Opinion
NOT TO BE PUBLISHED
APPEALS from judgments of the Superior Court of San Diego County, Super. Ct. No. 37-2007-00066222-CU-PO-CTL, Steven R. Denton, Judge.
NARES, J.
In this action State Farm General Insurance Company (State Farm) sought subrogation against Steigerwald-Dougherty, Inc. (SDI) and Sexton Company, Inc. (Sexton) to recoup money it paid out on a claim involving a fire at real property owned by its insured, Larry Scaramella. SDI was the contractor Scaramella engaged to build a residence on the property, and Sexton was a subcontractor charged with installing a sprinkler system in the residence. State Farm alleged their negligence during construction of the residence caused the fire. The court granted summary judgment on behalf of SDI and Sexton based upon a waiver of subrogation clause incorporated by reference into the contract between Scaramella and SDI for construction of the home.
On appeal State Farm asserts the court erred in granting summary judgment because (1) SDI and Sexton failed to meet their initial burden of proof because the evidence they relied upon was inadmissible; (2) disputed facts as to the parties' intent in entering into the construction contract barred summary judgment; (3) there is a triable issue of fact as to whether the construction contract properly incorporated by reference the waiver of subrogation clause; and (4) there is a triable issue of fact on State Farm's defenses of waiver and estoppel. We affirm.
State Farm separately appealed from the two orders judgments in favor of SDI and Sexton. By order dated November 5, 2008, we ordered the appeals consolidated.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Construction Agreement
Scaramella entered into a contract with SDI to build a residence (the construction agreement). Scaramella signed the construction agreement and initialed each page. Page 1 of the construction agreement states, "AIA Document A201-1997, General Conditions of the Contract for Construction, is adopted in this document by reference." Further, article 1 of the construction agreement, entitled "The Contract Documents," states that "[t]he Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, Addenda.... These listed form the Contract and are all as fully a part of the Contract as if attached to this Agreement or repeated herein." (Italics added.) Article 15 of the construction agreement, entitled "Enumeration Of Contract Documents," provides:
"The Contract Documents include: [¶].1 The agreement is this executed 2001 edition of the Standard Form of Agreement Between Owner and Contractor, AIA Document A114. [¶].2 The General Conditions are the 1997 edition of the General Conditions of the Contract for Construction, AIA Document A201." (Italics added.)
AIA Document A201 (Form A201), the "General Conditions" document, is referred to an additional 12 times throughout the construction agreement.
Form A201 contains a provision at paragraph 11.4.7 that provides:
"Waivers of Subrogation. The Owner and Contractor waive all rights against (1) each other and any of the subcontractors, sub-subcontractors, agents and employees, each of the other, and (2) the Architect, Architect's consultants, separate contractors described in Article 6, 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 Section 11.4 or other property insurance applicable to the Work, except such rights as they have to proceeds of such insurance held by the Owner as fiduciary.... 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." (Italics added.)
SDI entered into a standard AIA subcontract agreement (the subcontract) with Sexton to install above-ground piping and sprinkler heads at the residence. The subcontract incorporated by reference the terms of the construction agreement.
B. The Fire
When the residence was near completion, there was a fire at the property. The fire caused significant damage to the residence. According to State Farm, the cause of the fire was the spontaneous combustion of varnishing rags that were improperly disposed of by SDI's employees. State Farm further asserts the damage was exacerbated by the failure of a sprinkler head to activate and release water as designed and intended in the room where the fire originated.
SDI and Sexton dispute their liability for causing/exacerbating the fire. However, as resolution of this issue is not relevant to the issues on appeal, we will not further address this assertion.
C. State Farm Compensates Scaramella for Fire Damages
State Farm is the homeowners insurance carrier for Scaramella. State Farm paid Scaramella $1.09 million to compensate him for his losses occasioned by the fire.
D. State Farm Suit/Motion for Summary Judgment
State Farm brought this action against SDI and Sexton, seeking to recoup through subrogation the monies it paid to Scaramella for the fire damages. In response, SDI and Sexton brought motions for summary judgment, asserting Form A201, as incorporated into the construction agreement, barred State Farm's subrogation action because of the waiver clause.
In support of SDI's motion for summary judgment it submitted the declaration of Patrick Dougherty, the chief executive officer of SDI. Dougherty stated that he negotiated the construction agreement with Scaramella. He noted that the construction agreement's terms were subject to negotiation and that Scaramella deleted paragraph 7.7.3. That paragraph provided that Scaramella would reimburse SDI for "[c]osts of repairing or correcting damaged or nonconforming Work executed by the Contractor, Subcontractors or suppliers, provided that such damaged or nonconforming Work was not caused by the negligence or failure to fulfill a specific responsibility of the Contractor and only to the extent that the cost of repair or correction is not recovered by the Contractor from insurance, sureties, Subcontractors or suppliers." (Italics added.)
Dougherty also stated he believed that he presented Scaramella with a copy of Form A201 and that, even if he did not, he "had several copies in [his] office and gladly would have presented a copy of [Form A201 to Scaramella] to review had he requested it. [He] never received a request from [Scaramella] to review [Form A201]." The construction agreement and Form A201 were lodged with the court and referenced in the declaration of B. J. Haeck, an attorney for SDI. SDI also submitted State Farm's complaint, in which State Farm admitted Scaramella "entered into a written contract with [SDI] to design, construct and build the premises."
State Farm opposed the motion, asserting first that the contract documents were not properly authenticated and were thus inadmissible. Specifically, State Farm asserted that because the contract exhibits were authenticated only by attorneys for SDI and Sexton, they were inadmissible. However, in opposing the summary judgment motion, State Farm submitted Scaramella's declaration, which authenticated the construction agreement, and State Farm attached the construction agreement as an exhibit. In his declaration Scaramella also admitted initialing every page of the construction agreement and signing it. Moreover, Sexton submitted excerpts from Scaramella's deposition in its reply papers, wherein he admitted entering into the contract with SDI.
On the merits State Farm argued there were triable issues of fact as to the parties' intent in entering into the construction agreement. In support of this contention, State Farm relied on Scaramella's declaration that stated it was his understanding at the time he entered the contract only the "initialed pages" of the construction agreement were part of the contract between himself and SDI. He further stated SDI never provided him with any other documents or told him that the construction contract incorporated by reference any other documents. He stated he was never provided with any "terms and conditions" document and no one told him any such document existed. He also stated that because he did not want to be liable for the contractor's mistakes, he deleted paragraph 7.7.3 because it allowed SDI to obtain reimbursement from him for the costs of repairing or correcting damaged or nonconforming work performed by SDI or its subcontractors. Finally, he declared that he "did not have readily available access to [Form A201]. Had I even known of any 'terms and conditions' relating to the building contract, I would not have known where to obtain a copy of such terms and conditions. [¶]... I never agreed to any of the language of the terms contained in [Form A201]."
State Farm also argued SDI was equitably estopped from relying on the waiver of subrogation clause because it did not raise that defense in a mediation in which the parties participated, only raising the defense for the first time when it amended its answer.
E. Order Granting Summary Judgment
The court granted SDI's motion for summary judgment, finding that Form A201 was "enforceable and mandate[d] summary judgment in favor of defendant."
In doing so, the court first found the contract documents were properly authenticated "via the declarations of Patrick Dougherty and B. J. Haeck [SDI's attorney]. In addition, there is no genuine dispute as to the terms of [Form A201], and it would not be unfair to admit a copy such that it is admissible secondary evidence."
The court found there was no material disputed fact on the enforceability of the waiver of subrogation clause, noting Scaramella could not "avoid the binding terms of a contract simply because [he] failed to read and understand the contractual terms." The court found the construction agreement adequately incorporated by reference the waiver of subrogation clause, noting "[t]he multiple express references within the [construction agreement] to [Form A201] were clear and unequivocal. The [construction agreement] expressly called to the attention of [Scaramella] the incorporation of [Form A201] as a term of the overall agreement. These are not 'inferences' as argued by [State Farm], but instead are supported by direct evidence: the contract signed by [Scaramella]. "
The court also found the incorporated document was enforceable because in Dougherty's declaration he stated copies of Form A201 were available in his office, and Scaramella's statement he did not have access to Form A201 was "an inadmissible conclusion without foundation."
The court found Scaramella's deletion of paragraph 7.7.3 did not create an inconsistency because that section "addresses a different issue: shifting the cost of unforeseen non-negligent damages to the homeowner. This is distinct from the ability to maintain a subrogation action seeking compensation from a negligent contractor where property insurance exists to compensate for the damages claimed."
The court rejected State Farm's estoppel argument finding (1) State Farm cited no authority for the proposition SDI had a duty to disclose the defense earlier than it did; (2) (2) there was no evidence SDI knew of the waiver of subrogation defense earlier; and (3) there was no evidence State Farm relied on SDI's failure to raise the defense sooner to its detriment.
The court granted Sexton's motion on the same basis it granted SDI's motion.
DISCUSSION
I. STANDARDS GOVERNING SUMMARY JUDGMENT MOTIONS
A defendant moving for summary judgment bears the burden of persuasion to show either (1) one or more elements of the plaintiff's cause of action cannot be established or (2) there is a complete defense to that cause of action. (Code Civ. Proc., § 437c, subds. (o), (p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851; Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.) When the motion is based on the assertion of an affirmative defense, the defendant has the initial burden to demonstrate that undisputed facts support each element of the affirmative defense. (Anderson v. Metalclad Insulation Corp. (1999) 72 Cal.App.4th 284, 289.) "The defendant must demonstrate that under no hypothesis is there a material factual issue requiring trial. [Citation.] If the defendant does not meet this burden, the motion must be denied. Only if the defendant meets this burden does 'the burden[] shift to plaintiff to show an issue of fact concerning at least one element of the defense.' " (Id. at pp. 289-290.)
On appeal, we independently review the trial court's decision, considering all of the evidence in the supporting and opposing papers and apply the same standard as that of the trial court. (Yanowitz v. L'Oreal USA, Inc. (2005) 36 Cal.4th 1028, 1037; Guz v. Bechtel National, Inc., supra, 24 Cal.4th at p. 334.) We liberally construe the evidence in support of the opposing party, resolving doubts concerning the evidence in its favor (Yanowitz, at p. 1037; Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142) and assess whether the evidence would, if credited, permit the trier of fact to find in its favor under the applicable legal standards. (Cf. Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 850.) We do not weigh the evidence and inferences, but merely determine whether a reasonable trier of fact could find in the opposing party's favor, and we must reverse the order granting summary judgment when there is some evidence that, if believed, would support judgment in its favor. (Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 139.)
However, " '[i]t is solely a judicial function to interpret a written contract unless the interpretation turns upon the credibility of extrinsic evidence, even when conflicting inferences may be drawn from uncontroverted evidence.' [Citation.]" (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 527, quoting Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 439.) " 'The possibility that conflicting inferences can be drawn from uncontroverted evidence does not relieve the appellate court of its duty independently to interpret the instrument....' [Citation.]" (Culligan v. State Comp. Ins. Fund (2000) 81 Cal.App.4th 429, 434 [appeal from summary judgment], quoting Estate of Dodge (1971) 6 Cal.3d 311, 318.)
II. ANALYSIS
A. Admissibility of Evidence
We review a court's decision to admit or exclude evidence under the abuse of discretion standard. (People v. Alvarez (1996) 14 Cal.4th 155, 201.) This " 'discretion is only abused where there is a clear showing [it] exceeded the bounds of reason, all of the circumstances being considered.' " (People ex rel. Lockyer v. Sun Pacific Farming Co. (2000) 77 Cal.App.4th 619, 640.)
Code of Civil Procedure section 437c, subdivision (d) provides that declarations filed in conjunction with summary judgment motions "shall be made by any person on personal knowledge, shall set forth admissible evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated...." "The requirement of this section is not that the declarant recite the conclusion that he can competently testify but that he allege facts showing his competence." (Roy Brothers Drilling Co. v. Jones (1981) 123 Cal.App.3d 175, 182.)
State Farm asserts the court erred in granting summary judgment because the construction agreement was only authenticated by the attorneys for SDI and Sexton. However, State Farm does not contest the authenticity of the construction agreement submitted by SDI and Sexton. Indeed, as noted, ante, in State Farm's opposition Scaramella himself authenticated the construction agreement. Thus, to the extent there were any deficiencies in the admissibility of the documents initially submitted by SDI and Sexton, they were cured by State Farm's opposition. (See Villa v. McFerren (1995) 35 Cal.App.4th 733, 751 [evidentiary gaps in moving papers may be cured by evidence submitted by opposing party as court " 'shall consider all of the evidence set forth in the papers' " submitted on a summary judgment motion].)
Further, State Farm ignores Dougherty's declaration in which he stated he negotiated the construction agreement with Scaramella, which, taken together with Scaramella's own declaration, is sufficient to authenticate the document. Finally, any deficiency in the authentication of the construction agreement was cured by SDI's reply papers, which contained discovery admissions by Scaramella that he entered into the construction agreement with SDI.
B. Law Governing Waiver of Subrogation Clauses
The purpose of subrogation waivers in construction contracts is to allocate risks among the parties to the contract. (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2008) ¶ 9:116, p. 9-49 (rev. #1 2008).) "Such agreements deter litigation and help parties avoid the cost of overlapping, multiple insurance policies." (Ibid.) Where a contractor causes a loss covered by property insurance, the insurer who has paid for the damages has no right of subrogation against the contractor because the waiver language waives the owner's claim. (Lloyds Underwriters v. Craig & Rush, Inc. (1994) 26 Cal.App.4th 1194, 1199.) "Viewed globally, these clauses make sense as an insurer on one project might very well be denied recovery by such a clause but benefit from the existence of such a waiver on another project." (4 Bruner & O'Connor, Construction Law (2008) § 11:100, fn. omitted.) Accordingly, subrogation waivers "are routinely upheld." (Ibid.)
Form A201 evinces the intent to shift the risk of loss to insurance to the maximum extent possible: "The AIA has chosen... to put the ultimate loss on the property insurer...." (Sweet on Construction Industry Contracts (2007) Insurance & Bonds, § 22.04[M], p. 783.) "The AIA has made a strenuous effort to bar subrogation claims by having participants waive any claims the participants may have against other participants." (Id. at pp. 779-780.) Whenever "loopholes" in the waiver have appeared, the AIA has changed its forms "to try to close" them and ultimately "to kill subrogation off." (Id. at p. 783; see id. at pp. 780-783.)
California courts have consistently upheld subrogation waivers against challenges to their enforceability. (See Lloyd's Underwriters v. Craig & Rush, Inc., supra, 26 Cal.App.4th at pp. 1198-1201; Davlar Corp. v. Superior Court (1997) 53 Cal.App.4th 1121, 1124.)
Thus, the waiver clause in this matter is enforceable if it was properly incorporated by reference into the construction contract. Resolution of that issue requires an analysis as to what is required to effectively incorporate by reference one document into another.
C. Incorporation by Reference
A contract may include provisions that are not physically a part of the basic document so long as those provisions are sufficiently incorporated by reference. (Wolschlager v. Fidelity National Title Ins. Co. (2003) 111 Cal.App.4th 784, 790.) Incorporation by reference requires that (1) the reference to another document was clear and unequivocal; (2) the reference was called to the attention of the other party, who consented to that term; and (3) the terms of the incorporated documents were known or easily available to the contracting parties. (Ibid.)
"The contract need not recite that it 'incorporates' another document, so long as it 'guide[s] the reader to the incorporated document.' [Citations.]" (Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 54, comparing Baker v. Aubry (1989) 216 Cal.App.3d 1259, 1264, with Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 643.)
1. Clear reference to waiver clause in construction contract
As detailed, ante, the "general conditions" in Form A201, including the waiver of subrogation clause, are clearly and specifically incorporated by reference in two separate places in the construction agreement. The construction agreement also clearly states Form A201 is a part of the construction agreement. Further, the general conditions are referred to an additional 13 times in the construction agreement.
Despite this, and the fact Scaramella initialed every page of the document, he asserted in his declaration he was unaware of the reference to Form A201, and believed only the construction agreement itself comprised his contract with SDI. However, a party to a contract is charged with knowing the terms of an agreement, even if he or she does not read it. (Markborough California, Inc. v. Superior Court (1991) 227 Cal.App.3d 705, 716.) A party who signs a contract "cannot complain of unfamiliarity with the language of the instrument." (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 710.) " ' "[W]hen a person with the capacity of reading and understanding an instrument signs it, he is, in the absence of fraud and imposition, bound by its contents and estopped from saying that its provisions are contrary to his intentions or understanding." ' " (Jefferson v. Department of Youth Authority (2002) 28 Cal.4th 299, 303.)
Thus, Scaramella's allegation he was unaware of the incorporation by reference clauses or that Form A201 was a part of the construction agreement is irrelevant to our analysis. Because he signed the document, initialed each page, and the terms were clear, he is bound by them, and the court did not improperly resolve "inferences" in SDI and Sexton's favor. The unequivocal language of the construction agreement is direct evidence that demonstrated there was no triable issue of fact on the issue of whether Form A201 was properly incorporated in to the construction agreement.
2. Reference called to attention of owner/consent to term
State Farm asserts that because Scaramella claims SDI never specifically told him that the construction agreement incorporated Form A201, there is a triable issue of fact as to whether he consented to Form A201. This contention is unavailing.
A party to a contract does not have a duty to explain or draw attention to terms in that agreement. (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1674.) As detailed, ante, Scaramella was bound by the terms of the agreement because, by signing the agreement and initialing each page, he manifested an intent to consent to it, including Form A201.
Moreover, Scaramella's declaration that he did not intend to agree to be bound by Form A201 does not create a triable issue of fact on this issue. "[I]t is elementary that the uncommunicated subjective belief of a contracting party is not competent evidence to prove the meaning of the contract." (Stewart Title Co. v. Herbert (1970) 6 Cal.App.3d 957, 964.) The objective manifestation of an intent prevails over Scaramella's undisclosed subjective intent. (Security Pac. Nat. Bank v. Matek (1985) 175 Cal.App.3d 1071, 1075.) That objective manifestation of intent is shown by his agreement to the clear terms of the construction agreement.
Further, the fact Scaramella struck a provision of the construction agreement concerning the allocation of risk as between Scaramella and SDI for damages not caused by SDI's negligence occurring during construction does not create a triable issue of fact on the enforceability of the waiver of subrogation clause. As the court correctly noted, that clause was distinct from, and not contradictory to, the waiver of subrogation clause, which concerned what insurance would cover negligently caused damages, and barred the insured (and the insurer who covered the losses) from seeking reimbursement from the other party.
3. Terms known or easily available to parties
There is also no triable issue of fact created by Scaramella's claim he did not receive a copy of Form A201. The law only requires that the document incorporated by reference be readily available. (Kleveland v. Chicago Title Ins. Co. (2006) 141 Cal.App.4th 761, 765.) The uncontroverted evidence in this case, based upon Dougherty's declaration, was that Form A201 was available for review in SDI's office. The court correctly found that Scaramella's unsupported statement in his declaration claiming Form A201 was not readily available was without foundation and an improper conclusion. Scaramella does not assert he ever asked to see Form A201, nor that Dougherty refused to allow him to see it. Because the only admissible evidence establishes SDI had a copy of Form A201 available for review, it is binding on Scaramella and, hence, State Farm. (See Slaught v. Bencomo Roofing Co. (1994) 25 Cal.App.4th 744, 748-750 [arbitration clause in prime contract referenced in subcontract binding on subcontractors as subcontractors had duty to go to contractor's office to examine prime contract].)
D. Estoppel
State Farm contends that there is a triable issue of fact on its defense of estoppel. Specifically, State Farm asserts that SDI could not raise the waiver of subrogation clause as it failed to raise that defense in a mediation session, only asserting the clause as a defense after State Farm filed this action and conducted discovery, and SDI and Sexton amended their answers. State Farm also asserts SDI and Sexton waived their right to rely on the waiver of subrogation clause. We reject these contentions.
State Farm cites no authority for the proposition that a party is estopped to raise a defense if it fails to raise it in a mediation or if it amends its answer to add that defense. Indeed, State Farm's brief fails to cite any authority on the doctrine of estoppel whatsoever. State Farm also briefly argues SDI and Sexton waived the right to rely on the waiver clause because they did not seek to compel arbitration pursuant to an arbitration clause in Form A201. Again, however, State Farm cites no authority for this proposition. As such, the estoppel and waiver issues have been waived and we need not address them further. (Associated Builders & Contractors, Inc. v. San Francisco Airports Commission (1999) 21 Cal.4th 352, 366.)
DISPOSITION
The judgments are affirmed. Respondents shall recover their costs on appeal.
WE CONCUR: BENKE, Acting P. J., McINTYRE, J.