Independent School District 833 v. Bor-Son Construction, Inc.

OPINION

HALBROOKS, Judge

This is a subrogation action brought by the Minnesota School Board Association Insurance Trust (MSBAIT) in the name of respondent Independent School District 833 (ISD 833). ISD 833 sustained property damage resulting from a roofing project. MSBAIT seeks to recover its costs incurred as ISD 833’s insurer for repairs to three elementary schools that were damaged by appellant Bor-Son Construction. The district court ruled that the subrogation-waiver provision did not apply to ISD 833⅛ claim for damage to “non-work” property, and Bor-Son challenges the court’s interpretation of the waiver provision. Because the district court erred in its interpretation of the provision, we reverse.

FACTS

On February 23, 1995, ISD 833 contracted with Bor-Son to repair the roofs of three elementary schools. The contract used was a standard contract designed by the American Institute of Architects (AIA). The terms of the contract required ISD 833 to maintain property insurance and to obtain liability insurance for damages “other than to the [w]ork itself.” The contract also contained a waiver-of-subro-gation clause that barred any claims based on Bor-Son’s “work.” The term “work” was defined as “the construction and services * * * and includes all other labor, materials, equipment and services provided or to be provided by the Contractor

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ISD 833 had pre-existing property insurance through MSBAIT that covered the school buildings and their contents. To fulfill its obligation under the contract, ISD 833 purchased a “builder’s risk” endorsement as a supplement to its insurance policy that specifically provided Bor-Son with additional property insurance for the three roofing projects. ISD 833 did not procure any other additional insurance.

*439Construction began in the summer of 1995. Bor-Son used a temporary water-protection system, which used reinforced polyethylene and a ballast, to protect the interior. But due to heavier-than-anticipated rainfall in June and July, water seeped into the buildings. The parties dispute whether there were adequate precautions taken to prevent water penetration and whether Bor-Son was urged to take greater precautions. Bor-Son completed the roofing projects by the start of the school year and received a notice of substantial completion from the school district’s architect.

The water damaged the schools’ interiors and equipment and led to mold growth, causing $775,086.01 in damages. Ninety percent of these damages were covered by MSBAIT, which subsequently brought this subrogation action against Bor-Son.

Both parties made a motion for partial summary judgment on the issue of the subrogation-waiver clause. ISD 833 argued that the waiver did not apply because the damage to the buildings was on the inside rather than the roofs and, consequently, it was not work-related. Bor-Son argued that ISD 833 waived its subrogation right or, in the alternative, that the damage to the interior of the buildings was work-related.

The district court granted ISD 833’s motion and denied Bor-Son’s motion. The court held that the waiver of the subrogation rights contained in Articles 11.3.5 and 11.3.7 of the contract was limited to claims for damage to the “work.” Because the water damage to the building interiors and subsequent mold growth were not work-related, the district court concluded that the subrogation waiver was inapplicable.

In June 1998, in a case of first impression, the Minnesota Supreme Court interpreted the subrogation-waiver clause in the standard AIA contract. Employers Mut. Cas. Co. v. A.C.C.T., 580 N.W.2d 490 (Minn.1998). The supreme court held that an owner agreed to waive the right to make a claim for damages done only to the “work” if the owner purchases a separate all-risk policy specifically to cover that risk. Id. at 493.

But if the owner relies on an existing policy which is so broad that it covers both “work” and “nonwork” property, it waives the right to sue for all damages done as long as that damage is covered by the policy.

Id.

In light of A.C.C.T., Bor-Son moved for reconsideration of the district court’s rulings on partial summary-judgment motions. The district court denied the motion, finding A.C.C. T. to be distinguishable. In an effort to avoid trial, Bor-Son confessed judgment against it for $791,252.63, but reserved its right to appeal the district court’s interpretation of the subrogation waiver. This appeal follows.

ISSUE

Did the district court err in its interpretation of the subrogation-waiver clause in the insurance policy?

ANALYSIS

We begin by first addressing ISD 833’s argument that this appeal cannot be heard. Because Bor-Son agreed to a confessed judgment, ISD 833 argues that Bor-Son “has admitted liability on virtually all of the non-intentional claims,” including negligence, breach of contract, breach of warranties, and negligent misrepresentation. Given this admission of liability, ISD 833 characterizes Bor-Son’s request on appeal as seeking an advisory opinion. Further, ISD 833 argues that Bor-Son is estopped from bringing this appeal by agreeing to the settlement.

*440We disagree. First, ISD 833 mischarac-terizes Bor-Son’s claim. We are presented with a justiciable controversy. See Cincinnati Ins. Co. v. Franck, 621 N.W.2d 270, 274 (Minn.App.2001) (“Because the judicial function does not comprehend the giving of advisory opinions, justiciability is necessary in all adjudications.” (citations omitted)). Bor-Son’s claim is justiciable because it involves a definite, concrete assertion of a right emanating from the parties’ contract; it stems from a genuine conflict between parties with adverse interests; and it is capable of specific resolution by judgment. Id.

Second, Bor-Son explicitly reserved the right to appeal and, therefore, is not es-topped by the settlement. The plain language of the settlement clearly indicates that it “is intended to preserve [Bor-Son’s] right to seek reversal” of the district court’s partial summary-judgment decision. See S O Designs USA, Inc. v. Rollerblade, Inc., 620 N.W.2d 48, 53 (Minn.App.2000) (stating that an unambiguous contract must be construed to “give effect to the intention of the parties as expressed in the language they used” (quotation omitted)), revieiu denied (Minn. Feb. 21, 2001). It is illogical to say that the same settlement that explicitly reserved Bor-Son’s right to appeal also prohibits Bor-Son from exercising that right. Respondent’s motion to dismiss the appeal is, therefore, denied, as is appellant’s motion to strike respondent’s motion.

Finding that Bor-Son may properly seek review from this court, we turn to the substantive question of whether a sub-rogee waives the subrogor’s right to sue by purchasing a builder’s endorsement. We start by applying the supreme court’s rulings in A.C.C.T., interpreting duty-to-insure provisions. Employers Mut. Cas. Co. v. A.C.C.T., 580 N.W.2d 490, 493 (Minn.1998). The issue before the supreme court was whether the standard AIA-waiver clause barred the owner’s insurer from bringing a subrogation claim against a contractor for negligently-caused damages. Id. at 491. In A.C.C.T., a medical center entered into a standard AIA contract with A.C.C.T. to remove asbestos. Id. The medical center relied on its existing property-insurance policy to fulfill its obligations under the AIA contract. Id. at 492. After a fire that started in the area where A.C.C.T. was working resulted in damage to both the “work” and “nonwork” areas, the medical center recovered its losses from its insurer, Employers Mutual Casualty Company. Id. The insurer, in turn, brought a subrogation claim, alleging A.C.C.T. was negligent and had breached its contract. Id. A.C.C.T. responded that under the contract, “both parties agreed to waive all rights against the other for damages to the extent that those damages are covered by property insurance.” Id.

The supreme court agreed and reversed this court’s affirmance of the trial court’s denial of summary judgment to A.C.C.T. The supreme court held that the waiver’s distinction between “work” and “nonwork” was “based upon the owner’s decision to purchase a new policy or to rely on an existing one.” Id. at 493. If an owner purchased an all-risk policy that “was specifically to cover the ‘work’ ” and that was separate from any existing property-insurance policy, then the owner only waived the right to sue for damages arising from the “work.” Id. The owner retained its subrogation right to sue for damage to “nonwork” property. But if an owner decided to rely on its existing property insurance, then “it waives the right to sue for all damages done as long as that damage is covered by the policy.” Id.

A builder’s endorsement, such as exists in this case, does not fall squarely within the A.C.C.T. holding. The endorse*441ment represents the owner’s intent to insure something not covered by the existing policy. But an endorsement is “[a]n amendment to an insurance policy.” Black’s Law Dictionary 548 (7th ed.1999). We have construed an endorsement to be part of an existing contract, not a separate and independent document. National Indem. Co. v. Ness, 457 N.W.2d 755, 759 (Minn.App.1990), review denied (Minn. Sept. 14, 1990).

Although the owner is purchasing additional coverage by buying an endorsement, the endorsement becomes part of the existing policy. Id. Because the endorsement cannot “stand” on its own, the owner fulfills its contractual duty to provide insurance on the basis of its preexisting all-purpose policy. ISD 833 did not purchase a separate policy that clearly delineated between “work” and “nonwork.” The underlying policy, supplemented by the endorsement, covers both “work” and “nonwork” property. As a result, ISD 833 waived its subrogation right to sue for covered damages.

This holding is consistent with Lloyd’s Underwriters v. Craig & Rush, Inc., 26 Cal.App.4th 1194, 32 Cal.Rptr.2d 144 (1994), a case that the supreme court found persuasive. See A.C.C.T., 580 N.W.2d at 494. In Lloyd’s Undenoriters, the California Court of Appeals noted that it might have come to a different conclusion had the owner purchased a separate policy that was specifically limited to damages arising from work property. 32 Cal.Rptr.2d at 146 n. 4. Although dictum, the court added that the owner’s policy either “by virtue of an exclusion or for other reasons” must be specifically applicable only to work-related damages. Id.

Reviewing respondent’s endorsement, we find no language that limits this endorsement to only work-related damages. Rather, the endorsement specifically is “[ajttaehed to and forming a part of’ the original policy. Under the standard AIA contract, if an owner wants to preserve subrogation rights to sue for damage to “nonwork” property, the owner must purchase a separate policy, not supplement an existing one. A.C.C.T., 580 N.W.2d at 493.

DECISION

Both respondent’s motion to dismiss the appeal and appellant’s motion to strike respondent’s motion are denied. The district court erred in granting partial summary judgment in favor of ISD 833. Because ISD 833 did not purchase a separate insurance policy, its subrogation right under the AIA contract was waived.

Reversed; motions denied.