Opinion
Case No. 18-cv-7553
2021-07-14
ACE AMERICAN INSURANCE COMPANY, Plaintiff, v. JTM ELECTRICAL CONTRACTORS, INC., Defendant. JTM Electrical Contractors, Inc., Third Party Plaintiff, v. Howard Industries, Inc., Engineered Products Co., and Consolidated Electrical Distributors, Inc., Third Party Defendants. Howard Industries, Inc., Engineered Products Co., and Consolidated Electrical Distributors, Inc., Fourth Party Plaintiffs, v. McNelly Services, Inc., Fourth Party Defendant.
Kevin Patrick Caraher, Cozen O'Conner, Chicago, IL, for Plaintiff. Nicholas J. Parolisi, Laurence James William Tooth, Brian Hoppe, Inessa Soleil Holly, Litchfield Cavo LLP, Chicago, IL, for Third Party Defendant Howard Industries, Inc. Kyle R. Burkhardt, Capuani & Schneider, Chicago, IL, for Third Party Defendant Engineered Products, Co. Eric A. Krumdick, Maisel & Associates, Chicago, IL, for Third Party Defendant Consolidated Electrical Distributors, Inc. Daniel Robert Sarther, Steven Carl Wolf, Lee Andrew Laudicina, Mallory Renee Barrett, Wolf & Laudicina, Ltd., Chicago, IL, for Defendant/Third Party Plaintiff.
Kevin Patrick Caraher, Cozen O'Conner, Chicago, IL, for Plaintiff.
Nicholas J. Parolisi, Laurence James William Tooth, Brian Hoppe, Inessa Soleil Holly, Litchfield Cavo LLP, Chicago, IL, for Third Party Defendant Howard Industries, Inc.
Kyle R. Burkhardt, Capuani & Schneider, Chicago, IL, for Third Party Defendant Engineered Products, Co.
Eric A. Krumdick, Maisel & Associates, Chicago, IL, for Third Party Defendant Consolidated Electrical Distributors, Inc.
Daniel Robert Sarther, Steven Carl Wolf, Lee Andrew Laudicina, Mallory Renee Barrett, Wolf & Laudicina, Ltd., Chicago, IL, for Defendant/Third Party Plaintiff.
ORDER
Steven C. Seeger, United States District Judge
A fire consumed part of a warehouse, and Plaintiff Ace American Insurance paid for the damage under a property insurance policy issued to the owner. The insurance company later filed suit against Defendant JTM Electrical Contractors, one of the subcontractors on a construction project at the warehouse. JTM, in turn, sued two manufacturers and a distributor, and those firms sued the general contractor.
JTM later filed for summary judgment, arguing that the owner of the building agreed to waive any right to bring claims about fire damage. For the reasons stated below, JTM's motion for summary judgment is granted.
Facts
On June 12, 2017, a fluorescent lighting fixture caught fire at a warehouse in Monee, Illinois. See Def.’s Rule 56.1 Statement, at ¶¶ 2, 13 (Dckt. No. 97-1). The fire caused significant damage to the warehouse. The owner, Exeter 25810 S. Ridgeland LLC ("Exeter"), submitted a claim to its insurance company, Ace American Insurance. The insurer paid for the damage, and in return, it became subrogated to the rights of Exeter. Id. at ¶¶ 14–16. That is, the insurance company gained the ability to pursue whatever rights Exeter had to bring claims about the fire.
Ace American Insurance did not file a response to JTM's Rule 56.1 statement, so the facts therein are deemed admitted to the extent that they are supported by evidence in the record. See, e.g., Keeton v. Morningstar, Inc. , 667 F.3d 877, 880 (7th Cir. 2012) ("Because Keeton failed to file a response to Morningstar's Local Rule 56.1 statement of facts in the district court, we credit Morningstar's uncontroverted version of the facts to the extent that it is supported by evidence in the record.").
Ace American Insurance later sued Defendant JTM, the subcontractor that installed the lighting fixture, for negligence. Id. at ¶ 17. JTM, in turn, sued a variety of other parties associated with the lighting fixture, including Howard Industries (a manufacturer of fluorescent lamps and fixtures), Engineered Products (a manufacturer of fluorescent lamp tube guards), and Consolidated Electrical Distributors (a supplier of electrical equipment). Those third party defendants then sued McNelly Services, the general contractor and designer of the lighting plan.
JTM moved for summary judgment. JTM argues that Exeter (the owner) waived its right to bring claims for fire damage related to the lighting fixtures. According to JTM, Exeter's waiver binds the insurance company, too.
Legal Standard
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A genuine dispute of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). To survive summary judgment, the opposing party must go beyond the pleadings and identify specific facts showing the existence of a genuine issue for trial. Anderson , 477 U.S. at 256, 106 S.Ct. 2505.
The Court construes all facts and reasonable inferences in the light most favorable to the nonmoving party. See Chaib v. Geo Grp., Inc. , 819 F.3d 337, 341 (7th Cir. 2016). The Court does not weigh the evidence, judge credibility, or determine the truth of the matter, but rather determines only whether a genuine issue of triable fact exists. See Nat'l Athletic Sportswear, Inc. v. Westfield Ins. Co. , 528 F.3d 508, 512 (7th Cir. 2008). Summary judgment is appropriate if, on the evidence provided, no reasonable jury could return a verdict in favor of the non-movant. See Celotex , 477 U.S. at 322, 106 S.Ct. 2548 ; Gordon v. FedEx Freight, Inc. , 674 F.3d 769, 772–73 (7th Cir. 2012).
The dispute involves an interpretation of provisions of a contract and an insurance policy. The parties do not point to a choice-of-law provision in either document. All of the parties take it as a given that Illinois law applies. See, e.g. , Def.’s Mtn. for Summ. J., at 2 (Dckt. No. 97-2) (citing Illinois law); Pl.’s Resp. to Def.’s Mtn. for Summ. J. (Dckt. No. 104) (citing no case law but failing to object to JTM's reliance on Illinois law). In any event, none of the parties makes an argument that turns on which state's law applies. So the Court, like the parties, will assume that Illinois law applies.
Discussion
JTM installed the lighting fixture in question as part of a larger construction project at the warehouse. See Def.’s Rule 56.1 Statement, at ¶¶ 18–19 (Dckt. No. 97-1). Exeter, the owner of the warehouse, signed a contract with a general contractor, McNelly Services, to complete a variety of upgrades. Id. at ¶ 18. And McNelly, in turn, hired JTM as a subcontractor to select and install lights. Id. at ¶¶ 12, 18.
JTM argues that when Exeter signed its contract with McNelly, it waived its right to bring a claim about fire damage. And because Ace American Insurance is standing in Exeter's shoes (as the subrogee), the waiver applies to Ace American Insurance, too. The Court agrees.
JTM rests its argument on a provision of the contract between Exeter and McNelly that governs the waiver of claims. They agreed to waive certain claims against each other, and the waiver extended to subcontractors, too. Section 5.5 provided:
Unless specifically precluded by the Owner's property insurance policy, the Owner and Contractor waive all rights against (1) each other and any of their subcontractors , suppliers, agents and employees, each of the other; and (2) the Architect, Architect's consultants and any of their agents and employees, for damages caused by fire or other causes of loss to the extent covered by property insurance or other insurance applicable to the Work.
See Def.’s Rule 56.1 Statement, at ¶ 21 (Dckt. No. 97-1) (emphasis added); see also Agreement, at § 5.5 (Dckt. No. 97-6, at 4 of 19).
The contract defines the "Owner" as Exeter, and defines the "Contractor" as McNelly Services. See Agreement, at 1 (Dckt. No. 97-6, at 1 of 19). So Exeter waived claims against McNelly, the general contractor. The waiver applied to "subcontractors" and "suppliers," too. Id. JTM was a subcontractor on the construction project. See Def.’s Rule 56.1 Statement, at ¶ 9 (Dckt. No. 97-1).
The waiver provision is straightforward. Exeter agreed to waive claims "for damages caused by fire ... to the extent covered by property insurance or other insurance applicable to the Work." See Agreement, at § 5.5 (Dckt. No. 97-6, at 4 of 19). But there was a catch: "[u]nless specifically precluded by the Owner's property insurance policy." Id. In sum, Exeter waived any right to bring a claim against JTM for damage caused by the fire, if it is covered by insurance, unless Exeter's policy with Ace American Insurance prohibited the waiver.
So the question is whether Exeter's policy with Ace American Insurance prohibited Exeter from waiving a right to bring claims. The insurance policy contains a subrogation provision that answers that question:
In the event of payment under this Policy, the Insurer, where legally permitted, shall be subrogated to the extent of such payment to all the Insured's rights of recovery in respect thereof. The Insured is required to cooperate, at the request and expense of the insurer, in any subrogation proceedings. The insurer may require from the insured an assignment or other transfer of all right of recovery against any party for loss to the extent of the Insurer's payment.
The Insurer shall not acquire any right of recovery that the Insured has expressly waived prior to a loss, nor shall such waiver affect the Insured's rights under this Policy.
Id. at ¶ 23 (emphasis added); see also Policy, at § VIII.S.1 (Dckt. No. 97-7, at 178 of 258).
That provision does not "specifically preclude[ ]" Exeter from waiving any rights. See Agreement, at § 5.5 (Dckt. No. 97-6, at 4 of 19). In fact, it does the opposite. The insurance policy acknowledges that Exeter can "waive[ ]" a "right to recovery." See Policy, at § VIII.S.1 (Dckt. No. 97-7, at 178 of 258). And it makes clear that the insurance company has no rights that Exeter has already waived. "The Insurer shall not acquire any right of recovery that the Insured has expressly waived prior to a loss." Id. That provision is consistent with broader principles about subrogation. "Subrogation simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person's rights against the defendant." Scholle IPN Packaging, Inc. v. Valfilm, LLC , 2019 WL 3555051, at *1 n.1 (N.D. Ill. 2019) (citation omitted); Starr Indem. & Liability Co. v. Tech. Ins. Co. , 2017 WL 4340177, at *2 (N.D. Ill. 2017) ; Liberty Mut. Ins. Co. v. Am. Home Assur. Co. , 348 F. Supp. 2d 940, 960 (N.D. Ill. 2004) ("[A] subrogee acquires no greater or lesser rights than those possessed by the subrogor.").
In sum, in its contract with McNelly, Exeter waived any right to bring a claim against JTM for damage caused by the fire, if the damage is covered by insurance, unless Exeter's policy with Ace American Insurance prohibited a waiver. And Exeter's policy with Ace American Insurance does not prohibit a waiver. In fact, the policy contemplates that very possibility. Therefore, Exeter (and by extension, Ace American Insurance) waived its right to bring a claim against JTM for damage caused by the fire.
Ace American Insurance makes a few arguments in response, but they don't hold water. First, it argues that JTM waived this defense because it did not include it in its answer. See Pl.’s Resp. to Def.’s Mtn. for Summ. J., at 2 (Dckt. No. 104). It's true that JTM didn't include a waiver defense in its answer. But, as JTM points out in its reply, the Court can grant JTM leave to amend its answer under the Federal Rules. Under Rule 15(a)(2), the Court is instructed to "freely give leave when justice so requires," and this situation certainly fits the bill. See Fed. R. Civ. P. 15(a)(2). The Federal Rules are forgiving when it comes to amendments to pleadings. A party can amend pleadings after trial, so they can do so at the summary judgment stage, too. See Fed. R. Civ. P. 15(b).
JTM also had a good reason for not including this waiver defense in its answer. It did not have a copy of Exeter's contract with McNelly at that point, and so it did not know that the defense was available. See Def.’s Reply in Supp. of Mtn. for Summ. J., at 2 (Dckt. No. 105). Allowing the amendment would not unfairly prejudice any party.
Second, Ace American Insurance argues that the waiver clause does not apply to this particular cause of action. That argument comes in a few flavors. Each one depends on the phrase "other insurance applicable to the Work" in the waiver provision. See Agreement, at § 5.5 (Dckt. No. 97-6, at 4 of 19). The punchline is that Ace American Insurance believes that the policy, and the timing of the loss, must be tied to the construction "Work." It argues that the waiver applies only to certain types of policies (i.e. , policies in existence during the construction), and certain types of losses (i.e. , losses that took place during the construction).
Ace American Insurance argues that the waiver provision does not apply because the insurance policy in question did not exist during the construction "Work." See Pl.’s Resp. to Def.’s Mtn. for Summ. J., at 4 (Dckt. No. 104). It also argues that Exeter only waived claims about damage that occurred while the construction "Work" was ongoing. Id. at 3. And here, the fire took place after construction was over. Id.
That argument rests on the definition of the word "Work" in the waiver provision. Exeter agreed to waive all rights to recover against subcontractors to the extent that the damages were "covered by property insurance or other insurance applicable to the Work." See Agreement, at § 5.5 (Dckt. No. 97-6, at 4 of 19). Section 6.2 of the contract defines "Work" as follows:
The term "Work" means the construction and services required by the Contract Documents, and includes all other labor, materials, equipment and services provided, or to be provided, by the Contractor to fulfill the Contractors’ obligations.
Id. at § 6.2. Ace American Insurance argues that under that definition, "Work" refers to the period when construction was actually taking place. Therefore, Exeter's policy with Ace American Insurance is not insurance "applicable to the Work" because it did not take effect until June 1, 2017, long after the construction itself ceased in the spring of 2016.
In other words, Ace American Insurance reads the phrase "applicable to the Work" as a modifier that limits both "property insurance" and "other insurance." So, in its view, the property insurance policy must be "applicable to the Work" for the waiver to apply. And in its view, the loss must take place during the "Work," too.
But that's not what the waiver provision says at all. The insurance company's argument goes off the rails because it departs from the plain text of the contract. It rests on a tangled reading of the text, not a straightforward application of the plain language. See Land of Lincoln Goodwill Indus., Inc. v. PNC Fin. Servs. Group, Inc. , 762 F.3d 673, 679 (7th Cir. 2014) ("Our prime objective is to effectuate the intent of the parties. We do that by enforcing the contract as the parties have written it, as the plain language of the contract is the best evidence of the parties’ intent.") (citation omitted).
Again, the owner waived any claims for "damages caused by fire ... to the extent covered by property insurance or other insurance applicable to the Work." See Def.’s Rule 56.1 Statement, at ¶ 21 (Dckt. No. 97-1) (emphasis added); see also Agreement, at § 5.5 (Dckt. No. 97-6, at 4 of 19). The phrase "applicable to the Work" modifies "other insurance." So, for example, it would apply to construction insurance.
If the loss is covered by insurance, then the waiver applies, and the contractors and subcontractors pay nothing. The provision basically ensures that the owner's insurance company – not the contractor and subcontractors – bears the risk and the expense if there is a fire. It assigns responsibility to the insurer.
The waiver applies to "property insurance," and to "other insurance applicable to the Work." The property insurance does not have to be "applicable to the Work." That phrase limits the term "other insurance," not "property insurance." Any property insurance will do, as long as it covers the loss from the fire.
The timing of the issuance of the policy does not matter. Nothing in the waiver provision says that the insurance policy had to be in existence during the construction. The phrase "covered by property insurance" does not mean "covered by property insurance now in existence." If there's coverage under a property insurance policy, that's good enough for waiver.
The timing of the fire does not matter, either. Under the plain text of the provision, the question is whether the damage was covered by insurance, not whether the damage took place during the construction Work. Exeter waived a claim for damages caused by fire if the loss is "covered by property insurance," or is "covered by ... other insurance applicable to the Work." See Agreement, at § 5.5 (Dckt. No. 97-6, at 4 of 19).
There's no time limit in the waiver provision. The waiver applies to "damages caused by fire." Id. The phrase "damages caused by fire" does not mean "damages caused by fire during construction only." The owner of the building did not bargain for a time limit, so the insurance company can't impose one now.
Ace American Insurance argues that the loss was not related to the "Work," so the waiver does not apply. But under the agreement, it doesn't matter if the fire took place during the construction Work. What matters is whether there was coverage for the loss. And here, Ace American Insurance issued a property insurance policy to Exeter. Exeter's policy with Ace American, titled "Global Property Insurance Policy," is undoubtedly a property insurance policy. See Insurance Policy, at 4 (Dckt. No. 97-7) (a "Global Property Insurance Policy"). So the waiver applies.
Plus, even if the Court adopted Ace American Insurance's reading of that provision, and held that the loss must be connected to the "Work" for the waiver to apply, Ace American Insurance would still lose.
Ace American Insurance's reading of the term "Work" is much too narrow. The definition of "Work" includes both labor and things. Section 6.2 explicitly defines "Work" to include "all other labor, materials , equipment and services provided." See Agreement, at § 6.2 (Dckt. No. 97-6, at 4 of 19) (emphasis added). So, the waiver applies to claims for fire damage caused by labor as well as damage caused by "materials" permanently installed on the premises. Like the light at issue in this case.
In the alternative, Ace American Insurance argues that even if the term "Work" included materials as well as labor, the waiver does not cover claims about the majority of the damages caused by the fire. See Pl.’s Resp. to Def.’s Mtn. for Summ. J., at 4–5 (Dckt. No. 104). In its view, Exeter only waived its right to bring claims for damages caused to the materials installed by JTM, not claims for damages caused by the materials JTM installed. As a result, Ace American Insurance might not be able to bring a claim about damage to the lights themselves, but it can bring a claim about damage to the warehouse itself.
Once again, that's not what the provision says. Ace American Insurance fails to explain why the waiver provision applies only to damages caused to the materials installed by JTM. The waiver provision applies to "all rights" about "damages caused by fire." See Agreement, at § 5.5 (Dckt. No. 97-6, at 4 of 19). That provision means what it says. The parties waived all rights about fire damage, not simply rights about fire damage limited to the replacement cost of materials.
The property insurance policy at issue here covered fire damage caused by the light fixtures. So there's insurance coverage within the meaning of the waiver provision. So Ace American Insurance has no claim. Ace American Insurance stands in the owner's shoes, and the owner already surrendered any ability to bring a claim about fire damage that is covered by insurance.
In sum, the Court concludes that Exeter, and by extension Ace American Insurance, waived the right to bring a claim for fire damage. JTM's motion for summary judgment is granted.
Conclusion
For the reasons stated above, JTM's motion for summary judgment is granted.