may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1994).
STATE OF MINNESOTA
IN COURT OF APPEALS
Seward Housing Corporation,
Conroy Brothers Company, et al.,
Conroy Brothers Company,
Dow Chemical Company d/b/a Dow
Chemical U.S.A., a Delaware Corporation
Keene Corporation, a New York corporation,
Filed December 10, 1996
Affirmed in part and remanded in part
Hennepin County District Court
File No. 93-16111
Dale B. Lindman, Victor E. Lund, Mahoney, Dougherty and Mahoney, P.S., 801 Park Avenue, Minneapolis, MN 55404 (for Rrespondent Right-Way Caulking, Inc.)
Mary Cullen Yeager, Faegre & Benson, 2200 Norwest Center, 90 South Seventh Street, Minneapolis, MN 55402 (for Respondent Dow Chemical Company)
Considered and decided by Schumacher, Presiding Judge, Klaphake, Judge, and Amundson, Judge.
Conroy Brothers Company appeals from the judgment entered following the district court's order denying its motion for summary judgment and dismissing its third-party claim against respondent Right-Way Caulking. Appellant argues that the district court erred in determining that the agreement to insure is not enforceable. We affirm in part and remand in part.
In August 1984, the owners of a low-income housing project (now known as Seward Towers West) entered into a construction contract with appellant Conroy Brothers Company (the contractor) to install a new exterior wall system on the building.
Appellant Conroy Brothers subcontracted part of the work to respondent Right-Way Caulking (the sub-contractor). The subcontract required the sub-contractor to procure general liability insurance:
The Sub-Contractor agrees to assume entire responsibility and liability for all damages or injury to all persons, whether employees or otherwise, and to all property, arising out of, resulting from or in any manner connected with, the execution of the work provided for in this Sub-Contract or occurring or resulting from the use by the Sub-Contractor, his agents or employees, of materials, equipment, instrumentalities or other property, whether the same be owned by the Contractor, the Sub-Contractor or third parties, and the Sub-Contractor agrees to indemnify and save harmless the Contractor, his agents and employees from all such claims including, without limiting the generality of the foregoing, claims for which the Contractor may be, or may be claimed to be, liable, and legal fees and disbursements paid or incurred to enforce the provisions of this paragraph, and the Sub-Contractor further agrees to obtain, maintain and pay for such general liability insurance coverage as will insure the provisions of this paragraph.
(Emphasis added). It is undisputed that the sub-contractor did not purchase this insurance. The sub-contractor's work on the project was finished by May 4, 1986.
In December 1990, plaintiff Seward Housing Corporation (Seward) bought the building. In August 1993, Seward sued the contractor, the architect, and the manufacturer of the exterior wall system. Seward alleged that due to the defendants' negligent design, manufacture, and installation,
[p]laster has fallen off the building, corrosion and rusting has occurred at the location of fastener heads and the plastic and metal control joints have failed in places. Water has infiltrated through the Sencon Exterior Wall System.
In June 1994, the contractor commenced a third-party action against several parties, including the sub-contractor. The contractor settled with Seward on a Pierringer basis and through its insurer paid Seward $400,000.
The contractor, seeking to recover $250,000 (the limit of the insurance policy that the sub-contractor was obligated to obtain under the terms of the sub-contract), moved for summary judgment against the sub-contractor. Seward never had a direct claim against the sub-contractor.
The district court denied the contractor's summary judgment motion and dismissed its third-party claim against the sub-contractor. The district court reasoned that since the general liability insurance, even if it would have been purchased, would not have covered the damages alleged, the contractor's claim failed as a matter of law. The court noted that coverage under a general liability policy is required only where there is a temporal, geographic, or causal relationship between the sub-contractor's work and the injury giving rise to the liability, and that there was no such relationship in this case. This appeal followed.
D E C I S I O N
The contractor argues that the agreement to insure is enforceable under Minn. Stat. § 337.05 (1992) and thus, it is entitled to $250,000, the limit of the policy the sub-contractor was obligated to obtain.
In 1983, the Minnesota Legislature enacted chapter 337, which, inter alia, made indemnification agreements contained in construction contracts unenforceable except to the extent that the injury or damage was attributable to the promisor's negligence. See 1983 Minn. Laws ch. 333; Minn. Stat. § 337.02 (1992). However, the statute creates an exception for "agreements to insure." See Minn. Stat. § 337.05, subd. 1 (1992) ("Sections 337.01 to 337.05 do not affect the validity of agreements whereby a promisor agrees to provide specific insurance coverage for the benefit of others.") The exception provides that
If: (a) a promisor agrees to provide specific types and limits of insurance; and
(b) a claim arises within the scope of the specified insurance; and
(c) the promisor did not obtain and keep in force the specified insurance;
then, as to that claim and regardless of section 337.02, the promisee shall have indemnification from the promisor to the same extent as the specified insurance.
Id., subd. 2.
In this case, it is undisputed that the sub-contractor agreed to "provide specific types and limits of insurance." It is also undisputed that the contractor "did not obtain and keep in force the specified insurance." Thus, the question is whether the claim in this case "arises within the scope of the specified insurance." If it does, then the contractor is entitled to indemnification from the sub-contractor.
As the contractor properly notes, it is more difficult to determine the scope of the specified insurance because there is no policy language or policy to construe. However, there is the language of the sub-contract. Under the terms of the sub-contract, the sub-contractor is only liable for damages
arising out of, resulting from or in any manner connected with, the execution of the work provided for in this Sub-Contract or occurring or resulting from the use by the Sub-Contractor, his agents or employees, of materials, equipment, instrumentalities or other property, whether the same be owned by the Contractor, the Sub-Contractor or third parties.
This language requires that there be a connection between the sub-contractor's work and the damages.
The supreme court held that a provision in a contract was exactly the same as the provision at issue in this case (a standard sub-contract agreement), was valid under chapter 337:
In our view, the legislature both anticipated and approved a long-standing practice in the construction industry by which the parties to a subcontract could agree that one party would purchase insurance that would protect "others" involved in the performance of the construction project. Such a risk allocation method is a practical response to problems inherent in the performance of a subcontract and, in instances where the risk of loss is one directly related to and arising out of the work performed under the subcontract, the parties are free to place the risk of loss upon an insurer by requiring one of the parties to insure against that risk.
Holmes v. Watson-Forsberg Co., 488 N.W.2d 473, 475 (Minn. 1992) (emphasis added). The contractor relies on this language to argue that there only has to be a "direct relationship" between the work and the claim. The contractor asserts that cases construing agreements to indemnify, which have required a temporal, geographical, or causal relationship between the sub-contractor's work and the injury giving rise to liability, do not apply to agreements to insure. See R. E. M. IV v. Ackermann & Assocs., 313 N.W.2d 431, 434 (Minn. 1981).
In reaching our decision, we rely on the language of the sub-contract and Holmes, not the line of agreement-to-indemnify cases. However, we note that the language of the sub-contract and Holmes require a direct relationship, and in many cases this will require an analysis of temporal, geographical, and causal factors. We disagree with the contractor's claim that because the sub-contractor performed work on the installation of the wall, there is a direct relationship between its work and the damages claimed. Something more than that is required to show a direct relationship between the work and the damages.
Appellant cites two cases in support of its argument that a general liability policy would have covered the damages in this case. See Federated Mut. Ins. Co. v. Concrete Units, 363 N.W.2d 751 (Minn. 1985); Sphere Drake Ins. Co. v. Tremco, Inc., 513 N.W.2d 473 (Minn. App. 1994), review denied (April 28, 1994).
In Concrete Units, the supreme court held that "consequential damages which are causally related to an item of _property damage'" are covered under the standard comprehensive general liability policy. 363 N.W.2d at 753 (emphasis added). Thus, Concrete Units does not help the contractor get around a causal relationship requirement. Similarly, in Tremco, this court held that there is coverage when an insured's "defective work causes property damage or personal injury to a third party." 513 N.W.2d at 475 (emphasis added). This court noted that
[i]n the present case, the named insured provided waterblasting services as a component part of a much larger project. The insured can be held responsible only for risks within the named insured's control.
Id. at 479. Thus, Tremco does not help the contractor much either.
We conclude that based on the language of the sub-contract and Holmes, the sub-contractor is liable only for those damages that are directly related to the work it performed on the project. If the damages were due to the negligence of another sub-contractor, then the contractor is not entitled to indemnification under Minn. Stat. § 337.05 (1992).
Because we resolve this issue on the basis of the contract language and Holmes, we do not reach respondent's argument that the Pierringer release precludes the claim.
Affirmed in part and remanded in part.