Case: 13-30541 Document: 00512832743 Page: 1 Date Filed: 11/11/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 13-30541 United States Court of Appeals
Fifth Circuit
FILED
LIBERTY MUTUAL INSURANCE COMPANY, November 11, 2014
Lyle W. Cayce
Plaintiff - Appellee Clerk
v.
WESTCHESTER FIRE INSURANCE COMPANY,
Defendant - Appellant
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:08-CV-5166
Before STEWART, Chief Judge, and DENNIS and ELROD, Circuit Judges.
JAMES L. DENNIS, Circuit Judge: *
This case involves an insurance-coverage dispute. Fluor Enterprises,
Inc. (“Fluor”) contracted with the Federal Emergency Management Agency
(“FEMA”) to manage the delivery and installation of FEMA trailers following
Hurricanes Katrina and Rita. Fluor subcontracted with MMR Constructors,
Inc. (“MMR”) to haul and install the trailers. As part of the agreement between
Fluor and MMR, MMR agreed to indemnify Fluor for any injuries arising,
directly or indirectly, out of the parties’ contract itself or out of MMR’s acts or
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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omissions. As relevant here, Fluor insured its liabilities through Westchester
Fire Insurance Co. (“Westchester”) and MMR insured its liabilities through
Liberty Mutual Insurance Co. (“Liberty”).
A flash fire occurred in one of the trailers that MMR had hauled and
installed, injuring the trailer’s inhabitant and killing her friend. The fire was
caused in part by the failure of the trailer’s liquid-propane (“LP”) detector to
alarm. The injured parties sued Fluor, MMR, and their insurers. Those suits
settled. Now, in this case, Liberty seeks reimbursement for its settlement
payments from Westchester, arguing that MMR was not responsible for any of
the injuries. The issue before us is whether MMR was required, as part of its
contract with Fluor, to test the LP detector and whether its failure to do so was
a but-for cause of the injuries.
Following a bench trial, the district court concluded that MMR was
under no such obligation. Consequently, the district court determined that
MMR was under no obligation to indemnify Fluor, defeating coverage, and that
Fluor was not covered under an additional-insured provision contained in
MMR’s insurance policies with Liberty. We conclude that MMR was not
obligated to test any trailer’s LP detector and the record supports the
conclusion that Fluor did not in fact direct MMR to do so with respect to the
particular trailer in which the fire occurred. Accordingly, we AFFIRM the
judgment of the district court.
I. BACKGROUND
A. Fluor’s Contracts with MMR
In July 2005, Fluor contracted with FEMA to provide emergency housing
assistance following natural disasters. Pursuant to its contract with FEMA,
Fluor contracted with various subcontractors, including MMR, following
Hurricanes Katrina and Rita. The general terms of the agreement between
Fluor and MMR were contained in a document titled the “Blanket Ordering
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Agreement” (the “BOA”), which went into effect on September 16, 2006. Under
the BOA, MMR agreed to haul and install FEMA trailers for Fluor.
The BOA provided that “[p]erformance of the Work under this Contract
will be authorized and funded through Individual Task Order Releases
(hereinafter ‘Releases’).” The BOA described the “scope of work” as supplying
“all services, things, and items of expense necessary to perform the Work” but
noted that “[e]ach Release will contain a specific Scope.” Under Part III of the
BOA, which described the “general terms” of the BOA—but not under Part I,
which described the scope of work—MMR was obligated to “inspect all
materials, supplies and equipment which are to be incorporated in the Work.”
Additionally, Part III permitted Fluor to “require additional inspections and
tests.” 1
The BOA also included an indemnity provision, which is at issue in this
case, under which MMR agreed to defend and indemnify Fluor for injuries
“arising directly or indirectly out of [the BOA] or out of any acts or omissions
of [MMR]”:
28.1 [MMR] agrees to defend, indemnify and hold harmless
[Fluor] and Owner, the affiliated companies of each, and all
of their directors, officers, employees, agents and
representatives, from and against any claim, demand, cause
of action, liability, loss or expense arising: . . .
28.1.3 From injury to or death of persons (including
employees of [Fluor], Owner, [MMR] and
[MMR]’s subcontractors) or from damage to or
loss of property (including the property of
1 An attachment following the BOA—titled “Quality Assurance and Control”—
provided that “[MMR] has primary responsibility for quality” and was obligated “to
implement the measures necessary to build quality into the work in accordance with the
contract, drawings, and specifications.” However, these obligations appeared under a
heading describing “inspection and / or testing by [Fluor].” Moreover, the first provision
stated that “[Fluor]-provided testing and inspection of [MMR]’s work will be identified in each
Individual Release as applicable.”
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[Fluor] or Owner) arising directly or indirectly
out of this Contract or out of any acts or
omissions of [MMR] or its subcontractors.
[MMR]’s defense and indemnity obligations
hereunder include claims and damages arising
from non-delegable duties of [Fluor] or Owner or
arising from use by [MMR] of construction
equipment, tools, scaffolding or facilities
furnished to [MMR] by [Fluor] or Owner. . . .
The indemnity provisions were to apply “regardless of whether the party to be
indemnified was concurrently negligent.” The BOA also obligated MMR to
obtain several different types of insurance naming Fluor as an additional
insured. The BOA’s choice-of-law provision stated that the BOA must be
interpreted in accordance with California law.
Although the BOA was the overarching base contract defining the rights
and obligations of the parties with respect to MMR’s work, MMR was neither
authorized nor required to perform specific work until Fluor issued an
Individual Release that contained a specific scope. On January 7, 2006, Fluor
issued the Release describing MMR’s haul-and-install work:
[MMR] shall supply all supervision, labor, equipment, tools,
materials, protective equipment and all items of expense necessary
to perform the Work described below:
1.1 Hauling and Installation services of Manufactured Homes,
Travel Trailers, and Park Models as directed by [Fluor]’s
representative throughout the state of Louisiana.
The Release incorporated certain exhibits, which set forth the specific tasks
that MMR was required to complete. Those tasks included exterior
installation, such as blocking and leveling the trailer, anchoring and strapping
it, and installing it to sewer lines and gas lines. Additionally, MMR was
required to make the trailer ready for occupancy, which included a duty to test
certain appliances and appurtenances:
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(a) Activate, test and make any necessary minor repairs to the
refrigerator, range, furnace, air conditioner, and water heater for
proper operations. Adjust pilots and burners, change orifices,
water heater elements, etc., as needed;
(b) Test smoke detector and replace if faulty. Defective smoke
detectors provided by FEMA or manufacturer upon receipt of
damaged one; and
(c) Test exhaust fans for proper operation, repair as need.
B. MMR’s Insurance Contracts
MMR insured its liabilities under the BOA by acquiring contractual-
liability insurance under a commercial general-liability policy and an umbrella
excess-liability policy with Liberty. The general-liability policy defined as an
insured any person or organization for whom MMR agreed to provide liability
insurance, but only to the extent the insurance applies to personal injury or
property damage arising out of MMR’s work. The excess-liability policy
provided contractual-liability coverage only when “[a]ssumed in a contract or
agreement that is an insured contract provided the bodily injury, property
damage, personal injury or advertising injury occurs subsequent to the
execution of the contract or agreement” and covered the assumption of
another’s “liability that would be imposed by law in the absence of any contract
or agreement.”
C. Events Leading Up to and Including the Trailer Fire
When MMR took possession of trailers from Fluor, the LP detectors were
already installed in the trailers and MMR played no part in selecting or
installing the devices. On July 14, 2006, MMR hauled and installed the trailer
that would eventually be given to Jean Joseph, a hurricane survivor, and would
subsequently give rise to this suit (the “Joseph trailer”). Once installation of
the Joseph trailer was complete, Fluor employee Reginald McCoy and MMR
employee Steven Stanley conducted a “Quality Control/Quality Assurance”
(“QC/QA”) inspection of the trailer. At trial, Stanley testified that he could not
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specifically recall the Joseph trailer inspection, but discussed what a routine
QC/QA inspection entailed. He testified that it was not MMR’s job to test the
LP detector, but that he would sometimes perform various tasks, including
testing the LP detector, at the request of the Fluor inspector; for instance,
because the trailer was so small and Stanley was “right there” or because
Stanley was in the way, and the Fluor inspector could not get to it. Some
detector models lacked a test button, so if a Fluor inspector asked Stanley to
test this type of detector, Stanley would use an ordinary cigarette lighter to
release a stream of butane gas under the detector’s sensor, which was the test
Fluor selected based on the manufacturer’s instructions.
The Joseph trailer had this model of detector. Although Stanley could
not recall whether he had tested the Joseph trailer’s LP detector, he stated
that if he had and it had not alarmed, he would not have signed off on the
trailer. At the end of the inspection, Stanley and McCoy both signed a “Unit
Installation Work Authorization and Completion” form, listing the specific
tasks that MMR had performed. The form made no mention of an LP detector.
The form indicated that MMR had completed the work, and Fluor signed it
indicating that it agreed that MMR had completed the work. After July 14,
2006, MMR had no further contact with or duties relating to the Joseph trailer
and Fluor assumed physical control and responsibility for the trailer.
Five weeks later, on August 22, 2006, Fluor conducted a “lease-in” of the
Joseph trailer, a necessary step before Jean Joseph could move in. A lease-in
involved conducting an inspection of the trailer in the presence of the new
occupant and generally explaining the trailer’s basic functions. Fluor never
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contracted with MMR to do lease-ins; rather, Fluor retained this obligation. 2
As part of the standard lease-in, a Fluor inspector would perform certain tests
to determine that the electricity was connected, that the propane-gas system
was not leaking, and that all alarms—including the LP detector—were
working properly. Additionally, the Fluor inspector would connect the gas
tanks and check the gas appliances, igniting the burners on the stove and in
the oven, lighting the furnace, and lighting the water heater. Documentation
from the lease-in of the Joseph trailer indicates that Fluor performed a leak
test on the LP gas system and determined that it did not leak. The
documentation also indicates that Fluor tested the trailer’s range and LP
detector, and both appeared to be functioning properly. The Fluor employee
who conducted the lease-in testified that he lit the gas burners in the trailer,
tested the LP detector with a butane lighter as suggested by the manufacturer,
and performed a gas-pressure test, which involved turning on the gas valve on
the stove top.
On August 25, 2006, three days after the lease-in, Joseph and her friend,
Bernard Mabry II, entered the trailer and smelled gas. Joseph testified at her
deposition that Mabry went to the stove, at which point the fire erupted.
Joseph heard no alarm when she entered the trailer. The New Orleans Fire
Department concluded that one of the knobs on the stove had been left in an
open position since August 22, 2006 (the day of the lease-in) and that Mabry
had inadvertently ignited the accumulated gas when he turned a knob on the
stove in an attempt to shut the gas off. The Bureau of Alcohol, Tobacco, and
Firearms reached substantially the same conclusion. Both Joseph and Mabry
2 Although the BOA provided that “[MMR] shall be available for move-in inspection,”
there is no indication in the record or briefing that MMR was required to be available for the
Joseph trailer lease-in.
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suffered serious burns from the flash fire and Mabry ultimately died from his
injuries.
D. The Joseph and Mabry Suits
After the fire, Mabry’s estate and Joseph both sued several parties
in Louisiana state court, including Fluor and MMR. Mabry’s estate and
Joseph alleged that employees at either Fluor or MMR had failed to turn
off one of the gas stovetop burners in the trailer before turning it over to
Joseph, failed to ensure that the stovetop was functioning properly, and
failed to ensure that the trailer’s LP detector, which did not alarm on the
day of the fire, was functioning properly. Fluor, Fluor’s insurers
(including Westchester), MMR, and MMR’s insurer (Liberty) agreed to
settle Joseph’s claims against Fluor and MMR for $10 million, with the
insurers reserving various rights to recover from one another the sums
paid in the settlement. The insurers later agreed to settle Mabry’s
claims against Fluor and MMR for a total of $2.75 million, again
reserving certain rights to recover from one another.
E. The Proceeding Below
The insurance-coverage dispute giving rise to this appeal followed.
Liberty (MMR’s insurer) sued Fluor’s insurers (including Westchester 3) in
federal court to recover $4.375 million in settlement payments, and
Westchester (Fluor’s insurer) counterclaimed to recover its own settlement
contributions from Liberty. Liberty argued that MMR was not responsible for
the fire and owed Fluor no indemnity, and so Fluor’s insurers (including
Westchester) should reimburse Liberty for the settlement payments it had
made. Westchester argued the reverse. Following a bench trial, the district
3 Westchester is the only one of Fluor’s insurers that remains a party to this suit.
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court ruled in Liberty’s favor. It held that MMR was not required to indemnify
Fluor based on the BOA’s indemnity provision and the facts of the underlying
tort suit. Interpreting the indemnity provision under California law, the
district court concluded that, to trigger MMR’s indemnity obligation, Fluor was
required to show a “but-for causal connection between the ultimate harm and
[MMR’s] duties under the contract.” Applying this standard, the district court
determined that nothing in the scope of MMR’s work was a but-for cause of
Joseph’s and Mabry’s injuries. Specifically, the court found that the fire was
caused by an accumulation of gas in the trailer due to someone leaving the
stovetop’s gas knob on. Significantly, the court found that “there was no
evidence that connected MMR’s contract to the open gas knob on the stove”
because “MMR had no contact with the trailer for five weeks before the fire,
and Stanley [MMR’s employee] disconnected the propane source when he
finished the QC/QA inspection.” The district court also concluded that the
failure of the trailer’s LP detector to alarm contributed to the injuries.
The court pointed out, however, “[t]hat the LP detector’s failure was a
contributing cause of the fire does not mean that the fire arose directly or
indirectly out of the BOA unless MMR’s work under the contract was a but-for
cause of the injuries.” Examining the extensive BOA and its accompanying
documents, the district court noted that the BOA contains no mention of the
LP detector, much less an obligation on MMR’s part to test it. The district
court acknowledged that a separate Fluor document, the “QC/QA RFO
Checklist” listed various requirements for Fluor’s inspectors, including
ensuring that the “LP detector [is] installed and operates correctly,” but
pointed out that this document was meant to apply to Fluor—not MMR—
inspectors and was not incorporated into the BOA. Indeed, the district court
determined that the BOA’s integration clause further foreclosed a finding that
the QC/QA RFO Checklist was binding on MMR. Thus, the district court held
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that testing the LP detector was outside the scope of the BOA and therefore
the fire did not arise directly or indirectly out of the BOA.
In the alternative, the district court stated that, even if testing the LP
detector had been within the scope of MMR’s work under the BOA, MMR’s
obligation would have been limited to conducting the butane lighter test, which
the court found would not have indicated that the LP detector was defective.
Because the test would not have prevented the fire, the district court refused
to find a causal connection between an obligation to perform the test and the
injuries Joseph and Mabry sustained. Accordingly, the district court
determined that, even in this alternative, the fire could not be said to have
“arisen” out of the BOA, which forecloses Fluor’s indemnity claim.
II. STANDARD OF REVIEW
“We review a district court’s bench trial conclusions of law”—including
issues of contract interpretation—“de novo and its findings of fact for clear
error.” Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254,
260 (5th Cir. 2003).
III. DISCUSSION
Westchester (Fluor’s insurer) argues that it has no obligation to
reimburse Liberty (MMR’s insurer) for the payments Liberty made to settle
the Mabry and Joseph lawsuits. Westchester does not argue that it has no
such obligation because MMR was itself liable for Joseph’s and Mabry’s
injuries under tort law. Instead, Westchester argues that it has no obligation
to reimburse Liberty because MMR had a duty to indemnify Fluor against the
Joseph and Mabry lawsuits. In support of this contention, Westchester argues
that MMR had a duty to indemnify Fluor both pursuant to the indemnity
provision of the BOA and pursuant to the additional-insured provisions of
MMR’s insurance policies with Liberty. Westchester is wrong on both points.
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A. Indemnity under the BOA
Liberty claims that Westchester must reimburse it for the settlement
payments it made on MMR’s behalf because MMR was not responsible for the
fire in the Joseph trailer. Westchester responds that MMR agreed to
indemnify Fluor pursuant to the BOA’s indemnity provision and therefore that
Liberty must reimburse Westchester for its settlement payments. The BOA’s
indemnity provision states that “[MMR] agrees to defend, indemnify and hold
harmless [Fluor] . . . from and against any claim, demand, cause of action,
liability, loss or expense . . . arising directly or indirectly out of [the BOA] or
out of any acts or omissions of [MMR].” Westchester contends that the Joseph
and Mabry lawsuits triggered this indemnity provision because the injuries
resulting from the trailer fire arose “directly or indirectly out of [the BOA] or
out of any acts or omissions of [MMR].” Liberty argues that the indemnity
provision was not triggered because none of MMR’s acts, omissions, or
obligations under the BOA bore any connection to the trailer fire. We agree.
Under California law—the law governing the BOA—Westchester, as the
party seeking to enforce the BOA’s indemnity provision, has the burden to
prove that the indemnity provision was triggered, i.e., that MMR was obligated
to indemnify Fluor. See Four Star Electric, Inc. v. F & H Constr., 10 Cal. Rptr.
2d 1, 3 (Cal. Ct. App. 1992) (“An indemnitee seeking to recover on an agreement
for indemnification must allege the parties’ contractual relationship, the
indemnitee’s performance of that portion of the contract which gives rise to the
indemnification claim, the facts showing a loss within the meaning of the
parties’ indemnification agreement, and the amount of damages sustained.”).
California courts have interpreted indemnity provisions that use the phrase
“arising . . . out of” to require at least a but-for connection between the alleged
harm and the indemnitor’s contractual obligations. See, e.g., Transcon. Ins.
Co. v. Ins. Co. of the State of Penn., 56 Cal. Rptr. 3d 491, 499 (Cal. Ct. App.
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2007) (“Although the phrase ‘arising out of’ should be broadly read to require
only a minimal causal connection, it requires more than ‘but for’ causation.”). 4
Similarly, California courts construe language equivalent to “arising directly
or indirectly” out of a contract to require causation. See Centex Golden Constr.
Co. v. Dale Tile Co., 93 Cal. Rptr. 2d 259, 262, 264 (Cal. Ct. App. 2000)
(interpreting an agreement to indemnify “with respect to all work which is
covered by or incidental to this subcontract” as requiring “some connection
between the subcontractor’s work and the claim”); Cont’l Heller Corp. v.
Amtech Mech. Servs., Inc., 61 Cal. Rptr. 2d 668, 670 (Cal. Ct. App. 1997)
(stating that indemnity obligation for a loss that “arises out of or is in any way
connected” with the performance of work requires proof of causation).
In this case, the district court determined that the fire was caused by (1)
someone—but not MMR—having left the gas on in the trailer for
approximately three days before the fire and (2) the LP detector failing to
alarm. Westchester does not suggest that MMR could owe Fluor indemnity if
the sole cause of the fire had been that someone left one of the gas burners on.
Accordingly, for the fire to have arisen directly or indirectly out of either the
BOA or MMR’s acts or omissions, there must have been a connection between
MMR’s acts, omissions or obligations under the BOA and the LP detector’s
failure to alarm. Westchester argues that MMR’s purported obligations to test
the LP detector and ensure general trailer quality supply the requisite
4 Westchester criticizes the district court for focusing on whether MMR’s own
negligence caused the detector to fail. Under California law, as the district court itself
pointed out, “courts will enforce indemnity agreements even for losses caused by acts over
which the indemnitor had no control.” Cont’l Heller Corp. v. Amtech Mech. Servs., Inc., 61
Cal. Rptr. 2d 668, 670 (Cal. Ct. App. 1997). Westchester does not suggest the fire can be
attributed to MMR’s negligence, but the operative question is whether there exists a
connection between the fire and MMR’s obligations under the BOA such that the fire can be
said to have arisen, directly or indirectly, out of the BOA.
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connection. Westchester’s argument, however, is not supported by either the
evidence or the case law.
Westchester concedes that the BOA did not specifically require MMR to
test the LP detector. In support of its claim, Westchester instead points to the
BOA’s general provisions instructing MMR to install the trailers as directed
by Fluor and to conduct any additional tests or inspections that Fluor required.
Westchester alleges that MMR had a specific obligation to test the LP detector
by virtue of a separate document, the QC/QA RFO Checklist, which included
the item “LP detector installed and operates properly.” At trial, one of Fluor’s
program managers testified that Fluor had provided MMR the QC/QA RFO
Checklist before MMR bid on the haul-and-install contract. The district court
concluded, however, that the checklist had never been incorporated into the
BOA. Fluor’s failure to incorporate the checklist severely undermines
Westchester’s position, particularly because the BOA contained a merger
clause, stating that the BOA, together with its attachments, exhibits and
drawings, “sets forth the entire Contract and agreement between the Parties
pertaining to the Scope of Work . . . and supersedes all inquiries, proposals,
agreements, negotiations and commitments[] . . . prior to the date of execution
of this Contract, pertaining to said Work or this Contract.” The mere fact that
Stanley (the MMR employee who conducted a quality control inspection of the
Joseph trailer) or other MMR inspectors occasionally performed certain tasks
that happened to be on the checklist did not transform the checklist into a
contractual obligation. Indeed, the QC/QA RFO checklist was a document used
by Fluor’s, not MMR’s, employees.
Westchester responds that the BOA permitted Fluor to “require
additional inspections and tests,” and therefore argues that the QC/QA RFO
checklist was incorporated into the BOA as such an “additional inspection[]
[or] test[]” that Fluor could insist upon. The question then becomes whether
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the checklist—or any other evidence—reflects that Fluor in fact requested
MMR to test the LP detector in the Joseph trailer. The evidence in the record
indicates that Fluor did not. First, Stanley (MMR’s inspector) testified that
MMR was not required to test the LP detector. Second, although Stanley
testified that he would sometimes perform certain tasks that he was not
required to perform, including testing the LP detector, he explained that he
would do so at the request of the Fluor inspector because Stanley was “right
there” or because Stanley was in the way, and the Fluor inspector could not get
to it. Stanley’s testimony thus indicates that he would sometimes test a
trailer’s LP detector, but for the sake of convenience, not because he was
required to do so as part of MMR’s work arising out of the BOA. Furthermore,
that the BOA permitted Fluor to require additional testing or inspection does
not mean that individual Fluor inspectors, on an ad-hoc basis, were authorized
to impose such requirements on MMR or its inspectors. Third, although
Stanley testified that, based on documentation from the inspection, someone
tested the LP gas detector, he did not confirm that he had in fact been the one
who tested it. Given its burden to prove indemnity, see Four Star Electric, 10
Cal. Rptr. 2d at 3, Westchester’s failure to cite to record evidence indicating
that it in fact required MMR to test the detector in the Joseph trailer is fatal
to its argument. Accordingly, the district court did not err when it determined
that MMR was not required to test the LP gas detector. 5
Westchester also argues that MMR assumed the responsibility to ensure
that trailers had properly-functioning LP detectors by virtue of its general
In the alternative, the district court concluded that, even if MMR had been obligated
5
to test the LP gas detector, testing would not have made a difference in exposing the
detector’s latent defect and preventing the fire. Because we conclude that MMR was not
required to test the LP detector, we do not consider Liberty’s argument that we should affirm
on this further ground.
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obligation to assure quality. The BOA stated that MMR “has primary
responsibility for quality. [MMR] is to implement the measures necessary to
build quality into the work in accordance with the contract, drawings, and
specifications.” The “work” for which MMR had the responsibility to ensure
quality, as described in the “Travel Trailer Installation” exhibit to the specific
Individual Release relevant here, consisted primarily of towing the FEMA
trailers, levelling the ground for installation, transferring them onto concrete
piers, anchoring them, installing sewer and water lines, connecting electrical
service, filling propane tanks, constructing wooden steps to the front door, and
generally making the trailer ready for occupancy. This was the work whose
quality MMR ensured. Although MMR’s work was mostly limited to
transporting the trailers, installing them and connecting utilities, MMR’s
obligation to make the trailers ready for occupancy did include some testing of
appliances and appurtenances. One of MMR’s few obligations in this respect
was to “[t]est smoke detector and replace if faulty.” While the work release
specifically obligated MMR to test smoke detectors, it included no obligation to
test LP detectors. If Fluor had wished to create such an obligation, it could
have done so easily. See, e.g., White v. W. Title Ins. Co., 710 P.2d 309, 314 &
n.4 (Cal. 1985) (applying the familiar principle that the inclusion of one thing
implies exclusion of others to contract interpretation). We will not add an
obligation to test LP detectors where Fluor, the party that drafted the BOA,
chose not to. Thus, since MMR’s “work” under the BOA was unrelated to the
LP detectors, MMR’s general obligation “to build quality into the work” did not
include an obligation to ensure that the LP detectors functioned properly.
Finally, the two cases on which Westchester seeks principally to rely—
St. Paul Fire & Marine Ins. Co. v. Am. Dynasty Surplus Lines Ins. Co., 124 Cal.
Rptr. 2d 818 (Cal. Ct. App. 2002), and Continental Heller—instead support
Liberty’s position. In St. Paul, the court concluded that a subcontractor had
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no duty to indemnify the general contractor based on the terms of the parties’
agreement. See 124 Cal. Rptr. 2d at 830. The contract between the parties
required the subcontractor to indemnify the general contractor for claims
“arising out of or resulting from the performance of the Work, either directly
or indirectly” so long as the claim “arises from or is alleged to have arisen in
whole or in part by any act or omission of Subcontractor or any subcontractor
under him.” Id. at 821-22. There, an explosion occurred while the general
contractor was pressure testing a pipe, which resulted in injuries to an
employee of the subcontractor. Id. at 822. The general contractor’s insurer
sought indemnity from the subcontractor’s insurer, arguing that the
subcontract’s indemnity provision covered the injuries. Id. at 822-23.
The court reasoned that the subcontractor “expressly undertook no duty
to indemnify [the general contractor] except for a liability that arose from an
‘act or omission’ by [the subcontractor] during the performance of the work
called for by the Subcontract.” Id. at 828. “Such language,” the court said, “can
have no other meaning or purpose than to limit the scope of [the
subcontractor]’s indemnity to injuries occurring in circumstances over which it
has at least some control and where it is engaged in activity that is causally
related in some manner to the injury for which indemnity is claimed.” Id. “On
the record before us,” the court explained, “not only is there no basis for finding
[the subcontractor] at fault for [the] injury, but also [the subcontractor] did not
do any act that was in any way connected to such injury.” Id. at 829.
Consequently, the court concluded that the subcontractor’s duty to indemnify
“was never triggered.” Id. at 830.
Liberty concedes that the BOA’s indemnity provision is broader than the
language at issue in St. Paul. The BOA requires that MMR indemnify Fluor
not only for claims arising out of MMR’s own “acts or omissions,” but also for
claims arising directly or indirectly out of the BOA itself. Nevertheless,
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because the connection between MMR’s duties and the fire is weaker—MMR
completed its work with respect to the trailer five weeks before the fire
occurred—Liberty reasons that St. Paul supports its position. We agree. Like
in St. Paul, there is no evidence that MMR was “at fault for [the] injury” or did
“any act that was in any way connected to such injury.” 124 Cal. Rptr. 2d at
829. Westchester’s argument, then, depends on asserting that MMR, under
the BOA, was responsible for installing trailers with properly functioning LP
detectors. However, as previously discussed, the evidence indicates that MMR
was not required to test the LP detector in the Joseph trailer. Accordingly, St.
Paul better supports Liberty’s position than Westchester’s.
In Continental Heller, the general contractor hired the subcontractor to
install an ammonia refrigeration system in an Oscar Meyer meat-packing
plant. 61 Cal. Rptr. at 669. Following the installation, “an explosion occurred
at the plant causing property damage and injuring several Oscar Meyer
employees.” Id. “The explosion was caused by the failure of a valve . . .
[selected and] installed by [the subcontractor] in the course of its work on the
refrigeration system.” Id. at 669, 671. The court considered whether the
subcontractor was obligated to indemnify the general contractor under an
agreement that required indemnification for “a loss which ‘arises out of or is in
any way connected with the performance of work under th[e] Subcontract,’”
including “any acts or omissions[] . . . on the part of Subcontractor.” Id. at 670.
“[The subcontractor] d[id] not deny its installation of the valve in the
refrigeration plant was ‘an act’ carried out in ‘the performance of work under
[the] Subcontract.’” Id. (third alteration in original). “Nor d[id] it deny the loss
suffered by [the general contractor] was ‘in any way connected’ with that act.”
Id. “Therefore,” the court concluded, “under the contract as written, [the
general contractor] is entitled to indemnity from [the subcontractor] for its
losses.” Id. The court, however, noted that,
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[c]ontrary to [the subcontractor]’s contention, the causal
connection defined in the agreement does not impose virtually
unlimited liability on [it]. [The subcontractor]’s liability must be
connected to an “act” or “omission” in the performance of its
subcontract, not merely to the performance itself. Therefore, the
fact [the subcontractor] installed the refrigeration system in the
plant would not make it liable for indemnity for the loss incurred
in paying damages to someone who suffered food poisoning from
eating an Oscar Meyer hot dog on the theory that but for the
refrigeration system Oscar Meyer could not have made the hot dog.
The indemnitee in this hypothetical case would have to establish
the loss was in some way connected to a specific act or omission of
[the subcontractor].
Id. at 672.
In this case, by contrast, MMR neither selected nor installed the faulty
detector. In other words, unlike the subcontractor in Continental Heller, MMR
performed no work under the BOA that was in any way connected to the
injuries. Westchester’s argument to the contrary depends on the assertion,
which is not borne out by the record, that MMR was responsible for inspecting
and assuring the quality of the LP detector. Admittedly, Westchester also
notes that, under the BOA, MMR was primarily responsible for assuring the
quality of the trailers it hauled and installed, which, according to Westchester,
“necessarily encompasses the quality of the trailer’s critical safety devices.”
Certainly, the fire in the Joseph trailer would not have occurred had MMR not
hauled and installed the trailer, as required by the BOA. But to conclude that
MMR owes Fluor indemnity under this reasoning would run afoul of the
Continental Heller court’s admonition that the subcontractor would not be
“liable for indemnity for the loss incurred in paying damages to someone who
suffered food poisoning from eating an Oscar Meyer hot dog on the theory that
but for the refrigeration system Oscar Meyer could not have made the hot dog.”
Id. Even under the but-for test, indemnity requires a closer connection than
that to find that “a loss . . . ‘arises out of or is in any way connected with the
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performance of work under th[e] Subcontract.’” See id. at 670, 672.
Westchester acknowledges as much by conceding that it “could not seek
indemnification on the attenuated theory that but for the fact of the trailer’s
installation, there would have been no oven knobs to mishandle, and hence no
fire and no injuries,” but argues indemnification is required here because the
trailer was installed with a faulty LP detector, which MMR had a duty under
the BOA to test “for the very purpose of avoiding the harm that later occurred.”
Since, however, the BOA assigned no such duty to MMR, the connection
between MMR’s obligation to install the Joseph trailer and the subsequent fire
is just as attenuated as the subcontractor’s installation of the faulty valve and
the hypothetical spoiled hot dog in Continental Heller.
Ultimately, the record evidence and case law on which Westchester seeks
to rely supports the district court’s conclusion that the BOA did not obligate
MMR to test the trailer’s LP detector and that, therefore, neither the BOA
itself nor any act or omission on the part of MMR was a but-for cause of the
injuries. Westchester’s arguments to the contrary are unavailing.
B. Indemnity under MMR’s Insurance Policies
Aside from the indemnification provision in the BOA, Westchester also
argues that MMR had a separate obligation to indemnify Fluor pursuant to
MMR’s insurance policies with Liberty, which are interpreted under Louisiana
law. Westchester, as Fluor’s insurer, had the burden of proving that Fluor was
entitled to coverage as an additional insured under MMR’s insurance policies
with Liberty. See, e.g., Tunstall v. Stierwald, 809 So. 2d 916, 921 (La. 2002).
Specifically, MMR’s excess-liability policy with Liberty provided that coverage
for an insured “included in or added to an underlying policy” would not be
broader “than is available to such insured under the underlying policy.”
Further, the blanket additional-insured provision in the underlying policy—
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MMR’s commercial general-liability policy with Liberty—limited coverage to
injury arising out of “[MMR’s] work.”
Westchester argues that MMR’s work under the BOA specifically
included the installation of trailers with working LP gas detectors. However,
as previously discussed, the record does not support this contention. The
general-liability policy also defined “[MMR’s] work” to include “[w]arranties or
representations made at any time with respect to the fitness, quality,
durability, performance or use of ‘[MMR’s] work.’” Westchester reasons that
because the BOA provided that “[MMR] has primary responsibility for quality”
and was obligated “to implement the measures necessary to build quality into
the work in accordance with the contract, drawings, and specifications,” the
district court erred when it concluded that MMR made no warranties with
respect to its work that occasioned the injuries. However, as discussed
previously, see supra, note 1, these obligations related to “inspection and / or
testing by [Fluor],” which, if required, would be identified in an Individual
Release. For the same reason, Westchester’s arguments that MMR was
obligated to test the LP detector based on MMR’s “general responsibility to
ensure trailer quality,” also fails. Accordingly, we affirm the judgment of the
district court in this regard.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s judgment that
MMR was under no obligation to indemnify Fluor and that Fluor was not
covered as an additional-insured pursuant to MMR’s insurance policies with
Liberty.
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