may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
Brownlee & Hayes, Inc.,
Delta T Corporation,
a foreign corporation,
Rosin Americas Limited,
an alien corporation,
Filed June 23, 1998
Faribault County District Court
File No. CX-96-288
Robert J. McGuire, Andrea E. Reisbord, Cousineau, McGuire & Anderson, Chartered, 600 Travelers Express Tower, 1550 Utica Avenue South, Minneapolis, MN 55416-5318 (for respondent Brownlee & Hayes, Inc.)
Diana Young Morrissey, Deborah J. Mackay, Faegre & Benson LLP, 2200 Norwest Center, 90 South Seventh Street, Minneapolis, MN 55402-3901 (for respondent Delta T Corp.)
Richard P. Mahoney, Victor E. Lund, Mahoney, Dougherty and Mahoney, P.A., 801 Park Avenue, Minneapolis, MN 55404 (for respondent Rosin Americas Ltd.)
Considered and decided by Randall, Presiding Judge, Kalitowski, Judge, and Schultz, Judge.[*]
Appellant challenges the district court's summary judgment award to all respondents in this subrogation action. We affirm.
7.3.1 Unless otherwise provided under this Agreement, the Owner shall purchase and maintain * * * property insurance upon the Work at the site to the full insurable value thereof. Property insurance shall include interests of the Owner[,] the Design/Builder, and their respective contractors and subcontractors in the Work. It shall insure against perils of fire and extended coverage and shall include all risk insurance for physical loss or damage including, without duplication of coverage, theft, vandalism, and malicious mischief. * * *
* * * *
7.3.6 The Owner and Design/Builder waive all rights against each other and the contractors, subcontractors, agents and employees, each of the other, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 7.3 or other property insurance applicable to-the Work, except such rights as they may have to proceeds of such insurance held by the Owner as trustee. The Owner or Design/Builder, as appropriate, shall require from contractors and subcontractors by appropriate agreements, written where legally required for validity, similar waivers each in favor of the other parties enumerated in this Paragraph 7.3. The policies shall be endorsed to include such waivers of subrogation.
* * * *
Appellant Old Republic Insurance Company (Old Republic) issued an insurance policy to Corn Plus providing coverage for property damage and a separate policy for business-income loss. B&H and Delta T were added to the property damage policy as additional insureds from September 1, 1994 through September 1, 1995.
Old Republic paid an insurance claim to Corn Plus after an October 14, 1995, fire in the corn ethanol plant. After Old Republic paid Corn Plus's claims for these losses, it brought this subrogation action against B&H, Delta T, and RAL, asserting that the fire resulted from defects in the plant's flash dryer and claiming negligence, strict liability, and breach of warranty. Old Republic sought to recover $1,510,247.39 in property loss payments and $1,553,852 in business-income loss payments.
Respondents brought summary judgment motions based on the waiver provision in the construction contracts. The district court granted the motions, ruling that at the time of the fire, the work had not been completed, and final payment had not been made; therefore the waiver was still in effect. The district court also ruled that RAL was a subcontractor of B&H and thereby covered under the waiver.
"[U]pon payment of a loss, an insurer is entitled to pursue those rights which the insured may have against a third party * * * ." Great Northern Oil Co. v. St. Paul Fire & Marine Ins. Co., 291 Minn. 97, 99, 189 N.W.2d 404, 406 (Minn. 1971). An insurer is entitled, however, to no more rights in an action for subrogation than those held by the insured. Id. An insured may defeat an insurer's right of subrogation by entering into an agreement of release with a third party before the policy is issued. Id. at 99-100, 189 N.W.2d at 406-07.
RAL's Completion of Work and Final Payment
Old Republic argues that the waiver provision in the B&H and Delta T contracts applies only to losses occurring during the construction contract. Old Republic agrees that a construction contract is completed when the contract terms are fulfilled and final payment is made. Old Republic asserts, however, that, as to RAL, the district court erred in ruling that final payment had not made by the time of the fire and that there were items that remained incomplete at the time of the fire. Old Republic insists that, at a minimum, genuine issues of material facts exist as to these issues.
Old Republic argues that any work RAL was performing at the time of the October 1995 fire resulted from modifications made necessary by a January 1995 fire in RAL's flash dryer. Old Republic also asserts that any remaining monies owed to RAL were owed by B&H because Corn Plus did not have a contract with RAL. Old Republic insists that Corn Plus had no control over when B&H paid RAL.
We find no genuine issues of material fact. Both RAL and Old Republic agree that RAL had not completed the modified equipment for the plant and agree that RAL
had not received payment at the time of October fire. There is also no dispute that an earlier fire at the plant necessitated the modified equipment.
Although RAL was working on only the modified equipment, this equipment was required by its contract with B&H. See Breza v. Thaldorf, 276 Minn. 180, 182, 149 N.W.2d 276, 279 (1967) (stating contract's original consideration attaches to and supports a modified contract). Further, as a subcontractor to B&H, RAL was included in B&H's contract, which provided a damage waiver for the contractor and its subcontractors. As RAL points out, and as Old Republic states in its reply brief that it no longer disputes, Delta T and B&H had not completed their work or received final payment at the time of the fire. Thus, we conclude the waiver clause in the contracts was in effect at the time of the fire. Additionally, because B&H had not received final payment from Corn Plus at the time of the fire, the fact that Corn Plus had no control over B&H's payment to RAL does not change our analysis. The district court did not err in concluding that RAL had not completed work and had not received final payment at the time of the October 1995 fire.
II. RAL as Subcontractor
Old Republic argues that RAL was not a subcontractor, and, thus, was not protected by the waiver provision. Old Republic insists that determining whether RAL was a subcontractor rather than a mere supplier or materialman is a fact question. Old Republic points out that RAL was hired by B&H rather than Corn Plus, and RAL was not a party to the contract or listed on the insurance policy as a subcontractor.
In Pittsburg Plate-Glass, the supreme court determined that a company that agreed to make and furnish windows and doors to a contractor was subcontractor rather than a materialman. Pittsburg Plate-Glass Co. v. Sisters of the Sorrowful Mother, 83 Minn. 29, 31-32, 85 N.W. 829, 830 (1901). The court determined that the company manufactured items only to fill specific contracts and that this work was an essential part of the whole work. Id. at 31, 85 N.W.2d at 830. In Weyerhaeuser, the supreme court concluded that a company that provided specially made doors to a contractor was a subcontractor and not a mere materialman. Weyerhaeuser Co. v. Twin City Millwork Co., 291 Minn. 293, 294, 191 N.W.2d 401, 402 (Minn. 1971). The court noted that the doors had to be custom-fabricated and that the doors were a significant part of the construction. Id. at 301, 191 N.W.2d at 406.
Initially, we agree that RAL has designed and fabricated other dryers. In its proposal to B&H, RAL notes that its experience includes "[m]ore than 20 flash dryers in the stillage industry" and "[m]ore than 1,200 flash dryers worldwide." In another section of the proposal, RAL indicates that it has developed more than 1,500 flash dryers. It further states that it was offering "a proven design."
Despite Old Republic's contentions, however, the record shows that the dryer and cooling system were designed pursuant to specific requirements of B&H. The dryer and cooling/conveying system are significant, necessary equipment for the ethanol plant. Although RAL designed and built other flash dryers, there is nothing to indicate that flash dryers are "generic" and that RAL sells such equipment without specifically tailoring it to the particular needs of customers. Also, there is no material issue of fact as to whether RAL is a subcontractor. The district court applied existing case law and made a legal determination that RAL acted as a subcontractor. The district court did not err in this determination.
III. Property-Loss Waiver Provision Applied to Business-Income Loss Claims
Old Republic argues that the district court erred by not addressing the fact that the waiver provision does not cover business-income loss. Old Republic points out that although the B&H and Delta T contracts both state that the Owner "may purchase and maintain" loss-of-use insurance, and waives actions based on payments made under such a policy, the provision does not state that the Owner "may purchase or maintain" loss-of-use insurance. Old Republic asserts that any loss-of-use insurance must have been purchased specifically because of, or pursuant to, this provision. Old Republic insists that the policy under which it paid the claims for Corn Plus for business-income loss was purchased independently of the provision and was not covered by the waiver.
Despite Old Republic's contentions, the district court impliedly concluded that the waiver provisions covered both business-income loss and property loss. Further, even if Corn Plus purchased the policy covering business loss prior to entering into contracts with Delta T and B&H, it is clear that Corn Plus held a policy for business-loss coverage at the time of the fire. There is also no question that Corn Plus contracted with Delta T and B&H to waive any rights of action against them or their subcontractors as a result of loss of use of the property. An insurer asserting subrogation rights has no greater rights than the insured. Great Northern Oil Co., 291 Minn. at 99, 189 N.W.2d at 406. Thus, because Corn Plus has no right of action against respondents, Old Republic has no right to recover from them in a subrogation action. Therefore, the district court did not err by implicitly holding that a contracted-for waiver covered the business-income losses.
Old Republic argues, in the alternative, that this court should hold that the scope of the waiver provisions is ambiguous as a matter of law and hold that a jury should determine the meaning of the provisions.
The construction and effect of unambiguous contracts are legal questions. The construction of ambiguous contracts is a question of fact for the jury. Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979). Determining whether a contract is ambiguous is a legal question. Republic Nat'l Life Ins. Co. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn. 1979). If a contract could have more than one construction, it is ambiguous. Id. When interpreting a contract, "the language found in a contract is to be given its plain and ordinary meaning." Turner, 276 N.W.2d at 67. "The fundamental approach to construing contracts is to allow the intent of the parties to prevail." Id. If there are ambiguous terms or the intent is doubtful, the contract must be construed against the drafter. Id.
Old Republic points to Employer's Mut. Cas. Co. v. A.C.C.T., Inc., 568 N.W.2d 530 (Minn. App. 1997), review granted (Minn. Nov. 18, 1997), to support its contention that the waiver's scope is ambiguous. In Employers Mutual, this court affirmed a district court's decision denying summary judgment to a contractor because the word "work" in the contract was ambiguous as a matter of law. Id. at 535. In that case, work was defined as
"the construction and services required by the Contract Documents, whether completed or partially completed, and includes all other labor, materials, equipment and services provided or to be provided by the Contractor to fulfill the Contractor's obligations. The Work may constitute the whole or a part of the Project."
Id. (quoting contract) (emphasis added). This court determined that the definition of work was ambiguous because it did not resolve whether the waiver exonerated the contractor "'from damages covered by property insurance covering all areas worked in by the contractor at any time during the two-year contract'" or "'only [from damages] to the "work" being performed at the time the fire broke out.'" Id. (quoting district court).
Old Republic insists that similar to Employers Mutual, it is ambiguous in this case whether "work" includes all areas of the plant that respondents worked on during the project or only the work they were performing at the time of the fire. Old Republic insists that Employers Mutual indicated that the waiver provision might only apply to work still being performed at the time of the fire and that Old Republic is similarly entitled to have a fact-finder interpret the definition of "work."
Old Republic did not raise the issue of ambiguity in the contract to the district court. This court generally only considers issues presented to and considered by the district court. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988). Because this court released the Employers Mutual decision after summary judgment was granted in this case, we exercise our discretion to review this issue. See Minn. R. Civ. App. P. 103.04 (stating appellate courts may address any issue as justice requires).
The definition of work is not ambiguous in either the B&H or Delta T contract. "Work" is defined in the B&H contract as
the completed construction designed under the Project and includes labor necessary to produce such construction, and materials and equipment incorporated or to be incorporated in such construction.
The Delta T contract defines "work" as "the complete process design and equipment under the Project." These definitions are distinguishable from the definition of work in Employers Mutual, where the contract stated that "[t]he work may constitute the whole or a part of the Project." As B&H notes, the contracts in this case were for construction of the entire ethanol plant.
[ ]*Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.
[ ]1 These provisions are identical to those in the Delta T contract with the exception that "Design/Builder" is replaced by "Process Equipment Supplier" in the Delta T contract.
[ ] 2 In its original brief, Old Republic made identical claims against B&H and Delta T. In its reply brief, however, Old Republic states that it no longer asserts that there are genuine issues of fact as to whether Delta T and B&H completed their work and received final payment before the fire.