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Acadia Ins. v. Buck Construction
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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:	2000 ME 154
Docket:	Cum-99-686
Argued:	May 2, 2000	
Decided:	August 9, 2000



	[¶1]  Acadia Insurance Company appeals from the summary judgment
entered by the Superior Court (Cumberland County, Brennan, J.) in favor of
Buck Construction Company.  Acadia as a subrogee brought suit against Buck
alleging negligent construction, breach of contract and breach of warranty
based on the construction of a dam for a fire pond on the premises of
Acadia's insured, J. Paul Levesque & Sons, Incorporated.  Acadia argues that
the trial court erred when it determined that two insurance procurement
clauses in the construction contract between Buck and Levesque did not
create an ambiguity in the contract, and that the clause requiring Levesque
to carry fire insurance operated as a waiver of subrogation in this case for
any loss that resulted from fire on the premises.  We disagree and affirm the
judgment of the Superior Court.
	[¶2]  The material facts the parties do not dispute are as follows:  In
June 1994, Buck and Levesque entered into a contract for Buck to replace a
dam impounding water in a fire pond serving the sprinkler system in one of
Levesque's mills.  The contract was drawn up on a pre-printed form.  At the
bottom of each page of the four-page contract was a clause that provided,
inter alia, "[o]wner to carry fire, tornado and other necessary insurance." 
On the first page, in a section captioned "General Conditions" another
clause typed on the form provided that Buck would "[p]rovide all necessary
insurance during construction of facility, general liability, workmen's comp.,
and builders risk."
	[¶3]  The new dam was in place by the end of the summer.  On
December 19, 1994, one of Levesque's employees noticed that water was
leaking out of the dam.  Buck was notified and took steps to temporarily fix
the dam.  The pond was refilled, but started losing water again.  By
December 23, the pond had lost almost all of its water.  Buck continued its
efforts to fix the dam during this time.
	[¶4]  In the course of these events, Levesque notified Acadia, who
provided fire insurance to the mill, of the situation.  Acadia responded by
simply requesting to be apprised of the situation as it progressed.  Levesque
shut the mill down for the Christmas weekend and told Buck that it need
not work on the dam over the weekend. Levesque notified area fire
departments of the situation and posted a watchman for the weekend. 
There was also a maintenance crew and a clean-up crew in the mill over the
	[¶5]  On December 26, a fire broke out somewhere in the vicinity of
the employee break room and cafeteria.  Employees would often smoke in
this area.  Because the fire damage was so extensive, however, the exact
point of origin and cause of the fire have remained undetermined.  The loss
caused by the fire was covered by the policy issued by Acadia.  Acadia paid
Levesque for its loss and then brought a claim against Buck as Levesque's
subrogee seeking to recover the sum paid to Levesque.  The complaint
alleged negligence, breach of contract and breach of warranty.
	[¶6]  Buck filed a motion for a summary judgment.  After a hearing on
the matter, the trial court granted the motion, determining that Levesque
had waived the right of subrogation on the part of Acadia by virtue of the
insurance procurement provision requiring Levesque to carry fire insurance. 
Acadia filed a motion to alter the judgment, seeking reconsideration of the
grant of the motion.  After another hearing, the court denied the motion. 
Acadia now appeals to this Court.
	[¶7]  We review summary judgments for errors of law, viewing the
evidence in the light most favorable to the non-moving party.  See Corey v.
Norman, Hanson & Detroy, 1999 ME 196, ¶ 7, 742 A.2d 933, 937.  A
summary judgment is proper when the citations to the record found in the
parties' Rule 7(d) statements demonstrate that no genuine issue of material
fact has been generated and that a party is entitled to a judgment as a matter
of law.  See id.
	[¶8]  As an initial matter, Acadia argues that the trial court erred when
it determined that the two insurance procurement provisions in the
construction contract were neither in conflict with one another, nor created
an ambiguity in the contract.  Whether a contract is unambiguous and, if
unambiguous, its interpretation are questions of law.  See Willis Realty Assoc.
v. Cimino Constr. Co., 623 A.2d 1287, 1288 (Me. 1993).  If the language of
the contract is ambiguous, however, its interpretation is a question of fact
for the factfinder.  See id.
	[¶9]  Language is considered to be ambiguous if it is reasonably
susceptible to different interpretations.  See Guilford Transp. Indus. v. Public
Util. Comm'n, 2000 ME 31, ¶ 14, 746 A.2d 910, 914.  Generally, though,
canons of construction require that a contract be construed to give force and
effect to all of its provisions, see Levine v. Advest, Inc., 714 A.2d 649, 660
(Conn. 1998), and we will "avoid an interpretation that renders meaningless
any particular provision in the contract," SC Testing Tech., Inc. v.
Department of Envtl. Protection, 688 A.2d 421, 424 (Me. 1996).
	[¶10]  As described above, the two provisions that Acadia claims create
an ambiguity appear on the first page of the contract giving rise to the
parties' dispute in this case.  In a typed provision, the contract provides that
Buck will procure "all necessary insurance during construction of facility,
general liability, workmen's comp., and builders risk."  At the bottom of the
page, and every other page of the contract, in a pre-printed section the
contract provides "[o]wner to carry fire, tornado and other necessary
insurance."  These provisions, however, are not inconsistent.  Although both
contain the phrase "necessary insurance," the phrase is qualified in each
instance by a list.  The insurance that was to be provided by Buck was
insurance that was specific to the work itself and covered such things as
third party liability and employee injuries.  The insurance that was to be
provided by Levesque was broader and covered the whole property, as well
as covering different types of risk.
	[¶11]  It is not unusual for parties to a building contract to choose to
allocate risks associated with the construction and to divide the
responsibility for procuring the insurance against those risks.  See, e.g.,
S.S.D.W. Co. v. Brisk Waterproofing Co., 557 N.Y.S.2d 290, 291 (1990)
(builder to obtain third party liability insurance and owner to obtain property
insurance for the work site itself); Morches Lumber, Inc. v. Probst, 388
N.E.2d 284, 285 (Ind. Ct. App. 1979) (builder to carry "compensation and
liability insurance" and owner to carry fire and windstorm insurance).  In
making a similar determination regarding two separate insurance
procurement provisions in a construction contract, a New York court
concluded that they were not inconsistent and observed:
The types of insurance which the contractor was required to
provide and maintain by the agreement . . . evidence the intent
of the parties that the owner would be indemnified and held
harmless from liability to third parties. . . .  In contrast, the [pre-
printed provisions] required the owner to obtain first party
coverage for property loss in the event of damage to the building
during construction and to waive its right of subrogation in favor
of the [builders].
Trump-Equitable Fifth Ave. Co. v. H.R.H. Constr. Corp., 485 N.Y.S.2d 65, 67
(N.Y. App. Div. 1985), aff'd without decision, 66 N.Y.S.2d 779 (1985).
	[¶12]  The court did not err when it determined as a matter of law
that the insurance procurement provisions in Buck and Levesque's contract
were not inconsistent and did not create an ambiguity.  That being said, we
must determine whether the specific provision in the contract requiring
Levesque to carry fire insurance operates as a waiver of Acadia's subrogation
rights against Buck for fire loss, and therefore precludes Acadia from
bringing a suit based on an allegation of negligent performance under the
contract for damages resulting from the fire.
	[¶13]  In general, "an insured may defeat [an] insurance company's
rights of subrogation by entering into an agreement of release with the
wrongdoer before the policy is issued, or . . . after the policy is issued, but
prior to loss."  See Emery Waterhouse Co. v. Lea, 467 A.2d 986, 994 (Me.
1983); see also Willis Realty, 623 A.2d at 1288-89.  Furthermore, such
waivers do not contravene public policy.  Emery Waterhouse, 467 A.2d at
	[¶14]  In this case, the policy issued by Acadia specifically
acknowledges Levesque's power to waive recovery from other individuals
prior to the occurrence of a loss.  The risk to the insurer that it may not be
able to recover from a wrongdoer is presumably reflected in the insurance
premium.  Cf. South Tippecanoe Sch. Bldg. Corp. v. Shambaugh & Son, Inc.,
395 N.E.2d 320, 332 (Ind. Ct. App. 1979) (by expressly allowing owner to
release contractors from liability in terms of insurance policy, insurance
company accepted risk of waiver of subrogation and presumably "calculated
its premiums accordingly").
	[¶15]  The prevailing authority supports the trial court's legal
conclusion that clauses in construction contracts imposing insurance
procurement responsibility on owners operate as waivers of subrogation
against builders even for damage occasioned by the builders' negligence,
unless the contract provides otherwise.  See, e.g., Tokio Marine and Fire Ins.
Co. Ltd. v. Employers Ins. of Wausau, 786 F.2d 101, 104-05 (2nd Cir. 1986);
Housing Inv. Corp. v. Carris, 389 So. 2d 689, 689-90 (Fla. Dist. Ct. App.
1980); Tuxedo Plumbing & Heating Co. v. Lie-Nielson, 262 S.E.2d 794, 795
(Ga. 1980); Berger v. Teton Shadows Inc., 820 P.2d 176, 178 (Wyo. 1991). 
Although in some cases there is an additional provision found in the contract
reading something like the following:  "The Owner and Contractor waive all
rights against each other for damages caused by fire or other perils to the
extent covered by insurance provided under this Paragraph," South
Tippecanoe, 395 N.E.2d at 323 & 327 (noting that this waiver clause merely
buttressed argument that insurance procurement clause standing alone
acted as a waiver of subrogation by shifting the risk of loss-in this case by
fire-off of the contracting parties and onto an insurer); see also Tokio
Marine, 786 F.2d at 104, n.3, the majority of cases rely on the presence of
the insurance procurement clause alone to establish that the risk of loss has
been contracted away by the parties, see, e.g., Housing Inv., 389 So. 2d at
689-90; Tuxedo, 262 S.E.2d at 795; Morches, 388 N.E.2d at 286-87;
Weems v. Nanticoke Homes, Inc., 378 A.2d 190, 193-94 (Md. Ct. Spec. App.
1977); Berger, 820 P.2d at 178.
	[¶16]  The reasoning supporting this general conclusion is best stated
in a case that dealt with the same principle but in the context of the storage
of goods:
[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.
General Cigar Co. v. Lancaster Leaf Tobacco Co., 323 F. Supp. 931, 941
(D. Md. 1971) (emphasis added) (holding that contract provision requiring
that owner of goods provide fire insurance for goods acted as waiver of
subrogation such that insurance company could not recover against parties
responsible for the storage of the goods), quoted in Tuxedo, 262 S.E.2d at
795; Morches, 388 N.E.2d at 286; Weems, 378 A.2d at 193-94; see also
South Tippecanoe, 395 N.E.2d at 327 (noting that by shifting loss onto
insurer, contracting parties are demonstrating "'normal' business
foresight").  Put another way, if the parties contracted for the provision of
insurance, they must have done so in order to avoid both parties having to
face potential liability for the same risk.  It is economically inefficient for
both parties to insure against the same risk.  Specifically, recognizing that a
property owner can always acquire insurance such as fire insurance on its
own, courts have reasoned that the explanation for a provision requiring
such in a construction contract is an intention on the part of the parties to
relieve each other of liability and look to only one insurer to bear the risk of
fire instead.  See Housing Inv., 389 So. 2d at 690; Tuxedo, 262 S.E.2d at
795; Morches, 388 N.E.2d at 286.  Additionally, waiver of subrogation
clauses generally prevent disruption to a project created by disputes
regarding liability and allow for a project to continue without delay even
following loss or damage of property.  See Tokio Marine, 786 F.2d at 104.
	[¶17]  By agreeing to carry a particular type of insurance, an owner has
agreed to look solely to the insurer and releases the builder from
responsibility when there is loss or damage flowing from the insured risk;
because the insurer can only succeed to those rights possessed by its
insured, it has no right to recover from the builder.  See Tuxedo, 262 S.E.2d
at 795.  Thus, the trial court properly determined that by agreeing to
provide fire insurance, Levesque waived any right to recover from Buck for a
loss from fire allegedly caused by Buck.
	[¶18]  Acadia argues that this conclusion is at odds with the policy that
waivers of subrogation be clear and unequivocal.  Acadia confuses, however,
indemnification agreements between two parties with waivers of subrogation
on the part of a party's insurer.  While public policy does not favor
agreements by one party to indemnify another party for its own negligence,
see Emery Waterhouse, 467 A.2d at 993 (stating such agreements are
looked on with disfavor and "[i]t is only where the contract on its face by its
very terms clearly and unequivocally reflects a mutual intention on the part
of the parties to provide indemnity for loss caused by negligence of the party
to be indemnified that the liability for such damages will be fastened on the
indemnitor"), allocation of risk to insurers through waivers of subrogation
are encouraged by the law and serve important social goals:  encouraging
parties to anticipate risks and to procure insurance covering those risks,
thereby avoiding future litigation, and facilitating and preserving economic
relations and activity, cf. id. at 994-95 (stating with regard to a specific
release from liability to the extent of insurance coverage in a lease
agreement that thereby waived insurer subrogation rights, "[s]uch
exculpatory agreements releasing a party to the agreement from liability
caused by that party's own negligence do not contravene public policy"). 
The trial court did not conclude that Levesque must indemnify Buck for its
own negligence, rather it determined that Levesque agreed to release Buck
from liability and look solely to its insurer for loss caused by fire regardless
of the cause, thereby waiving any rights on the part of Acadia to bring suit
against Buck as its subrogee.  In other words, Levesque was not assuming
Buck's liability, rather both parties were allocating the risk of liability for a
loss to an insurer.
	[¶19]  The trial court did not err as a matter of law in either its
determination that the construction contract was not ambiguous or its
determination that the provision requiring Levesque to carry fire insurance
operated as a waiver of Acadia's subrogation rights.  Furthermore, the court's
resolution of these questions is consistent, rather than at odds, with public
policy regarding the allocation of risk by parties to a contract.  Accordingly
we affirm the summary judgment.
	The entry is:
			Judgment affirmed.

Attorney for the plaintiff: Harold Friedman, Esq. (orally) Friedman, Babcock & Gaythwaite 6 City Center P.O. Box 4726 Portland, Maine 04112 Attorneys for the defendant: Mark G. Lavoie, Esq. Russell B. Pierce, Esq. (orally) Norman, Hanson & DeTroy 415 Congress St. P.O. Box 4600 Portland, Maine 04112