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US District Court in Pennsylvania Holds Time for Suit Prescribed in Performance Bond Is Not Tolled By “Discovery Rule”
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La Liberte, LLC v. Keating Building Corp. v. Roman Mosaic and Tile Co.
Civ. A. No. 07-1397, 2007 U.S. Dist. LEXIS 90878 (E.D. Pa., Dec. 11, 2007)
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| The United States District Court for the Eastern District of Pennsylvania dismissed the third-party complaint of the defendant holding that the statute of limitations had expired on the defendant’s performance bond claims against surety companies.
Plaintiff La Liberte LLC sued Defendant Keating Building Corporation for breach of contract, breach of implied warranty, and breach of express warranty in connection with the work Keating performed on a hotel owned by La Liberte. Under the contract between La Liberte and Keating, Keating was to make renovations and construct an addition to La Liberte’s hotel. Keating, in turn, entered into several subcontracts. Among them, Keating contracted with Voegele Mechanical Inc. and Shannon Plastering and Drywall Corporation. Both subcontracts contained warranty provisions which ran one year from acceptance by La Liberte. Voegele and Shannon obtained performance bonds for the benefit of Keating. The performance bonds contained the following identical provisions:
“Any suit under this bond must be instituted before the expiration of two (2) years from the date on which final payment under the [Subcontract] falls due or before the expiration of one (1) year from the date on which the warranties required by the [Subcontract] (including the drawings and specifications incorporated therein) expire.“
The project began in 1999 and Keating signed a certificate of substantial completion on May 1, 2000. La Liberte alleges that shortly thereafter leaks in the ceilings of several bathrooms emerged and were discovered over the course of several months. Keating’s representatives investigated and repaired the leaks by tightening shower drain bolts. Several years later in 2004, new leaks emerged and La Liberte alleges that after dismantling a shower, it discovered that the shower had been constructed incorrectly causing the leak.
On April 6, 2007, La Liberte initiated the subject action. Keating moved to dismiss the complaint alleging that Pennsylvania’s four year statute of limitation barred the claim because La Liberte had discovered the leaks in 2000. The Court denied the motion holding that it was not possible to decide the issue before discovery had taken place. The Court would have to make the factual determination as to when La Liberte discovered the leaks and then apply Pennsylvania’s statute of limitations accordingly.
Keating then asserted a third-party complaint against Voegele and Shannon’s respective sureties alleging that the sureties were liable under the performance bonds for any amounts due to La Liberte for the subcontractors’ acts, errors, omissions or other conduct on the project. The sureties moved to dismiss the third-party complaint arguing that the claims were time-barred under the terms of the performance bonds. Keating countered arguing that the Court could not determine whether the claims were time-barred without the benefit of discovery. The Court disagreed, holding that the time period for the bond claim was prescribed by the performance bond rather than the statute of limitations. That is, the claims were time-barred under the bond when filed either more than two years after final payment or one year after expiration of the warranties, regardless of when the leaks were discovered. Measuring the time period based on these specific events, the Court was able to determine with certainty that time periods had run and thus the Court granted the sureties’ respective motions to dismiss.
Click here to view full opinion as PDF (provided with
the permission of LexisNexis).
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Florida Supreme Court Considers CGL Policy Coverage of Damage Resulting from Defective Work by Subcontractors
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United States Fire Insurance Co. v. J.S.U.B., Inc. and Auto-Owners Insurance Co. v. Pozzi Window Co.
2007 Fla. LEXIS 2394 and 2007 Fla. LEXIS 2391 (Dec. 20, 2007)
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| On December 20, 2007, the Florida Supreme Court decided United States Fire Insurance Company, et al. v. J.S.U.B., Inc., et al., 2007 Fla. LEXIS 2394, and Auto-Owners Insurance Company v. Pozzi Window Company, et al., 2007 Fla. LEXIS 2391 – two cases dealing with whether a standard form CGL policy with products completed operations hazard coverage issued to a general contractor, cover a general contractor’s liability to a third party for repair and/or replacement costs due to defective work by its subcontractor.
In deciding each case, the Court held that although a subcontractor's defective work can constitute an "occurrence" under a post-1986 standard form commercial general liability policy, the defective work must also constitute "property damage" in order for coverage on a subcontractor’s defective work to be applicable.
In J.S.U.B., after Contractor completed construction of several homes, owners discovered damage to the foundations, drywall, and other interior portions of the homes. The damage to the homes was caused by Subcontractors' use of poor soil and improper soil compaction and testing. Contractor sought coverage under its CGL policies. Insurer agreed that the policies provided coverage for damage to homeowners' personal property, such as homeowners' wallpaper, but asserted that there was no coverage for the costs of repairing the structural damage to the homes, such as the damage to the foundations and drywall.
The Court first addressed whether faulty workmanship can constitute an "occurrence" within a commercial general liability policy. The Court held that "faulty workmanship that is neither intended nor expected from the standpoint of the contractor can constitute an 'accident' and, thus, an 'occurrence' under a post-1986 CGL policy." Accordingly, the Court concluded that Subcontractors' defective soil preparation, which was neither intended nor expected by Contractor, was an "occurrence."
The Court then addressed whether Subcontractors' defective soil preparation caused "property damage" within the meaning of the policy. The Court held that faulty workmanship or defective work that has damaged the completed project has caused "physical injury to tangible property" within the plain meaning of the definition in the policy. In reaching this conclusion, the Court rejected Insurer's arguments that faulty workmanship that injures only the work product itself does not result in "property damage" and that "there can never be 'property damage' in cases of faulty construction because the defective work rendered the entire project damaged from its inception." The Court also noted that "[i]f there is no damage beyond the faulty workmanship or defective work, then there may be no resulting 'property damage.'" Because structural damage to the completed homes was caused by the defective work, however, the Court concluded that there was "physical injury to tangible property" and thus the claim against Contractor for the structural damage was a claim for "property damage" within the meaning of the policies.
In Auto-Owners, Builder constructed a multimillion dollar house which included windows manufactured by Pozzi Window Company ("Manufacturer") and installed by Builder's subcontractor (“Subcontractor”). After moving into the house, Owner complained of water leakage around the windows, caused by defective installation. Owner filed suit against Manufacturer, Builder, and Subcontractor.
Applying its holding in J.S.U.B. to the facts in Auto-Owners, the Court found that no “property damage” had occurred. The Court distinguished Auto-Owners from J.S.U.B., in which the contractor was seeking coverage for structural damage to the completed homes.
Similar to the CGL policies at issue in J.S.U.B., the CGL policies at issue in Auto-Owners provided coverage for an "occurrence" that causes "property damage." Unlike J.S.U.B., which involved a claim for the costs to repair structural damage to homes caused by the subcontractor's defective work, the Court noted that Auto-Owners involved a claim for costs to repair or replace defectively installed windows. Analogizing Subcontractor's defective installation of windows to the installation of a defective tire on a car – a component that could easily be replaced – the Court found that the defective installation was not "physical injury to tangible property." The Court therefore held that there was no "property damage" under the terms of the CGL policies, and accordingly, no coverage for the costs of repair or replacement of the defective work.
Click here to view full opinion in J.U.S.B. and here to view Auto-Owners as PDF (provided with the permission of
LexisNexis).
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Texas Court of Appeals Considers Effect of Consequential Damages Bar on Recovery of Damages for Delay By Owner
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Tennessee Gas Pipeline Co. v. Technip USA Corp.
2007 Tex. App. LEXIS 9951, No. 01-06-00535-CV (Tex. App. Dec. 21, 2007)
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| The Court of Appeals of Texas for the First District was asked to review a trial court’s limitation of a jury award for damages to only those damages associated with defective work. In making its ruling, the Court of Appeals was asked to assess the extent of a waiver of consequential damages clause and which damages were considered consequential barred by said clause. After overlapping contract provisions and the damages sought, the Court of Appeals found that damages flowing from delay were recoverable so long as they were direct, meaning that they flowed naturally and necessarily from the delay.
The Tennessee Gas Pipeline Company (the “Owner”) hired Technip USA (“Technip”) to make certain improvements to a gas pipeline (the “Project”). The parties entered into a contract (the “Contract”) which Contract contained certain provisions pertaining to limitations on damages. Specifically, contract provided that the parties agreed to waive all “indirect, special, incidental or consequential” losses. Similarly, there was a cap on damages recoverable against Technip, capped at 50% of the total contract price. Additionally, the Owner agreed to remove a liquidated damages clause for delay damages in exchange for a reduction in the Contract Price.
Numerous delays occurred during the course of the Project. As a result of the delays, the Owner sought to recover increased costs due to the delays caused by Technip, including project delay costs and excess gas, lube oil and labor costs. Technip also sought to recover increased costs incurred due to the extended completion time. Technip filed for summary judgment asserting that the waiver of consequential damages clause barred the Owner’s claims for losses allegedly caused by the delay. The case was tried before a jury and the jury was directed to make a determination as to whether a breach of contract occurred and to award damages. The jury was instructed to disregard whether the damages were precluded under the terms of the contract because it was within the providence of the trial court to decide which damages were permitted or barred as a matter of law. The jury found that Technip breached the contract and awarded damages to the Owner both in the form of delay damages and defective work damages. Thereafter, the trial court granted in part and denied in part the parties’ respective post-trial motions. Ultimately, the trial court limited the jury award to damages associated with Technip’s defective work and excluded delay damages. Both parties appealed the trial court’s decision.
On appeal, the Owner argued that the delay damages sought by it were “direct” damages which damages were not limited by the waiver of consequential damages provision of the Contract. The Court of Appeals explained that direct damages flow naturally and necessarily from the breach and are those which are foreseeable or contemplated by the parties. In making a determination as to whether the Owner’s damages were barred by the waiver of consequential damages provision, the Court of Appeals dissected the applicable provision and examined this provision in conjunction with other provisions contained in the Contract. Specifically, the Court noted that the Contract contained a “Limitation of Liability” clause which limited Technip’s liability to 50% of the Contract Price regardless of the theory of liability, but which contained an exception as to Technip’s guaranty of timely completion. The Court also noted that another provision contained a guarantee whereby Technip guaranteed that the Substantial Completion would not be delayed. Consequently, the Court of Appeals concluded that the Contract as a whole did not preclude all delay damages sought by the Owner. The Court explained that to find that the waiver of consequential damages clause precluded all damages for delay would render the exceptions for guarantee of timely completion in the limitations of liability (i.e. cap on damages) and the guarantee provisions without effect.
Having concluded that the Owner was not precluded from seeking all damages for delay, the Court engaged in an analysis of which delay damages were direct (recoverable) or consequential (barred). The Court concluded that the Owner was entitled to recover its “project delay costs” including additional labor, travel, environmental contractors, inspectors, hauling wastewater and utilities. Because it was specifically contemplated by the provisions of the Contract that the Owner would incur such costs during the Project, these expenses were deemed direct damages because “a breach of the Contract by delay naturally and necessarily [] caus[ed] the costs to be extended over a longer period of time.” The Court also permitted recovery of damages associated with additional power to one of the stations since the Owner was responsible for providing power and it was a naturally flowing and necessarily resulting damage from the delay.
Other categories of delay damages were excluded by the Court. First, the Court concluded that “loss of efficiency” claims were akin to loss of use which were too remote to be considered direct damages and thus, such damages were barred by the waiver of consequential damages provision. Second, the Court denied recovery of damages associated with backup generator as being consequential in nature because such additional costs were naturally flowing from the breach but not necessarily resulting from the breach. Third, the Court concluded that the loss of interest or loss of use of funds was a consequential damage barred by the Contract. Specifically, the Court found that the fact that the Owner needed to pay for the Project out of its own funds was not contained within the Contract provisions and was inapposite to the situation in other cases where the parties stipulated in the contract that such losses were expected or the cases where third-party financing is expected and delays are expected to result in financing extensions and interest costs. Fourth, the Court denied the Owner’s claim for damages associated with energy purchased prematurely as a result of Technip’s delay. The Court found that the lack of reference to the Owner’s obligation to and the potential imposition of penalties by the utility company rendered such damages indirect and consequential.
Last, the Court considered the Owner’s claim for lost profits resulting from gas which was not marketable and sellable. The Court explained that lost profits may be considered direct (when the profits are lost on the breached contract) or consequential damages (when the expectation for profit is incidental to the performance). Here, the Court determined that the loss of profits via the sale of gas to customers was incidental to Technip’s performance of the contract and thus barred by the waiver of consequential damages clause. In sum, the Court only permitted two types of damages to be recovered by the Owner in connection with Technip’s delay.
In addition to the Owner’s appeal, Technip appealed the trial court’s decision to permit damages associated with alleged defective work. Technip argued that such claims were barred by an exclusive remedy provision which required the Owner to provide notice to Technip upon discovery of any alleged defect, and if Technip failed to cure the defect, notice that the Owner was going to make the repairs itself. Technip argued that such notice was not provided. Reviewing the evidence introduced at trial, the Court of Appeals agreed with Technip that the Owner failed to provide the requisite notice of defects which was a condition precedent to maintaining a claim for defective work damages.
Click here to view full opinion as PDF (provided with
the permission of LexisNexis).
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US District Court in New York Dismisses Contractor’s Performance Bond Claim Against Subcontractor’s Surety Because of Contractor’s Failure to Provide Pre -Default Notification
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U.S. ex rel. Platinum Mechanical, LLC v. U.S. Surety. Co.
07 Cv. 3318(CLB), 2007 U.S.Dist. LEXIS 94026( S.D.N.Y. Dec. 21, 2007)
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| CFP Group, Inc. was awarded a contract with the United States Government to refurbish facilities at Stewart Air National Guard Base in New York. Platinum Mechanical, LLC subcontracted to perform all of the plumbing and HVAC work for the Project. All work on the Project was to be completed by March 12, 2007. Notice to proceed issued on June 14, 2006.
Utica Mutual issued a performance bond as the surety for Platinum. The performance bond, an American Institute of Architects form (AIA Form 312), required CFP to notify Platinum and Utica Mutual if CFP was considering declaring a default, and to defer formal declaration of a default for at least 20 days thereafter. The performance bond required notice to the surety to be sent to the address shown for the surety on the signature page As the project completion date approached, it became apparent Platinum would not timely finish its work. On February 28, 2007, CFP notified Platinum it was concerned it would not complete the work by March 12, 2007. On March 12, 2007, CFP notified Platinum orally that it was in default and on March 19, 2007, CFP sent a letter to Platinum to the same effect. The March 19 letter was copied to the signatory on behalf of Utica Mutual, without indicating the address to which the letter was mailed. Utica Mutual asserted that the first notice it received was a May 2, 2007 letter addressed to someone other than the signatory, but otherwise sent to the correct address. This assertion was not contested by CFC.
On April 25, 2007, Platinum sued CFP and its sureties for failing to pay it for its work. In turn, CFP brought a counterclaim for breach of contract against Utica Mutual and Platinum. Utica Mutual filed a motion for summary judgment seeking dismissal of CFP’s counterclaim on the ground that CFP had failed to provide the pre-default notification required by the bond. Utica Mutual claimed that the delay in notification deprived it of the ability to investigate or cure a default, or to control expenses. CFP contended that it would not have been possible to predict a default before February 28, 2007, and that, in any event, it would have been impossible for a surety to cure between February 28 and March 12, 2007.
The Court determined that under New York law, the performance bond pre-default notification provision established a condition precedent to Utica Mutual’s liability under the bond. Further, CFC’s inability to show that its March 19, 2007 notice letter was mailed to the address specified in the bond, and the further delay in providing any notice to Utica Mutual at the correct address until May 2, 2007, resulted in the conclusion that CFC had failed to satisfy the condition and required dismissal of its claim.
Click here to view full opinion as PDF (provided with
the permission of LexisNexis).
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US Sixth Circuit Court of Appeals Rules That Change Order Settling All Claims for Changes Did Not Bar Claim for Acceleration Costs
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Steel Services Corp. v. Board of County Commissioners
2007 U.S. App. Lexis 30052 (6th Cir. Dec. 27, 2007)
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| The Cincinnati Reds were building a new baseball stadium. Hamilton County (“County”) awarded Contractor, Steel Service Corp. (“Contractor”), a $33 million dollar contract for the fabrication and erection of the steel superstructure. The start of the Contractor’s work was delayed. The County’s construction manager directed the Contractor to accelerate its work due to the project delays and take extraordinary measures to comply with the contract and schedule. Contractor accelerated and submitted a claim for additional costs incurred by itself and its subcontractors. The County and Contractor executed a change order providing for a provisional payment to be applied against the amount, if any, to which the Contractor was ultimately determined to be entitled in reimbursement of the acceleration costs. Neither party accepted responsibility for the delays in the change order. The change order stated that Contractor had begun implementing extraordinary measure, had incurred additional costs and would continue to do so throughout the course of the project. Construction proceeded.
Several additional change orders were executed thereafter for changes in the work implemented through a Construction Change Directive/ Construction Change Proposal Process. After the ballpark was substantially complete, the parties executed the last change order, Change Order No. 9, which stated that it was a change order settlement for all claims arising out of changes, but reserving all claims either party might have under the contract. The Change Order stated that it “constitute[d] a full, final and complete … settlement with respect to any and all claims… that [the Contractor] had arising out of or relating to the Changes….[and] settle[d] all [Construction Change Proposals] submitted [by the Contractor]….”
The Contractor then filed suit to recover approximately $5 million for additional costs incurred as a result of the extraordinary measures. The County moved for summary judgment and alleged that the claim for additional costs was settled in Change Order 9. Moreover, County asserted that part of Contractor’s claim was a “pass-through” claim for subcontractor costs, which are not recognized under Ohio Law. The District Court granted County’s motion for summary judgment.
On appeal, the United States Court of Appeals for the Sixth Circuit reversed and remanded the District Court’s decision. First, the court found that Change Order No. 9 clearly settled all outstanding “change proposals”, but did not settle outstanding “claims” under the contract. The Court held that the contract differentiated between a claim and construction change proposal. The change proposals addressed specific work changes in the ballpark, but the Contractor’s claim asserted a contractual right for additional compensation for its implementation of the extraordinary measures. In sum, the change order settlement that covered all claims arising out of changes, but did not preclude Contractor’s claim for additional compensation.
Furthermore, the Court disagreed with the trial court’s conclusions regarding the “pass-through” claims and remanded the issue. As an initial matter, the Court noted that the parties’ contract contemplates that Contractor would present its subcontractors’ additional costs to County for compensation. The court also questioned whether Contractor’s claim was a pass-through at all or whether it was contractor simply asserting its contractual rights to additional compensation. However, the Court did not suggest that it depart from Ohio law to the extent that itprohibited pass-through claims.
Click here to view full opinion as PDF (provided
with the permission of LexisNexis).
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Pennsylvania Superior Court Holds That Under AIA Contract Requiring Owner to Purchase Builders Risk Insurance, Contractor Not Liable for Fire Damage Caused By Subcontractor’s Negligence Despite Owner’s Failure to Purchase the Insurance
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Jalapenos, LLC v. GRC General Contractor, Inc.,
2007 PA Super 391, 2007 Pa. Super. LEXIS 4411 (Dec. 19, 2007)
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| Jalapenos, LLC, hired GRC General Contractor, Inc. to remodel a restaurant. The parties signed standard American Institute of Architects contracts (AIA Forms A101 and A201 - 1997). Under the contract, Jalapenos was required to obtain Builder’s Risk “all-risk” property insurance or equivalent, or inform the contractor in writing before the work began if it did not intend to purchase such insurance. Furthermore, if GRC was damaged by Jalapenos’ failure to maintain the required insurance without notifying GRC, then Jalapenos would be liable for all reasonable costs attributable to such failure.
In addition, the AIA contract included standard waiver of liability provisions. Specifically, the contract provided that because Jalapenos could purchase and maintain insurance to protect against loss of use of the property, Jalapenos waived its rights against GRC for any such losses, however caused. The waiver of subrogation provision provided that the parties waived all rights against each other and any of their subcontractors for damages, to the extent such damages were covered by property insurance obtained pursuant to the contract.
Soon after the work began, a fire caused significant damages to the premises, which prevented GRC from completing the renovations. Jalapenos sued GRC for breach of contract and negligence, alleging that one of GRC’s subcontractors caused the fire. It was undisputed that Jalapenos failed to purchase the all-risk property insurance without notifying GRC in writing. Accordingly, the lower court granted GRC’s motion for summary judgment. The questions on appeal were 1) whether the contract required Jalapenos to insure against the negligence of GRC, and 2) even if it did, whether Pennsylvania common law permits enforcement of such a contract.
With regard to the first issue, Jalapenos argued that the contract’s indemnification provision should control, and, accordingly, that GRC should be liable since the provision imposed responsibility on GRC for any damages caused by its own negligence or that of its subcontractors. The court, however, held that the contract’s insurance procurement and waiver of subrogation provisions were controlling and that the indemnification provision was not applicable. The court relied on cases from Montana and California for its rationale that the indemnification related only to third-party claims; not losses arising from damage to the Work.
Further, the court held that the insurance procurement and waiver of subrogation provisions precluded Jalapenos’ claims against GRC. Relying on a Missouri case, the court reasoned that the inclusion of an insurance procurement clause evidences the parties’ intent to shift the risk of property loss from one another to the insurance company. Further, the damages complained of should have been covered by property insurance that Jalapenos failed to obtain, triggering the waiver of subrogation clause.
Turning to the second issue, Jalapenos argued that if the contract required Jalapenos to purchase the insurance, it was contrary to public policy to the extent it would exculpate GRC from liability for negligence. The court, however, distinguished between exculpatory provisions and allocation of risk provisions. The court explained that exculpatory provisions allow one party to unilaterally contract away any potential liability for its own negligence, thereby foreclosing another party’s avenue of recovery. However, allocation of risk provisions ensure that damages incurred during construction projects are covered by the appropriate types of insurance and that the cost of such insurance is allocated among the parties. Since the court found that the waiver of subrogation clause contained in the contract at issue was an allocation of risk provision, it held that enforcement of the contract did not violate Pennsylvania’s common law.
Click here to view full opinion as PDF (provided
with the permission of LexisNexis).
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US District Court in New Jersey Holds Waiver of Subrogation in AIA General Conditions Applies to Post-Construction Policies and Losses
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Argonaut Great Cent. Ins. Co. v. DiTocco Konstruction, Inc.
2007 U.S. Dist. LEXIS 93846 (D.N.J. Dec. 21, 2007)
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| After a fire destroyed a T.G.I. Friday’s restaurant and all of its equipment, the meaning of the subrogation continuation clause contained in the contract between the owner and the contractor who had performed renovations and remodeling of the restaurant five years earlier became the focal point of ensuing dispute.
The parties had entered into a standard American Institute of Architects form of contract for construction, AIA A101-1997. The construction contract incorporated by reference the AIA A201-1991 general conditions to the contract for construction. Section 11.4.7 of the general conditions was a waiver of subrogation provision, stating:
“The Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees . . . for damages caused by fire, or other causes of loss to the extent covered by property insurance obtained pursuant to this paragraph 11.4 or other property insurance applicable to the Work. . . . A waiver of subrogation shall be effective as to a person or entity even though that person or entity would otherwise have a duty of indemnification, contractual or otherwise, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged.”
The general conditions also included a subrogation continuation clause for damages suffered after work is completed, Section 11.4.5, providing in pertinent part:
“If . . . after final payment property insurance is to be provided on the completed Project through a policy or policies other than those insuring the Project during the construction period, the Owner shall waive all rights in accordance with the terms of Section 11.4.7 for damages caused by fire or other causes of loss covered by this separate property insurance. All separate policies shall provide this waiver of subrogation by endorsement or otherwise.”
At the time of the fire, the restaurant was insured through a policy issued to the owners by Argonaut. After Argonaut paid the owner approximately $3.2 million on its claims for the repair and replacement of the restaurant, lost profit and expenses, it filed a complaint against the contractor and its subcontractors. According to the fire marshal, the fire had been caused when an accumulation of grease inside the wall behind the kitchen broiler ignited. Negligent installation of the broiler had allowed the grease to accumulate. The defendants moved for summary judgment.
The defendants argued, first, that Argonaut’s claims were barred by a contractual waiver of subrogation and, second, that the waiver was applicable in the context of post-construction damage. In addressing the first issue, the court determined that the language of Section 11.4.7 of the general conditions precluded the owners from asserting subrogation claims against either the general contractor or any subcontractor and that since Argonaut in asserting subrogation claims was “stepping into the shoes” of the insured, Argonaut had only as many rights as its insured. Additionally, the court noted that the purpose of waivers of subrogation is to place the risk of loss on the insurer, regardless of the relative fault of the parties.
The court next turned to the more complex issue of whether the waiver contained in the general conditions was applicable in the context of post-construction losses, which had not been previously addressed by New Jersey state or federal courts. The defendants argued the plain language of the waiver stated that it applies to post-construction damages, pointing to out-of-state case law for support. Citing to the recent District of Massachusetts case of Lumbermens Mut. Cas. Co. v. Grinnell Corp., 477 F. Supp. 2d 327 (D. Mass 2007), Argonaut argued that the defendants’ cited case law was distinguishable and the waiver was inapplicable because after construction of the restaurant, a new policy had been put in place by the owner, rather than the policy obtained for construction being extended by agreement of the parties as contemplated by Section 11.4.5. Argonaut further argued that the waiver only applied to losses occurring during construction of the project, and that the fire had occurred almost five years after the “Work” contemplated by the contract was complete, when the primary policy justification for the waiver of subrogation -- to avoid protracted disputes during the project’s construction -- was no longer implicated.
In analyzing the AIA language, the court found that Section 11.4.5 unambiguously extended the waiver of subrogation to post-construction losses suffered by the owner and specifically contemplated that the owner might obtain a different insurance policy after construction was completed. Accordingly, the court rejected Argonaut’s arguments and declined to follow Lumbermens, noting that under New Jersey law, a court must begin its analysis by interpreting the contract and determining its plain meaning and should only turn to the intent of the parties or policy concerns should the contract be ambiguous. Thus, the court’s finding that the language of the general conditions clearly applied to post-construction losses concluded its analysis. Indeed, the court found itself unable to discern any other possible meaning for Section 11.4.5. than to extend the applicability of the waiver to post-construction losses.
Click here to view full opinion as PDF (provided with
the permission of LexisNexis).
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