”). During the course of the Project, a worker was injured and sued various parties for personal injuries sustained by him. The gist of plaintiff’s claims was that the contractor, Barton-Malow Company, did not install certain grates to conform with the Architect’s plans and drawings thereby creating a tripping hazard. A question arose as to the Architect’s liability since it prepared the plans and drawings, was the owner’s representative on site, and had responsibility to conduct inspections of the work for conformance with the plans and specifications.

The Court began its analysis of the Architect’s duty by explaining that duty to a third party may arise from a contract with another. Quoting Banaghan v. Dewey, 340 Mass. 73, 80, 162 N.E. 2d 807 (1959), the Court opined that a defendant is liable to third parties “’who are forseeably exposed to danger and injured as a result of its negligent failure to carry out [the defendant’s contractual] obligation[s].’” Relying on the terms and conditions contained in the architectural service agreement, which turned over significant control of the Project to the Architect, and the actual work performed by the Architect, the Court held that there was sufficient evidence to survive a motion for summary judgment and that the question of whether the amount of control exercised by the Architect rose to the level of control imposing a duty owed to third parties was for a jury to decide.

The Court further distinguished the injuries at issue which resulted from a hazard created by the negligent inspection of work and the Architect’s failure to reject work which was not constructed in accordance with the Architect’s plans and drawings thereby creating a tripping hazard from injuries resulting from other circumstances. Specifically, the Court noted that the Architect would not be liable to third parties for injuries occurring due to lack of fall protection for which the Architect is not responsible and over which the Architect has no control. Because the Architect had design and inspection responsibilities, it could be held accountable for injuries resulting to third parties which injuries stemmed from defects and deficiencies in that work.

This decision suggests that architects and other project participants may be liable to third parties based upon the level of control the party is afforded by their contract with others and how much control the party exercises during the course of a project. Liability to third parties, however, will be limited to those injuries which stem from the defective or deficient work of the specific defendant, not of all defects and deficiencies on the work site. It also advises that multiple parties may have joint control of a project sufficient to find joint and several liability to plaintiff.

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Fourth Circuit Court of Appeals Holds Owner’s Negligence Cause of Action Against Subcontractor Barred by the Economic Loss Rule

Dur v. Western Branch Diesel, Inc.
2007 U.S. App. LEXIS 16237 (4th Cir. July 9, 2007)

Following the precedent of the Supreme Court of Virginia in Sensenbreunner v. Rust. Orling & Neale, Architects, Inc., 374 S.E.2d 55 (Va. 1988), the Fourth Circuit Court of Appeals upheld the district court’s grant of a motion for summary judgment. The Court held that damage to an owner’s boat caused by an electrical fire fell within the scope of the contract between the owner’s general contractor and the subcontractor and amounted to nothing more than economic loss, which barred the owner from maintaining a cause of action for negligence against the subcontractor.

The case arose out of a retrofit contract where Philip Dur (the “Owner”) hired Moon Engineering (the “General Contractor”) to perform a hull, mechanics and electronics retro fit on a boat that the Owner purchased stripped from the Navy. When the General Contractor believed it had completed the retrofitting work on the boat, the Owner piloted the boat from Norfolk to Alexandria, Virginia. During the voyage, the Owner noticed that the tachometer had stopped working. Upon arrival, the Owner also noticed that a fan belt was missing and that there was melted wiring. The Owner contacted the General Contractor and insisted that the boat be repaired. The General Contractor subcontracted with Western Branch Diesel, Inc. (“Subcontractor”) to perform the repair work in Alexandria. While the boat was still in the custody of the Subcontractor, the boat caught fire and suffered significant damage.

The Owner commenced a lawsuit in the United States District Court for the Eastern District of Virginia alleging that the Subcontactor’s negligence had caused the fire aboard the boat. The Subcontractor moved for summary judgment arguing that because it performed its work aboard the boat pursuant to a contract, the Owner could not pursue a negligence claim against the Subcontractor without demonstrating a separate common-law duty of care. In response, the Owner argued that contractors owe a common-law duty of care, separate and apart from their contractual duties, to use ordinary skill and care not to create a hazardous condition that could physically injure persons or damage property. The Subcontractor responded that the Owner’s negligence claim against it failed because the record contained no evidence that the boat had suffered damage caused by the fire beyond the subject of the retrofit contract.

The district court granted summary judgment in favor of the Subcontractor. The Owner appealed and the Fourth Circuit Court of Appeals affirmed the district court’s decision that Sensenbreunner v. Rust. Orling & Neale, Architects, Inc., 374 S.E.2d 55 (Va. 1988) foreclosed the Owner’s negligence cause of action against the Subcontractor. Sensenbreunner applied the economic loss rule, which rule provides that a cause of action in which only economic damages are sought (i.e., the benefit of a contractual bargain) can only be maintained against a party with whom the plaintiff has privity of contract.

The Court held that the record only supported the conclusion that the work performed by the Subcontractor on the boat’s electrical system was performed to fulfill the General Contractor’s obligations under the retrofit contract. Thus, the damage to the boat caused by the fire fell within the scope of the contractual package and amounted to nothing more than economic loss for which the law of the contracts provides the Owner the sole remedy. The Court also found that the record contained no evidence that the boat suffered damage beyond the scope of the retrofit contract which would permit the Owner to recover under Section 8.01-223 of the Virginia Code, which abolished the lack-of-privity defense in actions to recover damages to persons or property resulting from negligence.

The Owner also contended on appeal that the district court wrongly erred in granting summary judgment without considering whether the Owner was a third-party beneficiary of the contract between the General Contractor and the Subcontractor. On appeal, the Court held that there could be no miscarriage of justice in the district court’s refusal to consider the third-party beneficiary theory as not only did the Owner never move to amend his complaint to allege a cause of action based upon a third-party beneficiary theory, but the Owner was so confident in his negligence theory of recovery that he expressly told the district court not to consider the third-party beneficiary theory. Accordingly, the Fourth Circuit Court of Appeals affirmed the district court’s grant of summary judgment.

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Federal Circuit Court of Appeals Reverses ASBCA Holding That ROICC Was Authorized to Commit Government To Compensable Contract Changes

Donald C. Winter v. CATH-DR/BALTI JOINT VENTURE
2007 U.S. App. Lexis 19565 (Fed. Cir., August 17, 2007)

The United States Court of Appeals for the Federal Circuit (“CAFC”) affirmed in part, reversed in part, and vacated and remanded in part the United States Armed Services Board of Contract Appeals (“ASBCA”) decision that CATH-dr/Balti Joint Venture (“CATH-Balti”) was entitled to an equitable adjust for contract modifications, issued by the Resident Officer in Charge of Contracts (“ROICC”), that called for work not covered under its contract with the United States Navy (“Navy”). The primary basis for reversal was the unambiguous language of the Federal Acquisition Regulation (“FAR”), e.g., 48 C.F.R. § 1.601(a) and 48 C.F.R. § 43.102, Defense Federal Acquisition Regulation Supplement (“DFARS”), 48 C.F.R. § 201.602-2, and FAR Clause 48 C.F.R. § 52.243-4 (Changes Clause), DFARS Clause 48 C.F.R. § 52. 201-7000 (Contracting Officer's Representative), and Naval Facilities Engineering Command (“NAVFAC”), 5252.201-9300 (Contracting Officer Authority) and 5252.242-9300 (Government Representatives), which were incorporated into the contract and clearly indicated that the ROICC did not have the authority to change the scope of work or authorize compensable changes.

On September 29, 1998, CATH-Balti was award a contract for the historical renovation of a dental research facility at the Great Lakes Naval Training Center, Illinois. Before commencing performance a preconstruction conference was held. During the preconstruction conference the Navy explained that the ROICC, who was also the project manager, would administer the contract and all correspondence should be addressed to the attention of ROICC. Further, the Navy informed CATH-Balti that no work was to “be performed beyond the contract requirements without written notification from the ROICC” and that CATH-Balti should submit a request for equitable adjustment to the ROICC if it felt that a contract modification was required. Where the ROICC determined there was no entitlement, or the CATH-Balti did not agree with the proposed entitlement, CATH-Balti was directed to request a Contracting Officer’s Final Decision, using the procedures outlined in the Disputes Clause, 48 C.F.R. § 52.233-1, including continuing performance until the issuance of a final decision. Shortly after commencing performance the Navy sent CATH-Balti a letter that reassigned the day-to-day administration of the contract to Engineer in Charge (“EIC”). The Navy also directed CATH-Balti to send all correspondence regarding the contract to the EIC.

Throughout performance CATH-Balti submitted numerous Requests for Information (“RFI”) requesting, among other things, clarification of the contract requirements and gave notice of site conditions that may require deviation from the contract specifications. In each case, the ROICC signed the response to the RFI. When the renovation work was substantially complete CATH-Balti submitted a cumulative request for a contract modification to the EIC. After the ROICC’s failed to respond to CATH-Balti’s request it submitted a certified request for a final decision to the Contracting Officer. The Contracting Officer responded finding entitlement to an equitable adjustment for 12 claims. In this decision, the Contracting Officer requested that CATH-Balti and the ROICC negotiate the amount of entitlement for four of these claims, one of which was based on differing site conditions, and would not issue a final decision prior to the outcome of these negations. CATH-Balti made several attempts to meet with the ROICC, but no meeting ever occurred and CATH-Balti appealed to the ASBCA. During the early stages of this action the Contracting Officer issued his “Second Final Decision” denying all of CATH-Balti’s claims. Thus, forcing the ASBCA to consider entitlement and damages for each claim anew.

CATH-Balti argued that the ROICC had the authority to bind the Navy and thus it was entitled to the requested equitable adjustments or, in the alternative, the Contracting Officer ratified the ROICC’s modifications when it responded to CATH-Balti’s certified request. In response, the Navy argued at the ASBCA that CATH-Balti was not entitled to an equitable adjustment because the Contracting Officer did not direct the work set forth in the claims and that under the contract only the Contracting Officer has the authority to change the scope of work or authorize compensable changes. The ASBCA held that the ROICC had the authority to commit the government to compensable contract changes. As the ASBCA found the ROICC had the authority to issue compensable change it did not address the issue of whether the Contracting Officer ratified the ROICC’s modifications.

The Navy appealed this decision. On appeal, the CAFC held that neither the ROICC nor the EIC had actual authority to bind the government, be it implied or expressed. The CAFC noted that the contract clearly did not and could not, pointing to 48 C.F.R. § 201.602-2, and FAR Clause 48 C.F.R. § 52.243-4, grant this authority as the Contracting Officer can not delegate its authority to make any commitment or changes that affect the price, quality, quantity, delivery or other terms and conditions of a contract to its representative. Further, the CAFC found that the ability to bind the Government was not an integral part of the duties assigned to either the ROICC or the EIC, thus the authority to make compensable changes to the contract was not implied. The CAFC, however, affirmed with regard to CATH-Balti’s claims, based on differing site conditions, and remanded the issue of whether the Contracting Officer’s response to Cath-Balti’s certified request constituted ratification of the ROICC’s action. Judge Prost dissented as to the ratification issue as he found that the Contracting Officer’s response to Cath-Balti’s certified request did not constitute ratification because, among other things, the Contracting Officer did not adopt ROICC’s prior actions, but merely sought that the ROICC and CATH-Balti meet to determine if an adjustment would be appropriate.

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Federal District Court in Illinois Holds “All Risk” Insurer’s Claim Against Contractor For Breach Of Contract And Negligence Defeated By A Waiver Of Subrogation With Respect To “[Insurance] Carried Or Required To Be Carried Pursuant To This Agreement” – Rejects Insurer’s Interpretation As To Scope Of Waiver As Too Restrictive - Indemnity Claim Survives

Federated Dep't Stores, Inc. v. M.J. Clark, Inc.
2007 U.S. Dist. LEXIS 51826 (N.D. Ill. July 17, 2007)

After a flood caused by a leak in the sprinkler system during remodeling at a Bloomingdale’s store in Chicago damaged the first five floors of the store, plaintiffs, Bloomingdale’s and its owner Federated, sued defendant contractor, subcontractor, and building manager for breach of contract, negligence, and indemnification.

The agreement between the contractor and owner provided the contractor agreed to indemnify the owner. It further provided that each party waived all rights against the other for any loss or damage “for which property insurance is carried or required to be carried pursuant to [the parties’] Agreement.” Specifically excepted from the waiver were the contractor’s indemnification responsibilities. During the time of the flood, the owner was covered by an “all risk” insurance policy. Among other things, the policy excluded ordinary wear and tear and errors in design or faulty workmanship.

The contractor had previously moved for summary judgment based on these agreements, arguing that the plaintiffs’ claims against it had been waived. However, the motion was denied by the court in part because the “all risk” insurance agreement had been absent from the record. Upon production of the agreement at issue, the court reconsidered the motion.

The court’s initial ruling had noted that the purpose of a waiver of subrogation was to enable the parties to a contract exculpate each other from liability in the event of a loss to the extent each party is covered by insurance and that Illinois courts had enforced such waivers. However, it had not been clear as a matter of law that the loss at issue was a loss “for which property in insurance is carried or required to be carried pursuant to [the parties] Agreement.”

In effort to defeat the motion, plaintiffs argued that the court had misinterpreted the phrase “carried or required to be carried pursuant to this Agreement.” Plaintiffs argued that it should have been interpreted to mean (1) insurance carried pursuant to the agreement, or (2) insurance required to be carried pursuant to the agreement, rather than (1) insurance carried, or (2) insurance carried pursuant to the agreement. The court rejected plaintiffs’ proffered interpretation stating that it was not an interpretation at all, but rather a removal of the words “carried or” from the contract language, which the court refused to do.

The court went on to determine that a flood was a risk covered by the plain language of the “all risk” insurance agreement carried by the owner at the time of the flood to which neither the “faulty workmanship,” nor the “[o]rdinary wear and tear” exclusions applied and therefore that plaintiffs’ breach of contract and negligence claims for losses caused by flood had been waived. Accordingly, the court granted summary judgment with respect to the breach of contract and negligence claims, but because the waiver specifically excepted the contractor’s indemnification responsibilities, the plaintiffs’ indemnification claim survived summary judgment.

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