Opinion
At Law No. 25992
06-25-2002
Re: Summit Properties Partnership, L.P., et. al. v. Commonwealth Plumbing Services, Inc., et. al.
John C. Ivins, Jr., Esquire
Andrew K. Clark, Esquire
701 East Byrd Building, 17th Floor
P.O. Box 500
Richmond, Virginia 23218-0500 Scott E. Snyder, Esquire
14008 ParkEast Circle
Chantilly, Virginia 20151 Stephen A. Horvath, Esquire
3920 University Drive
Fairfax, Virginia 22030 Gentlemen:
This is an action for damages caused by a fire. Summit Properties Partnership, L.P. (Summit Properties) is the owner of a tract of land upon which apartment houses were to be erected by its general contractor, Summit Apartment Builders, Inc. (Summit Builders). Summit Builders entered into a subcontract with Commonwealth Plumbing Services, Inc. (Commonwealth Plumbing), to provide plumbing services in connection with the construction of the apartments. Kathryn Osborne operated the business known as Commonwealth Plumbing. It is claimed that an employee of Commonwealth Plumbing ruptured a gas line while performing plumbing work and that the resulting explosion caused a fire that destroyed the building under construction and damaged other aspects of the apartment complex.
Summit Properties had obtained a builder's risk insurance policy on the property with Travelers Indemnity Company (Travelers). It is alleged that Summit Properties has been paid $1,225,000.00 by Travelers as a result of their fire loss.
Plaintiffs, Summit Properties, Summit Builders, and Travelers seek recovery against the defendants as a result of the losses they have allegedly sustained by reason of the fire and payment to the insured. Summit Properties seeks recovery of $252,000.00 for lost income suffered but not reimbursed by Travelers. Summit Builders asserts a claim for the $25,000.00 deductible provided for in the builder's risk policy. It is the contention of Travelers that it is entitled to recover the $1,225,000.00 paid to its insured.
Defendants have demurred to the motion for judgment. They have previously craved and been granted oyer of the written contracts that form the basis of plaintiffs' claims for damages. Accordingly, copies of the subcontract and builder's risk insurance policy have been produced by the plaintiffs and are to be read with the pleadings and considered by the Court in ruling upon the instant demurrer. Ward's Equipment, Inc. v. New Holland North America, 254 Va. 379 (1997).
The centerpiece of the demurrer filed by the defendants is their contention that the provisions of the contract of indemnity limit the exposure of the defendant subcontractor to third party claims against either the owner or general contractor. Thus, it is argued, since Travelers subrogation claim can be based on no greater rights than those of the owner, it may not recover against Commonwealth Plumbing for claims paid that have their aegis in the negligent actions of Commonwealth Plumbing's own agent.
Such a narrow reading of the subcontract is neither justified by the plain words of the agreement between Summit Builders and Commonwealth Plumbing or cases relied upon by the defendants. It is the opinion of the Court that, under the express terms of the contract, the plumbing subcontractor is subject to liability for its agents' negligence whether third parties, subcontractor, or owner initiates those claims. Although reference is made to parties obtaining insurance, the express terms of the contract do not purport to shift recovery for loss to the builder's risk policy.
Travelers issued a builder's risk policy to Summit Properties on July 12, 1999 in connection with the apartment project that is the subject of this suit. The policy provides insurance during the construction phase of the project, including the time during which Commonwealth Plumbing would be on the job.
On July 22, 1999, Summit Builders entered into an agreement with Kathryn A. Osborne as president of Commonwealth Plumbing to provide plumbing services identified in exhibits attached to the contract. As a part of the contract, the parties agreed as follows:
[2]0. INDEMNIFICATION___This contract shall be construed and interpreted under the laws of Maryland.
To induce SABI (Summit Builders) to enter into this Subcontract Agreement and for ten dollars (10.00) and other good and valuable consideration, the receipt of which are hereby acknowledged by Subcontractor, Subcontractor agrees to indemnify and hold SABI and the Owner and their agents and employees wholly harmless from and against any damages, claims, demands, suits, losses, and expenses (including but not limited to reasonable attorneys' fees and court costs arising out of or resulting from the execution of the work provided in this Subcontract Agreement or occurring in connection therewith, whether caused in whole or in part by Subcontractor or any direct or indirect employee or any of them or anyone for whose acts any of them may be liable (including Subcontractor's failure to comply with the terms of this Subcontract Agreement), excluding liability for the sole negligence of SABI or its agents or employees.
21. INSURANCE
Subcontractor shall purchase and maintain at Subcontractor's own cost insurance with the minimum limits of liability as specified below:
A. Commercial General Liability?.
B. Automotive Liability?
C. Worker's Compensation?
The insurance certificate shall provide for notice of cancellation to SABI thirty (30) days prior to cancellation or lapse of coverage, and the certificate shall include that the above provision has been included. This certificate shall be furnished at the time this Subcontract Agreement is signed.
22. BUILDER'S RISK INSURANCE
Subcontractors (sic) hereby acknowledges that the builder's risk insurance, as provided by the Owner, does not cover the loss of Subcontractor's trailers, scaffolding, forms, supplies or tools or other losses of Subcontractor which are contained within the deductible amounts of such insurance. All such uninsured losses of Subcontractor's property shall be the sole responsibility of Subcontractor.
...
32. GOVERNING LAW
Travelers asserts that it is entitled to assert its subrogation claim against the defendants based upon the terms of its contract of insurance and the indemnification provisions of the subcontract. Commonwealth Plumbing and Ms. Osborne contend that it was the intent of the parties that the risk of loss by fire was to reside with the builder's risk insurance carrier. To support this assertion, defendants draw the attention of the court to other provisions of the contract and the law of the State of Maryland.
Maryland courts recognize that, [w]here parties to a business transaction mutually agree that insurance will be provided as a part of the bargain, such agreement must be construed as providing mutual exculpation to the bargaining parties who must be deemed to have agreed to look solely to the insurance in the event of loss and not to liability on the part of the opposing party . . . where . . . and insured has entered into a contract which is intended to substitute insurance for personal liability, the insurer is bound by such agreement and may not sue the third party under a theory of subrogation." General Cigar Co., Inc. v. Lancaster Leaf Tobacco Co., 323 F. Supp. 931, 941-42 (D. Md. 1971). It has been observed that, "[f]ire insurance covers the property loss sustained regardless, generally speaking, of its cause. Insurance against negligence indemnifies the negligent person as to his liability to another." Brodsky v. Princemont Construction Co., 30 Md. App. 569, 573, 354 A.2d 440, 443 (1976). Thus, agreements that seek to shift risk of loss by fire to an insurer differ from those that may require indemnification. Weems v. Nanticoke Homes, 37 Md. App. 544, 378 A.2d 190 (1977). In the instant case, the subcontract agreement contains provisions relating to insurance coverage as well as indemnification.
Although the provisions of the builder's risk insurance expressly limit the liability of the insurer to pay for the subcontractor's losses, neither such policy nor the terms of the subcontract admit of an agreement to shift to the policy losses sustained by the owner as a result of the negligent acts of Commonwealth Plumbing. While, under Maryland law, the parties might shift any fire loss caused by their negligence to the policy of insurance, they struck no such bargain in this case. The clear and unambiguous terms of the indemnification agreement permit recovery for damages arising out of or resulting from the execution of work by the subcontractor. To enforce indemnification between the parties to the contract, as apposed to third party claims, does not offend the public policy of the Commonwealth. C & P Telephone Co. v. Sisson and Ryan, Inc., 234 Va. 492, 503 (1987). Consistent with the allocation of risk among the parties to the subcontract, a commercial general liability policy was to be obtained by the subcontractor to protect against third party claims arising out of the project. Builder's risk insurance would provide protection for damages to its property caused by the negligence of the parties to the instant contract. However, the owner and contractor might also look to Commonwealth Plumbing in the event of loss occasioned as a result of the subcontractor's negligence.
Counsel for the defendants has argued that there are, in general, three types of indemnification agreements recognized by the Maryland courts. Levin v. Friedman, 271 Md. 438, 317 A.2d 831 (1974). He notes that all three involve an indemnitor, indemnitee, and third party entitled to payment. However, the provisions of the contract and the intent of the parties would control whether such liability for indemnification would be limited to third party claims. In the instant case, the Court is of the opinion that the provisions of the indemnification agreement are sufficiently broad to include not only claims by third parties, but claims against the subcontractor as well.
The right of Travelers, as subrogee, can rise no higher than those of its insured. Conversely, the recovery by Travelers is dependent upon the assignment of the owners right to recover against the subcontractor. No such assignment has been pled. Accordingly, the demurrers of the defendants to Traveler's claims will be sustained with leave to replead.
Although raised by the pleadings, the Court does not believe the provisions of section 11-4.1, Code of Virginia, are applicable to the facts of this case. Accordingly, so much of the demurrer as is predicated thereon is overruled.
Lastly, the defendant suggests that the economic loss rule precludes recovery. As pled, the Court is of the opinion that this matter may not be determined on demurrer.
The demurrer to the claims of Summit Builders and Summit Properties is overruled.
Counsel for the defendants are requested to draw an order consistent with this opinion to which counsel may note their exception.
Very truly yours,
Thomas D. Horne, Chief Judge