                                                                                                                           Opinions of the United
2009 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-23-2009

St. Paul Fire and Ma v. Turner Constr Co
Precedential or Non-Precedential: Non-Precedential

Docket No. 08-2292




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                                                            NOT PRECEDENTIAL

                    UNITED STATES COURT OF APPEALS
                         FOR THE THIRD CIRCUIT


                                  No. 08-2292


            ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
                     as subrogee of Brandywine Cira, L.P.,

                                            Appellant

                                       v.

                    TURNER CONSTRUCTION COMPANY




                   Appeal from the United States District Court
                     for the Eastern District of Pennsylvania
                      (D.C. Civil Action No. 2-07-cv-00270)
                  District Judge: Honorable Eduardo C. Robreno


                   Submitted Under Third Circuit LAR 34.1(a)
                               January 27, 2009

        Before: SCIRICA, Chief Judge, AMBRO, and SMITH, Circuit Judges

                         (Opinion filed March 23, 2009 )




                                   OPINION


AMBRO, Circuit Judge
       Brandywine Cira L.P. entered into a Construction Management Services

Agreement with Turner Construction Company in 2003, according to which Turner

agreed to act as construction manager for the building of Cira Centre, a 28-story Cesar

Pelli-designed office tower in Philadelphia which opened in late 2005. During

construction, a flow meter installed by a subcontractor of Turner detached from a pipe,

causing water damage to the building. St. Paul Fire and Marine Insurance Company (“St.

Paul”), which had sold property insurance to Cira, paid it $5 million to cover the

damages. St. Paul then sought reimbursement from Turner, and it refused. With

settlement not obtainable, St. Paul filed in federal court for a declaratory judgment that

the agreement between Cira and Turner permits St. Paul, as subrogee of Cira, to recover

its $5 million outlay from Turner. The parties agreed on the facts and that Pennsylvania

law governs the interpretation of the agreement. On summary judgment, the District

Court ruled against St. Paul, and it timely appealed. We affirm.

       The District Court had diversity jurisdiction under 28 U.S.C. § 1332. We have

appellate jurisdiction under 28 U.S.C. § 1291. We review an order granting summary

judgment de novo, applying the standard that applies in the District Court. Gonzalez v.

AMR, 549 F.3d 219, 223 (3d Cir. 2008). Summary judgment is appropriate if there is no

genuine issue of material fact and the moving party is entitled to judgment as a matter of

law. Id.




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       Subrogation permits an insurer that has paid its insured to assert the insured’s

rights against the tortfeasor and thereby recover its payment. Universal Underwriters v.

Kacin, 916 A.2d 686, 692 (Pa. Super. 2007). On a construction project, the contractor

risks liability for negligence and the owner risks damage to its property. The contractor

purchases liability insurance and the owner purchases property insurance. If the

contractor damages the owner’s property, the owner or its property insurer (as subrogee)

may sue the contractor for negligence. To prevent such litigation, an owner may waive its

rights against the contractor for property damage to the extent covered by the owner’s

property insurance. See Commercial Union Insurance v. Bituminous Casualty, 851 F.2d

98, 101 (3d Cir. 1988); Kacin, 916 A.2d at 691. This assigns losses from property

damage caused by the contractor’s negligence exclusively to the owner’s property insurer

(again, to the extent it pays the owner for damages incurred).

       The argument against permitting such waivers is that it makes the contractor less

vigilant in preventing property damage. 2 Justin Sweet et al., Sweet on Construction

Industry Contracts: Major AIA Documents § 22.04[M] (4th ed. 1999). Despite this

argument, the American Institute of Architects, which drafted the form of waiver in this

case, has made “strenuous efforts” to convince courts to enforce such waivers, and

Pennsylvania courts have agreed. Id.; Kacin, 916 A.2d at 691.




                                             3
       The waiver contained in § 13.2.9 of the construction contract before us is an AIA

standard term.1 It states that “[t]he Owner [Cira] and Construction Manager [Turner]

waive all rights against . . . each other . . . for damages caused by fire or other causes of

loss to the extent covered by property insurance obtained pursuant to this paragraph 13.2

or other property insurance applicable to the Work . . . .” This is simple enough: if the

owner is covered by property insurance, neither it nor its insurer standing in its shoes can

recover from the contractor to the extent of that coverage. But St. Paul argues that the

waiver is in tension with this sentence—apparently not standard, thus called a custom

term—in § 13.1: “Nothing contained in the insurance requirements of this Article 13 is to

be construed as limiting the extent of [Turner’s] responsibility for payment of damages

resulting from its operations under this Contract.”

       In interpreting contracts, Pennsylvania courts strive to identify the intent of the

parties. Steuart v. McChesney, 444 A.2d 659, 661 (Pa. 1982). The object is not their

inner, subjective intent, but rather the intent a reasonable person would apprehend in

considering the parties’ behaviors. See Ingrassia Construction v. Walsh, 486 A.2d 478,

483 (Pa. Super. 1984). Courts initially try to resolve disputes relating to a written contract

(agreed to be the final expression of the intent of the parties) without resort to evidence

about prior negotiations. See Steuart, 444 A.2d at 662–63; E. Allan Farnsworth,




   1
     The waiver is substantively identical to language in AIA contracts A201-1987
§ 11.3.7 and A201-1997 § 11.4.7.

                                               4
Contracts § 7.12 (3d ed. 1999) (“Farnsworth”). Regardless, they may consider other

circumstances relevant to the contract, such as industry practice. See Mellon Bank v.

Aetna, 619 F.2d 1001, 1011 & n. 12 (3d Cir. 1980). (Although not binding authority in

Pennsylvania, a New Jersey court stated the rationale for considering surrounding

circumstances well when it wrote that “since almost all language is susceptible of more

than one reasonable construction, the attendant circumstances are always relevant in

ascertaining the intended meaning.” Deerhurst Estates v. Meadow Homes, 165 A.2d 543,

551 (N.J. Super. Ct. App. Div. 1961).)

       We believe that the contract here waives subrogation, as it is not reasonable that

people seeking to limit the waiver would have done so in the manner St. Paul contends

the parties did. The contextual information that we find determinative is that the waiver

has been a part of standard AIA contracts (hence, industry practice) for at least 20 years

and courts have litigated related issues since at least the 1970s. See, e.g., E. C. Long v.

Brennan's of Atlanta, 252 S.E.2d 642 (Ga. Ct. App. 1979). Pennsylvania courts have

repeatedly enforced the waiver in the face of varied objections. Jalapenos v. GRC Gen.

Contractor, 939 A.2d 925 (Pa. Super. 2007) (waiver enforceable despite apparent conflict

with indemnification provision and inability of owner to obtain compensation due to its

failure to buy insurance as required); cf. Kacin, 916 A.2d 686 (waiver enforceable despite

lack of notice to or consent of insurer and apparent conflict with contractors’ warranties

as to materials and workmanship); Penn Avenue Place v. Century Steel Erectors, 798



                                              5
A.2d 256 (Pa. Super. 2002) (waiver enforceable despite public policy prohibiting

exculpation of liability for negligence). These courts do so “[b]ecause it is economically

inefficient for both parties to insure against the same risk, the parties’ inclusion of an

insurance procurement clause indicates that the parties intended to avoid both parties

having to face potential liability for the same risk.” Jalapenos, 939 A.2d at 930 (internal

quotation marks omitted).

       We do not think a reasonable person would read the preservation-of-liability

provision to nullify the waiver. The former does not refer specifically to the waiver and

the drafters buried it at the end of a separate section. In light of Pennsylvania’s history of

vigorous enforcement of the waiver, a reasonable person would assume that if the parties

wished to nullify it, they would have amended the text of the waiver itself, not included it

at all, or included a statement of nullification that referred to it specifically, appeared with

it in the same section, or appeared in a stand-alone section. Although Pennsylvania courts

generally give more weight to custom terms than to standard terms, cf. Woytek v.

Benjamin Coal, 446 A.2d 914, 917 (Pa. Super. 1982), the custom term here needs to stand

out as a reasonable signal of the parties’ intent to override the waiver, and it does not.

(An example of such an attempted signal would be what is known as a “super-override”

provision, where the sentence in § 13.1 would stand out, typically at the beginning of a

section and with an appropriate lead, such as “Notwithstanding anything contained in this

Section 13 to the contrary, nothing contained in the insurance requirements of this Article



                                               6
13 is to be construed as limiting the extent of the Construction Manager’s responsibility

for payment of damages resulting from its operations under this Contract.” Though this

wording would come closer to the conflict St. Paul argues to exist, it too falls short; the

super-override would apply only to “the insurance requirements of this Article 13,” and

the waiver in § 13.2.9 is one of liability. Thus, we cannot conclude that the custom

sentence amidst § 13.1 supervenes the waiver of liability in § 13.2.9.

                                      *   *   *   *   *

       We thus affirm the order of the District Court.




                                              7
