Opinion
A129500
11-21-2011
HARBISON-MAHONY-HIGGINS BUILDERS, INC., Plaintiff and Appellant, v. ARGONAUT CONSTRUCTORS, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Sonoma County Super. Ct. No. SCV 242785)
Plaintiff Harbison-Mahony-Higgins Builders, Inc. (HMH) was the general contractor for a major hospital construction project. It retained defendant Argonaut Constructors (Argonaut) as a subcontractor to cap an existing high-pressure water line and install a new line. Eighteen months after the work was completed, one of Argonaut's caps was dislodged by a second subcontractor, defendant Ryan Engineering, Inc. (Ryan), while Ryan was excavating a sewer line trench, causing disastrous flooding of the hospital grounds. At trial, the jury found HMH and Ryan responsible for the accident and exonerated Argonaut. The trial court concluded, as a result, that Argonaut owed no duty of indemnity to HMH. We affirm the trial court's decision, although under different legal reasoning.
I. BACKGROUND
HMH filed suit against Argonaut and Ryan on May 1, 2008, alleging claims for negligence, contractual indemnity, breach of contract, and equitable indemnity. An amended complaint later added a claim for subrogation. The complaint alleged HMH had agreed with Kaiser Santa Rosa Hospital (Kaiser) to act as general contractor for the construction of a substantial addition to the hospital. In 2005, HMH entered into a subcontract with Argonaut under which Argonaut "undertook the work of cutting, capping, and demolishing existing utilities, including a portion of the original eight-inch fire line loop." Two years later, HMH entered into a subcontract with Ryan requiring Ryan to excavate an area near the fire line that had been cut and capped by Argonaut. In November 2007, at the time of Ryan's excavation, the fire line spewed a large volume of water into the existing hospital building. HMH alleged both Argonaut and Ryan were at fault for the accident. It sought reimbursement of the sums it had paid to repair the water damage, as well as incidental damages.
HMH's claim for indemnity from Argonaut was based on the broad indemnity provision of their subcontract, which provided:
"Subcontractor specifically obligates itself to indemnify and hold Contractor harmless against claims . . . arising out of, resulting from, or relating to work performed under this agreement to the same extent that Contractor is obligated, under the Contract Documents, to indemnify Owner or any other person or entity against such claims . . . . Subcontractor obligates itself as [sic] a minimum, as follows: [¶] . . . [¶] To protect, defend, indemnify and hold Owner and Contractor . . . harmless from all liability . . . resulting from . . . damage to property of any kind, which . . . damage arises out of or is in any way connected with the performance of work under this agreement. Subcontractor's aforesaid indemnity and hold harmless obligation shall apply to any acts, omissions, willful misconduct, negligent conduct, or other fault of any person or entity, including but not limited to Subcontractor's agents, employees, subcontractors and suppliers, whether active or passive, and whether or not sole or concurrent with that of any other person or entity; except that this indemnity obligation shall not require that Subcontractor indemnify any of the persons or entities named as indemnities [sic] herein against claims arising from his, her, or its sole negligence or willful misconduct."
The evidence at trial focused on responsibility for the flood. Argonaut's work was part of a subproject known as the "A and B support buildings," with separate contracts covering its work on buildings A and B. Among Argonaut's tasks under the subcontract governing building A, which was dated August 2005, was the re-routing of a buried high pressure pipeline supplying water for fire suppression (fire line), a portion of which ran underneath the planned footprint of the new addition. This portion of the fire line was to be abandoned and a new fire line installed around the planned perimeter of the addition. The new portion of the fire line was to connect to the existing fire line at two points. Once the new fire line was installed, Argonaut was to remove a short segment of the existing line at each of the two points where the new line connected, thereby severing the portion to be abandoned, and cap the ends of the existing line created by the cuts. The abandoned portion was to be removed later by another contractor, a job eventually subcontracted to Ryan.
Argonaut capped the cut ends on May 9 and 10, 2006. To seal the ends, Argonaut used "push-on caps," which were forced onto the beveled ends of the fire line. Because push-on caps alone are insufficient to withstand the water pressure in an eight-inch fire line, Argonaut also installed "thrust blocks" to secure the caps in place. The thrust blocks were essentially slabs of concrete poured around the cut ends of the fire line and the caps. After installation of the caps and thrust blocks, the line was tested for water-tightness and found sound. HMH and the project architect signed off on the work.
The use of push-on caps and a thrust block was consistent with the project plans, although other types of caps exist that do not require a thrust block to secure them.
Under the project's plans, a sanitary sewer line was to be installed on the west side of the hospital, the side where the flood eventually occurred. When Argonaut performed its work in May 2006, the plans required the sewer line to run 12 feet to the north of the buried thrust block. The project plans were later changed to re-route the sewer line much closer to the thrust block.
Ryan was hired to install the sanitary sewer line. Its subcontract, part of a subproject known as "North Wing Expansion Project," was dated September 2007, over two years after the Argonaut subcontract. Ryan began work in late 2007, excavating a trench three feet wide and 14 feet deep to contain the sewer line. On November 14, Ryan's sewer trench excavation reached the general area of the west-side thrust block. The trench was dug so closely to the fire line that photographs show the concrete of the thrust block emerging from the side of the sewer trench, with soil sloughing beneath the concrete. At some point that night, the thrust block slid into the sewer trench, taking with it the push-on cap, which was embedded in the thrust block. Before the resulting gusher was discovered the next morning, a very large volume of water had flooded the excavation, created a small lake in the loading dock area of the hospital, and covered the hospital's lower level to a depth of several inches. HMH, which carried out and paid for the clean-up, claimed to have suffered nearly $9 million in damages as a result of the flood.
In response to a series of special interrogatories, the jury found Argonaut had neither been negligent in connection with the accident nor breached its subcontract. Ryan and HMH were both found to have been negligent; their negligence was found to be a substantial factor in causing the flooding; and they were assigned 20 percent and 80 percent responsibility, respectively, for HMH's damages. The court later concluded Argonaut had no contractual obligation to indemnify HMH, ruling: "Fault is a key element for the triggering of the indemnity provision, and the demonstrable lack of fault on the part of Argonaut stays the trigger finger."
In its brief, HMH highlights evidence suggesting Argonaut's installation of the cap, including its choice of a push-on cap and its decision to pour concrete around the wooden blocks and the end of the abandoned portion of the fire line, was improper and contributed to the flooding. The issue of responsibility for the flooding was decided in Argonaut's favor by the jury, and we have no basis for disregarding or questioning that judgment.
II. DISCUSSION
HMH does not challenge the jury's findings on liability and causation. Rather, it argues Argonaut was required to indemnify it under their subcontract regardless of the parties' respective fault. Argonaut raises several arguments for affirming the denial of indemnity in addition to the rationale adopted by the trial court.
Indemnity is " 'the obligation resting on one party to make good a loss or damage another party has incurred.' " (McCrary Construction Co. v. Metal Deck Specialists, Inc. (2005) 133 Cal.App.4th 1528, 1536.) Parties to a contract may require one party to indemnify the other, under specified circumstances, for expenses incurred by the latter as a result of claims related to the contract. The parties have "great freedom" to allocate such obligations, subject to public policy and established rules of contract interpretation. (Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, 551.) "Indemnity agreements are construed under the same rules which govern the interpretation of other contracts. [Citation.] Accordingly, the contract must be interpreted so as to give effect to the mutual intention of the parties. [Citation.] The intention of the parties is to be ascertained from the 'clear and explicit' language of the contract. [Citation.] And, unless given some special meaning by the parties, the words of a contract are to be understood in their 'ordinary and popular sense.' " (Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 504 (Continental Heller).)
We review de novo the trial court's interpretation of Argonaut's contractual obligation to indemnify " 'unless the interpretation turns upon the credibility of extrinsic evidence.' " (McCrary Construction Co. v. Metal Deck Specialists, Inc., supra, 133 Cal.App.4th at p. 1535.) Because the trial court did not base its decision on extrinsic evidence, we apply our independent judgment to the contractual language. A. The Requirement of Fault
We agree with HMH that the trial court's reasoning in rejecting indemnity was flawed. Whether fault is a "key element" of an obligation to indemnify, as the trial court held, depends upon the language of the particular contract. In Continental Heller, the court held a party may be required, under an appropriate indemnity provision, to indemnify even for acts over which the indemnitor had no control and outcomes that were not substantially caused by the indemnitor. (Continental Heller, supra, 53 Cal.App.4th at p. 505.) In that case, the indemnitor was required to indemnify any loss that " 'arises out of or is in any way connected with the performance of work under this Subcontract' " and resulted from " 'any acts or omissions, willful misconduct or negligent conduct . . . on the part of Subcontractor.' " On the basis of this broad language, the court concluded a showing of fault by the indemnitor was not required to trigger the obligation to indemnify. (Ibid.)
The indemnity provision of Argonaut's subcontract is, if anything, even broader in this respect than the language in Continental Heller. Argonaut's subcontract has similar "arises out of" language and requires indemnification for "any acts, omissions, willful misconduct, negligent conduct, or other fault of any person or entity, including but not limited to Subcontractor's agents, employees, subcontractors and suppliers . . . ."
It is true, as Argonaut argues, that its provision differs from the Continental Heller provision by including the phrase "or other fault." Under the plain language of the provision, however, this fault requirement is satisfied by the conduct "of any person or entity," not solely the conduct of Argonaut. Accordingly, Argonaut's indemnity obligation is not limited to liability resulting from negligent acts or other fault by Argonaut or its employees. Further, the fault requirement of Argonaut's indemnity provision was satisfied by the negligent conduct of Ryan and HMH. B. The Connection with Argonaut's Conduct
Although we disagree with the trial court's conclusion that indemnity required a showing of fault on the part of Argonaut, we affirm the court's ruling because we conclude the flooding of the hospital grounds was not damage which "ar[ose] out of or [was] in any way connected with the performance of work under this agreement," as required by the indemnity clause.
HMH argues we should remand for consideration of this issue because, while it was raised below, the trial court did not consider or decide it. Since the issue is one of law, over which we exercise de novo review, we see no point in requiring the parties to return to the trial court to seek a ruling. (See, e.g., Ung v. Koehler (2005) 135 Cal.App.4th 186, 200.)
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" 'California courts have consistently given a broad interpretation to the terms "arising out of" or "arising from" in various kinds of insurance provisions. It is settled that this language does not import any particular standard of causation or theory of liability into an insurance policy. Rather, it broadly links a factual situation with the event creating liability, and connotes only a minimal causal connection or incidental relationship. [Citations.]' [Citation.] The words are generally given their 'commonsense meaning' [citation], which has been ' " 'understood to mean "originating from" "having its origin in," "growing out of" or "flowing from" or in short, "incident to, or having connection with" . . . . ' " " (Vitton Construction Co., Inc. v. Pacific Ins. Co. (2003) 110 Cal.App.4th 762, 766-767.) Nonetheless, although the phrase "arising out of" must be broadly read to require only a minimal causal connection, "it requires more than ' "but for" ' causation." (Transcontinental Ins. Co. v. Insurance Co. of the State of Pennsylvania (2007) 148 Cal.App.4th 1296, 1308.)
In arguing the flooding did not arise out of the performance of its work, Argonaut relies primarily on St. Paul Fire & Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co. (2002) 101 Cal.App.4th 1038 (American Dynasty). In that case, a subcontractor added its general contractor as an insured on a general liability policy under a rider that provided coverage for liability "arising out of or resulting from the performance" of the subcontractor's work for the general. (Id. at p. 1044, italics omitted.) An employee of the subcontractor was subsequently injured by a pipe explosion caused by the general contractor while on the work site. Although the explosion occurred in the course of the same construction project on which the subcontractor was working, the subcontractor's work did not contribute to the explosion in any way. (Id. at p. 1045.) When the employee sued the general contractor, the general contractor sought coverage under the subcontractor's insurance policy. The court rejected the claim, reasoning that because the subcontractor was not at fault and did nothing to contribute to the worker's injury, the "arising out of" language was not triggered. As the court reasoned, it was insufficient merely for the employee to be present at the site for the injury to arise out of the subcontractor's work; a stronger causal connection was required. (Id. at pp. 1050, 1052, 1054.)
A similar reasoning leads to the same result here. Argonaut's cap and thrust block, like the subcontractor's employee in American Dynasty, were merely present at the work site. Other than placing in the ground the cap that Ryan dislodged, Argonaut's performance of the work had no connection with the flooding. Argonaut finished its work 18 months before the flooding occurred. It was not involved in the change in routing of the sewer line, which occurred after Argonaut completed its work and was unconnected to Argonaut's work. Nor did Argonaut play any role in the immediate cause of the flooding, Ryan's digging of the sewer trench, which undercut the soil supporting the thrust block. While Argonaut's work in capping the fire line certainly satisfied the requirements for "but for" causation—unquestionably, the flooding would not have occurred had Argonaut not performed the work of severing and capping the old fire line—the requisite further "minimal" causal connection necessary to trigger the indemnity clause was lacking.
In arguing this situation was covered by the indemnity clause, HMH relies on Continental Heller, in which the general contractor oversaw the construction of a food manufacturing plant and the subcontractor was responsible for installing a refrigeration system. Eleven years after the plant was built, a valve installed by the defendant failed, causing an explosion. The trial court found that fault for the explosion lay entirely with the valve manufacturer and concluded the defendant had not been negligent, but it awarded indemnity nonetheless because the subcontract included a "no-fault" indemnity clause, which, as noted above, was similar to the clause in Argonaut's contract. (Continental Heller, supra, 53 Cal.App.4th at p. 503.) In affirming, the Continental Heller court reasoned the explosion arose out of the defendant's work under the subcontract because the defendant had installed the valve and the loss suffered by the plaintiff was connected with that installation. Because no showing of fault was required, the plain language of the subcontract required indemnity. (Id. at p. 505.) The court found the allocation of risk reasonable in these circumstances, since the defendant selected and installed the valve and was therefore in the best position to protect against a loss arising out that installation. (Id. at p. 506.)
Unlike the defendant in Continental Heller, which had responsibility for selecting the defective valve, Argonaut was not responsible for any of the acts leading to the flood. Its installation of the cap and thrust block was merely the creation of a necessary condition for the accident. In so doing, as discussed above, Argonaut became a "but for" cause of the accident. The acts that caused Argonaut's successful capping of the fire line to become a source of liability, however, were the acts of others, performed after Argonaut had ceased its work and left the project site.
HMH argues Argonaut was responsible for deciding what type of cap to install and performed the work of installing that cap with a thrust block, just as the subcontractor in Continental Heller selected and installed the exploding valve. The difference, however, is that the subcontractor in Continental Heller selected a defective valve whose explosion was the cause of the loss. In contrast, Argonaut's selection and installation of the cap and thrust block was not shown to have any causal connection to the occurrence of the accident beyond the insufficient "but for" connection.
Because we find the Argonaut subcontract did not require indemnity in these circumstances, we need not consider Argonaut's further argument that indemnity is barred by Civil Code section 2782, subdivision (a).
III. DISPOSITION
The judgment of the trial court is affirmed.
Margulies, J.
We concur:
Marchiano, P.J.
Dondero, J.