Opinion
22A-CT-2966
08-28-2023
CA Student Living Bloomington Property Owner LLC f/k/a CA/Regency Dunnhill JV LLC, Appellant-Defendant/Cross-Claim Plaintiff, v. P.I.P.E. Inc. and RG National, LLC, Appellees-Defendants/Cross-Claim Defendants
ATTORNEYS FOR APPELLANT Scott R. Fradin Much Shelist, PC Chicago, Illinois David L. Ferguson Ferguson Law Bloomington, Indiana ATTORNEY FOR APPELLEES Donald G. Orzeske Orzeske & Blackwell, P.C. Indianapolis, Indiana
Pursuant to Ind. Appellate Rule 65(D), this Memorandum Decision is not binding precedent for any court and may be cited only for persuasive value or to establish res judicata, collateral estoppel, or law of the case.
Appeal from the Monroe Circuit Court The Honorable Holly M. Harvey, Judge Trial Court Cause No. 53C06-1902-CT-491
ATTORNEYS FOR APPELLANT Scott R. Fradin Much Shelist, PC Chicago, Illinois David L. Ferguson Ferguson Law Bloomington, Indiana
ATTORNEY FOR APPELLEES Donald G. Orzeske Orzeske & Blackwell, P.C. Indianapolis, Indiana
MEMORANDUM DECISION
CRONE, JUDGE.
Case Summary
[¶1] CA Student Living Bloomington Property Owner LLC f/k/a CA/Regency Dunnhill JV LLC (CA Student) contracted with Gilliatte General Contractors, Inc. (Gilliatte), to build student apartments in Bloomington. Pursuant to that contract, CA Student agreed to obtain and maintain full-replacement-cost, allrisk property insurance on the project, including Gilliatte and subcontractors as named insureds, to provide coverage for, among other things, damage resulting from defective workmanship. CA Student obtained a policy that did not include Gilliatte and subcontractors as named insureds. After that policy expired, but before the project was certified as substantially complete, many apartments suffered water damage as a result of defectively installed shower drains. The insurer denied coverage for that damage because it occurred after the policy expired. Gilliatte sued CA Student and plumbing subcontractors P.I.P.E. Inc. (PIPE) and RG National, LLC (RG National), and CA Student sued Gilliatte and PIPE. PIPE and RG National filed a motion for summary judgment asserting that any of CA Student's damages not covered by insurance are a result of its breach of contract by failing to obtain and maintain sufficient insurance and that Gilliatte's damages are a result of that breach. The trial court granted the motion, and CA Student contends that this was error. We affirm.
Facts and Procedural History
[¶2] In June 2017, CA Student and Gilliatte executed a "Guaranteed Maximum Price Construction Agreement" (the Contract), pursuant to which Gilliatte agreed to build student apartments in Bloomington for CA Student. Gilliatte subcontracted with PIPE and RG National to install the plumbing system, including shower drains. Exhibit H to the Contract sets out the project's insurance requirements and reads in relevant part as follows:
C. INSURANCE TO PROTECT PROJECT.
1. Owner shall obtain and maintain property insurance in a form reasonably acceptable to Contractor upon the entire Project for the full cost of replacement at the time of any loss (known as "Builders Risk"). This insurance shall include as named insureds Owner, Contractor, Architect and Subcontractors. This insurance shall insure against loss from the perils of fire and extended coverage, and shall include "all risk" insurance for physical loss or damage including without duplication of coverage at least: theft, vandalism, malicious mischief, transit, collapse, falsework, temporary buildings, debris removal, flood, earthquake, testing, and damage resulting from defective design, workmanship or material provided such defect causes a "covered cause of loss" as defined in the policy of insurance. Owner shall increase limits of coverage, if necessary, to reflect estimated replacement cost. The Party responsible for the loss covered by this insurance shall be responsible for any co-insurance penalties or deductibles.
2. If Owner occupies or uses a portion of the Project prior to its Substantial Completion, such occupancy or use shall not commence prior to a time mutually agreed to by Owner and Contractor and to which the insurance company or companies providing the property insurance have consented by endorsing the policy or policies. This insurance shall not be canceled or lapsed on account of partial occupancy. Consent of Contractor to such early occupancy or use shall not be unreasonably withheld.
4. Contractor shall be given thirty (30) days' notice of cancellation, non-renewal, or any endorsements restricting or reducing coverage. Owner shall give written notice to Contractor before commencement of the Work if Owner will not be obtaining property insurance. In that case, Contractor may obtain insurance in order to protect its interest in the Work as well as the interest of Architect and Subcontractors in the Work. The cost of this insurance shall be a Cost of the Work, and the Guaranteed Maximum Price shall be increased by Change Order. If Contractor is damaged by failure of Owner to purchase or
maintain property insurance or to so notify Contractor, Owner shall bear all reasonable direct costs incurred by Contractor arising from the damage.
D. PROPERTY INSURANCE LOSS ADJUSTMENT.
1. Any insured loss shall be adjusted with Owner and Contractor and made payable to Owner and Contractor as trustees for the insureds, as their interests may appear, subject to any applicable mortgagee clause.
2. Owner as fiduciary shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object in writing within five days after occurrence of loss to Owner's exercise of this power. Owner as fiduciary shall, in the case of a decision or award, make settlement with insurers in accordance with directions of a decision or award.
E. WAIVER OF SUBROGATION
Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other and (2) Architect, Architect's consultants, separate contractors, if any, 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 Exhibit H or other property insurance applicable to the Work, except such rights as they have to proceeds of such insurance held by Owner as fiduciary. Owner or Contractor, as appropriate, shall require of the Architect, Architect's consultants, Owner's Separate Contractors ..., if any, and the subcontractors, subsubcontractors, agents and employees of any of them, by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated herein. The policies shall provide such waivers of subrogation by endorsement or otherwise. 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.Appellant's App. Vol. 6 at 183-84.
The recitals section of the Contract states, "WHEREAS, Owner anticipates construction of seven (7) student housing buildings with, approximately, 279 living units with an estimated bed count of 749 within, approximately, 553,180 square feet of space (the 'Project') located at Bloomington, Indiana (the 'Project Site')[.]" Appellant's App. Vol. 6 at 11.
The Contract provides, "Substantial Completion" or "Substantially Complete" occurs when:
(1) The Work is sufficiently complete so the applicable part of the Project may be used for its intended purpose by Owner and/or occupant thereof (e.g., common areas and retail tenant space).
(2) Contractor has secured all necessary permits, certificates, licenses, and approvals from public agencies with jurisdiction affecting the applicable part of the Project, including certificates of occupancy from the City.
(3) Architect, or Owner, with approval of the Inspecting Agent, has issued a Certificate of Substantial Completion for the applicable part of the Project. The Certificate of Substantial Completion shall state the responsibility of each party for security, maintenance, heat, utilities, insuring, and damage to the applicable part of the Work, and shall include a Punch List.
(4) The Certificate of Substantial Completion noted in (3) is accepted and executed by Contractor.Appellant's App. Vol. 6 at 90 (underlining omitted).
[¶3] CA Student obtained a policy captioned as a builders-risk policy with a $72,569,240 limit from Hartford Fire Insurance Company (Hartford), which included only CA Student as a named insured and expired on August 8, 2018. On August 11, 2018, CA Student obtained a policy captioned as a commercial property policy with a $350,000,000 limit from Travelers Property Casualty Company of America (Travelers), which included only CA Student as a named insured and became effective on that date. On August 17, 2018, students began moving into the apartments. Two days later, it was determined that approximately 124 units were damaged as a result of water leaking from shower drains. CA Student filed claims with both Hartford and Travelers. Hartford denied coverage because the damage occurred after its policy expired. Appellant's App. Vol. 3 at 71. Travelers determined that the damage resulted from "improper installation/connection of the shower drains" and that the loss was covered under its policy in the amount of $1,057,212.15, well short of the $3,103,663 figure that CA Student submitted in its proof of loss. Id. at 145, 7778. On October 1, 2018, the architect issued a certificate of substantial completion for the project. Id. at 98.
[¶4] In February 2019, Gilliatte filed a complaint for breach of contract, negligence, and breach of implied warranty of workmanship against multiple subcontractors, including PIPE and RG National. Gilliatte later amended the complaint to add CA Student as a defendant, alleging that CA Student breached the Contract by failing to pay an outstanding balance of over $5,000,000 and that Gilliatte was entitled to the foreclosure of a mechanic's lien for that amount. CA Student filed an answer and a counterclaim alleging, among other things, that Gilliatte breached the Contract by failing to construct the apartments according to its terms. CA Student also filed cross-claims for breach of contract and negligence against PIPE.
[¶5] In May 2022, PIPE and RG National filed a motion for summary judgment asserting that Gilliatte and CA Student had agreed to waive their claims against them pursuant to the Contract's subrogation waiver provision, that any of CA Student's damages not covered by insurance are a result of its breach of the Contract by failing to obtain and maintain sufficient insurance, and that Gilliatte's damages are a result of that breach. CA Student filed a response that Gilliatte partially joined. In August 2022, after a hearing, the trial court issued an order granting PIPE and RG National's motion for summary judgment, concluding as a matter of law that CA Student and Gilliatte waived their subrogation rights and that CA Student breached the Contract "by failing to name PIPE and RG National as named insureds on an all risk policy of insurance to cover the losses beyond those which are covered on the Builders Risk policy obtained through .. . Hartford." Appealed Order at 6. The court directed entry of judgment on the issues disposed of in its order. Only CA Student appeals the trial court's ruling.
Discussion and Decision
[¶6] "The purpose of summary judgment is to terminate litigation about which there can be no factual dispute and which may be determined as a matter of law." Sheehan Constr. Co. v. Cont'l Cas. Co., 938 N.E.2d 685, 689 (Ind. 2010). "On appeal from summary judgment, the reviewing court analyzes the issues in the same fashion as the trial court, de novo." Salmon v. City of Bloomington, 761 N.E.2d 440, 443 (Ind.Ct.App. 2002). "Summary judgment is especially appropriate in the context of contract interpretation because the construction of a written contract is a question of law." N.H. Ins. Co. v. Ind. Auto. Ins. Plan, 176 N.E.3d 514, 521 (Ind.Ct.App. 2021) (citation omitted), trans. denied. "We will affirm upon any theory or basis supported by the designated materials." Id. We are not bound by the trial court's findings and conclusions, which "merely aid our review by providing us with a statement of reasons for the trial court's actions." Id.
[¶7] The goal of contract interpretation is to determine the parties' intent when they made the agreement. Vill. Pines at the Pines of Greenwood Homeowners Ass'n v. Pines of Greenwood, LLC, 123 N.E.3d 145, 156 (Ind.Ct.App. 2019). We determine that intent "by analyzing the contractual language within the four corners of the document." Id. We read the contract as a whole and attempt to construe the language so as not to render any words, terms, or phrases ineffective or meaningless. Cherokee Air Prods. v. Buchan, 14 N.E.3d 831, 834 (Ind.Ct.App. 2014). If that language is unambiguous, we give it its plain and ordinary meaning, and "we may not look to extrinsic evidence to expand, vary, or explain the instrument." Vill. Pines, 123 N.E.3d at 156. "A contract is not ambiguous merely because the parties disagree as to its proper construction; rather, a contract will be found to be ambiguous only if reasonable persons would differ as to the meaning of its terms." Cherokee Air Prods., 14 N.E.3d at 834. Where the terms of a contract are ambiguous or uncertain, and its interpretation requires consideration of extrinsic evidence, its construction is left to the factfinder. Rusnak v. Brent Wagner Architects, 55 N.E.3d 834, 840 (Ind.Ct.App. 2016), trans. denied.
[¶8] "Overall, when a contract contains an agreement to insure or a waiver of subrogation, the parties demonstrate their intent to avoid liability by allocating it to an insurer. At the same time, parties remain free to specify the scope of these provisions or the conditions under which they operate." U.S. Automatic Sprinkler Corp. v. Erie Ins. Exch., 204 N.E.3d 215, 223 (Ind. 2023). Here, as mentioned above, the Contract obligated CA Student to "obtain and maintain property insurance . . . upon the entire Project for the full cost of replacement at the time of any loss (known as 'Builders Risk')[,]" which "shall include as named insureds" CA Student, Gilliatte, and subcontractors, and which "shall include 'all risk' insurance for . . . damage resulting from defective . . . workmanship ... provided such defect causes a 'covered cause of loss' as defined in the policy of insurance." Appellant's App. Vol. 6 at 183 (emphasis added). The Contract further obligated CA Student to "increase limits of coverage, if necessary, to reflect estimated replacement cost[,]" to "bear all reasonable direct costs incurred by [Gilliatte] arising from" any damage caused by CA Student's failure "to purchase or maintain property insurance[,]" and to adjust and settle losses as a trustee and a fiduciary for the insureds. Id. at 18384.
Clearly, PIPE and RG National are intended third-party beneficiaries under the Contract and thus may seek to enforce it. Harold McComb & Son, Inc. v. JPMorgan Chase Bank, NA, 892 N.E.2d 1255, 1258 (Ind.Ct.App. 2008).
[¶9] It is undisputed that the Hartford policy did not include anyone other than CA Student as a named insured, and it is questionable whether it would have covered any (let alone all) damage resulting from defective workmanship. But even assuming that the policy would have fully covered such damage, CA Student failed to maintain the policy for the requisite duration. Although the Contract does not specify a definitive end date or event, it unambiguously requires that the "full cost of replacement"/"Builders Risk"/"all risk" property insurance be maintained at least until substantial completion of the project, which was certified by the architect (but apparently not accepted by Gilliatte) almost two months after the Hartford policy expired and more than one month after the damage occurred. See Appellant's App. Vol. 6 at 183 ("If Owner occupies or uses a portion of the Project prior to its Substantial Completion, such occupancy or use shall not commence prior to a time mutually agreed to by Owner and Contractor and to which the insurance company or companies providing the property insurance have consented by endorsing the policy or policies. This insurance shall not be canceled or lapsed on account of partial occupancy. Consent of Contractor to such early occupancy or use shall not be unreasonably withheld.") (emphases added). CA Student breached its contractual obligation to maintain such insurance at least until the project was substantially completed, and thus it alone must suffer the consequences of that breach. Cf. Morsches Lumber, Inc. v. Probst, 180 Ind.App. 202, 206, 388 N.E.2d 284, 287 (1979) ("With agreements to insure, the risk of loss is not intended to be shifted to one of the parties; it is intended to be shifted to an insurance company in return for a premium payment.").
A March 2020 coverage letter from Hartford to CA Student includes the following excerpts from the policy:
A. COVERAGE
We will pay for "loss" to Covered Property caused by any of the Covered Causes of Loss. * * *
3. Covered Causes of Loss
Covered Causes of Loss means "loss" to Covered Property from any external cause except those causes of "loss" that are described in the Exclusions or elsewhere in the policy.
[....]
B. EXCLUSIONS
1. We will not pay for "loss" caused directly or indirectly by or resulting from any of the following. Such "loss" is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the "loss": * * * g. Faulty Workmanship or Design * * *
(2) Any of the following as to any part of land, buildings, roads, water or gas mains, sewers, drainage ditches, levees, dams, other structure or facilities, or to or for any Covered Property: (a) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; or
(b) Furnishing of work, materials, parts or equipment in connection with the design specifications, workmanship, repair, construction, renovation, remodeling, grading or compaction.
The Faulty Workmanship or Design Exclusion applies whether or not the property or facilities described above are Covered Property under this policy or on or away from a "Scheduled Premises".
(3) If an excluded cause of loss listed in Paragraphs g. (1) or g. (2) above results in a Covered Cause of Loss, we will pay for the resulting loss or damage caused by the Covered Cause of Loss. But we will not pay for:
(a) Any cost of correcting or making good the act, error or omission itself;
(b) Any cost incurred to tear down, tear out, repair or replace any part of any property to correct the act, error or omission; or
(c) Any resulting loss or damage by a Covered Cause of Loss to the property that has the fault, inadequacy or defect until the act, error or omission is corrected or rectified.Appellant's App. Vol. 5 at 157-58. In its order, the trial court found that the policy "specifically excluded from coverage any losses caused by 'faulty workmanship or design'" and "[t]hus, the acquisition of just the Builders Risk policy is insufficient, if the Court lends meaning to the entirety of the language in Para. C.1 [of Exhibit H to the Contract], which requires that 'all risks' be covered." Appealed Order at 6. CA Student suggests that the subcontractors' faulty workmanship resulted in a covered cause of loss, Appellant's Br. at 36 n.9, but it offers no support for this suggestion and no discussion of the applicable exclusions.
In their summary judgment brief, PIPE and RG National stated that CA Student had "open pending claims with Hartford and Travelers" and could "still be made whole at the conclusion of [its] insurance claims." Appellant's App. Vol. 3 at 14.
[¶10] Accordingly, we affirm the trial court's summary judgment ruling in favor of PIPE and RG National, and we need not address the subrogation waiver issue.
[¶11] Affirmed.
Brown, J., and Felix, J., concur.