Turner Constr. Co. v. BFPE Int’l, Inc., No. JKB-15-368, 2016 U.S. Dist. LEXIS 39161 (D. Md. Mar. 25, 2016)

The University of Maryland Medical Center (“UMMC”) entered into a contract (the “Prime Contract”) with Turner Construction Company (“Turner”), pursuant to which Turner agreed to renovate UMMC’s hospital offices.  Turner then entered into a subcontract (the “Subcontract”) with BFPE International, Inc. (“BFPE”), pursuant to which BFPE agreed to perform work associated with the fire protection system, including demolishing sprinkler piping and coordinating sprinkler outages to accommodate the renovations.
The Prime Contract included a waiver of subrogation, under which UMMC and Turner waived all rights against each other and any subcontractors for damages covered by property insurance, even if the subcontractor would otherwise have a duty to indemnify.[i]  The Subcontract incorporated the Prime Contract by reference and included flow down provisions, but the Subcontract also stated that if any provision “irreconcilably conflicts” with a provision of the Prime Contract, “the provision imposing the greater duty or obligation on [BFPE] shall govern.”  The Subcontract included an assumption of liability, under which BFPE assumed liability for all property damage in connection with its work and agreed to indemnify Turner from any claims that result.[ii]  This assumption of liability seemed inconsistent with the waiver of subrogation in the Prime Contract.

During the course of the project, one of BFPE’s technicians loosened a pipe on a sprinkler system that had not been turned off, causing pressurized water to shoot out.  The water flow was impossible to stop and caused significant property damage.  The parties and their insurance companies disagreed as to who was contractually responsible for the water damage.  Turner sued BFPE for breach of contract and the parties both moved for partial summary judgment as to liability.  Turner argued that the Subcontract’s assumption of liability provision shifted the entire responsibility for repairing the water damage to BFPE.  BFPE argued that the Subcontract’s assumption of liability provision was trumped by the Prime Contract’s waiver of subrogation provision so that UMMC’s property-insurance carrier should be responsible for the loss.  BFPE pointed out that the public interest is served when all parties to large construction ventures can rely on a single insurer to cover this type of damage.

The United States District Court for the District of Maryland, applying Maryland law, held that it could not definitively establish at summary judgment which contractual provision controlled, but acknowledged that the assumption of liability would likely control unless BFPE could prove that the parties actually intended the waiver of subrogation to control at the time the parties executed the Subcontract.  Without such proof, the court anticipated that it would enforce the express language of the Subcontract—which the parties actually agreed to—over terms from the Prime Contract that were generally incorporated by reference.  The court acknowledged that this may be a rare case in which the obvious public-policy benefit of orderly and predictable insurance planning at the outset of a contraction project must yield to the explicit agreement between a general contractor and its subcontractor.

The court reasoned that although the Subcontract incorporated the Prime Contract’s waiver of subrogation by reference, the parties specifically agreed in the Subcontract that BFPE would assume the “entire responsibility and liability for any and all actual or potential damages.”  The court cited well-established Maryland law that stated where two parts of a written agreement are apparently in conflict, and one is general in character and the other is specific, the specific stipulation will take precedence over the general.  Also, the court pointed to a separate Subcontract provision requiring BFPE to maintain its own commercial general liability insurance as further support that the assumption of liability may control.  The provision required BFPE to name UMMC and Turner as additional insureds and for the policy to serve as primary insurance as compared to other insurance of UMMC and/or Turner.

To view the full text of the court’s decision, courtesy of Lexis ®, click here.

[i] Section 11.3.7 of the Prime Contract, titled “Waiver of Subrogation,” states:
[UMMC] and [Turner] waive all rights against . . . each other and any of their subcontractors . . . for damages caused by fire or other causes of loss to the extent covered by property insurance obtained pursuant to this Section 11.3 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 . . . .
[ii] Article XXIII of the Subcontract, titled “Assumption of Liability,” states:
[BFPE] hereby assumes the entire responsibility and liability for any and all actual or potential damage or injury of any kind or nature whatsoever . . . to all persons and entities . . . or to all property . . . caused by, resulting from, arising out of or occurring in connection with the execution of the [Subcontract] Work, or in preparation for the [Subcontract] Work . . . .  Should any claims for such actual or potential damage or injury . . . be made or asserted, whether or not such claims are based upon [Turner]’s alleged active or passive negligence or participation in the wrong . . . [BFPE] agrees to indemnify and save harmless [Turner] from and against any and all such claims and further from and against any and all loss, cost, expense, liability, damage, penalties, fines or injury, including legal fees and disbursements, that [Turner] may directly or indirectly sustain . . . as a result thereof . . . .