(2007), 144 ohio misc.2d 35, 878 n.e.2d 84 i 1 paee ......z ttuner first attempted to present a...
TRANSCRIPT
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IN THE SUPREME COURT OF OHIO
THE SUMMIT COUNTRY DAY SCHOOL,
Plaintiff,
V.
REPUBLIC-FRANKLIN INSURANCE CO.
Defendant.
08-0916On Appeal from theHamilton County CourtOf Appeals, First Appellate District
Court of AppealsCase No. C0700044
MEMORANDUM IN SUPPORT OF JURISDICTION OFAPPELLANT REPUBLIC FRANKLIN INSURANCE CO.
Mark A. Vander Laan, Esq. (0013297)
Timothy S. Mangan, Esq. (0069287)
DINSMORE & SHOHL, LLP
1900 Chemed Center255 East Fifth StreetCincinnati, OH 45202Phone: (513) 977-8200Fax: (513) [email protected]
Of Counsel:
Lon Berk, Esq. (pro hac vice)
Michael S. Levine, Esq. (pro hac vice)
HUNTON & WILLIAMS, LLP
1751 Pinnacle DriveMcLean, VA 22102Phone: (703) 714-7400Fax: (703) [email protected]
Counselfor Appellant Republic Franklin Insurance Company
Pierre H. Bergeron, Esq. (0071402)David A. Pepper, Esq. (0071739)SQUIRE, SANDERS & DEMPSEY, LLP312 Walnut Street, Suite 3500Cincinnati, OH 45202Phone: (513) 361-1200Fax: (513) 361-1201pbergeranAssd.comdpepperna,ssd.com
Counselfor Appellee Turner Construction Company
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I. TABLE OF CONTENTS, ASSIGNMENTS OF ERROR, AND AUTHORITIES
Paee
1. TABLE OF CONTENTS, ASSIGNMENTS OF ERROR, AND AUTHORITIES .............i
II. THIS CASE IS OF PUBLIC OR GREAT GENERAL INTEREST ................................... I
Authorities:
Ohio Revised Code 2305.31 ......................................................................................1, 2
Dayton Power and Light Company v. Enerfab, Inc., No. 21512,2007 WL 293188 (Ohio Ct. App. 2 Dist. Feb. 2, 2007) ................................................2
Liberty Mutual Ins. Group v. Travelers Prop. & Cas. Co., No. 80560,2002 WL 1933244 (Ohio Ct. App. 8 Dist. Aug. 22, 2002) ...........................................2
III. STATEMENT OF THE CASE AND FACTS ....................................................................3
Authorities:
Ohio Revised Code 2305.31 ......................................................................................4, 5
IV. ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW ...........................................5
Proposition No. 1: R.C. 2305.31 prohibits an agreement whereby a negligentcontractor obtains indemnity for damages through an agreement to pursue andreceive the property owner's insurance policies ..................................................................5
Authorities•
Ohio Revised Code 2305.31 ............................................................................5, 6, 7
Liberty Mutual Ins. Group v. 7ravelers Prop. & Cas. Co., No. 80560,2002 WL 1933244 (Ohio Ct. App. 8 Dist. Aug. 22, 2002), appeal notallowed, 98 Ohio St.3d 1410, 781 N.E.2d 1019 (2003) ..........................................7
Kendall v. U.S. Dismantling Co. (1985), 20 Ohio St.3d 61, 485 N.E.2d1047 ......................................................................................................................... 7
Proposition of Law No. 2: On a motion to dismiss, the trial court cannot inferfacts adverse to the moving party .. ......................................................................................8
Authorities:
Ohio Civil Rule 12(B)(6) .........................................................................................8
Vail v. The Plain Dealer Publishing Co. (1995), 72 Ohio St.3d 279, 649N.E.2d 189 ............................................................................................................... 8
Danis Bldg. Constr. Co. v. Employers Fire Ins. Co., No. 19264, 2002WL 31641229 (Ohio Ct. App. Nov. 22, 2002) ........................................................8
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I. TABLE OF CONTENTS, ASSIGNMENTS OF ERROR, AND AUTHORITIES(Continued)
Paee
Brzeczek v. Standard Oil Co. (1982), 4 Ohio App.3d 209, 212, 447 N.E.2d760 ........................................................................................................................... 8
Proposition of Law No. 3: A waiver of subrogation clause only applies andextends to the extent of the express terms of the waiver provision .....................................9
Proposition of Law No. 4: The Court of Appeals ignored the plain language ofthe CMA ............................................................................................................................ 10
Authorities•
Brakefre, Inc. v. Overbeck (2007), 144 Ohio Misc.2d 35, 878 N.E.2d 84........... I 1
V. CONCLUSION .................................................................................................................12
CERTIFICATE OF SERVICE ......................................................................................................13
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II. THIS CASE IS OF PUBLIC OR GREAT GENERAL INTEREST
This is a matter of first impression before the Court. At issue is the enforceability of and
policy underlying R.C.2305.31, a statute prohibiting any agreement in connection with a
construction project that purports to indemnify a promisee's "independent contractors" against
liability for damages arising out of damage to property caused by the negligence of that
independent contractor. According to R.C. 2305.31, such agreements are against public policy
and void. There is now a question in the State of Ohio as to how R.C. 2305.31 will be applied.
In this case, a school building owned by Plaintiff Sununit Country Day School
("Summit") collapsed due to the construction activities of Turner Construction Company
("Turner"). Thereafter, Summit and Turner entered into an agreement whereby Turner paid
Summit for all losses relating to the collapse. In exchange, Summit agreed that Turner would
continue construction work on the site and that Sunnnit would give Turner the proceeds of any
recoveries from Summit's insurers. Sununit then commenced this action to obtain an insurance
recovery from its insurer, Republic Franklin, to be remitted to Turner, the negligent contractor.
Republic Franklin brought a third-party complaint against Turner for contribution and
indemnity_ However, the First District Court of Appeals affirmed the dismissal of the third-party
complaint against Tumer based on a waiver of subrogation clause in the construction agreement.
(Exhibit A, March 26, 2008 Judgment Entry)
As it now stands under the Court of Appeals' decision, Summit is permitted to pursue
insurance proceeds from Republic Franklin that Summit will then pay to indemnify Turner, the
negligent contractor, but Republic Franklin is barred from pursuing Turner. The result is that
Turner is being indemnified for its own negligence by virtue of an agreement or understanding in
or collateral to a construction contract. It follows that the First Appellate District's Judgment
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Entry is directly contrary to the language and policy underlying R.C. 2305.31. If allowed to
stand, the decision below would permit contractors and project owners to contractually
circumvent R.C.2305.31 and allow contractors to obtain indemnification for their own
negligence. It would also permit negligent parties, such as Turner, to obtain such recoveries, not
under their own insurance, but from and under insurance policies issued to property owners.
The decision below is also directly at odds with decisions from the Second and Eighth
Appellate Districts. In Dayton Power and Light Company v. Enerfab, Inc., No. 21512, 2007
WL 293188 (Ohio Ct. App. 2 Dist. Feb. 2, 2007) , the Second Appellate District held that
R.C. 2305.31 prohibits indemnity agreements in construction-related contracts, as did the Eighth
Appellate District in Liberty Mutual Ins. Group v. Travelers Prop. & Cas. Co., No. 80560, 2002
WL 1933244 (Ohio Ct. App. 8 Dist. Aug. 22, 2002) at 3-4. There is thus a conflict between
Appellate Districts regarding the application of R.C. 2305.31, requiring resolution by this Court.
Additionally, the First Appellate District applied an incorrect standard for the
determination of a motion to dismiss. In order to apply the subrogation clauses in the underlying
construction agreement between Turner and Summit, certain preliminary factual issues such as
the cause of the collapse and the scope of the policy coverage and loss must be determined. The
Court of Appeals improperly resolved such inferences in favor of the moving party, Turner.
Rather than resolving all reasonable inferences in favor of the opposing party (Republic
Franklin), the court made inferences that supported the moving party, and failed to accept the
allegations of the third-party coinplaint as true.
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The Court of Appeals also misinterpreted the waiver of subrogation clause by misreading
certain contract provisions, ignoring language in the contract, replacing it with other, and directly
contradicting the rule that language in a contract is to be interpreted as written. Under these
circumstances, this is a matter of public or great general interest and the Court should grant
jurisdiction.
III. STATEMENT OF THE CASE AND FACTS
This action pertains to the collapse of the East Wing of the Summit Country Day School
in Cincinnati during construction on the site as a result of negligent conduct by the construction
manager, Turner Construction Company. After the collapse, on February 20, 2004, Summit
entered into a contract with Turner "the key purpose" of which "is to define the terms pursuant to
which Turner will continue to perform on the [construction] project...."t Although this contract
provided that Turner would fully compensate Summit for all losses relating to the collapse,
whether covered or uncovered by insurance, it included the proviso that if Summit were to
recover any insurance proceeds, those proceeds would be paid over to Turner. This agreement
therefore permitted Turner to recover under Sununit's insurance, not Turner's, for amounts
Turner paid as a result of its own negligence in connection with the construction project.
Appellant Republic Franklin Insurance Co. ("Republic Franklin") had issued a first party
property insurance policy covering certain property at that site. This policy was separate from
the insurance Summit obtained to cover Turner's construction activities. After the collapse,
Republic Franklin immediately began an investigation of the loss to determine whether there was
coverage for the property on the site that Republic Franklin had insured. On January 23, 2004,
'T.d. 49, Ex. G, Turner Agreetnent at 2.
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Republic Franklin paid Summit $250,000.00, as a partial payment, and subsequently offered an
additional $500,000.00. Summit did not accept that amount, entering into the Turner Agreement
instead.
Thereafter, although Sunnnit had been fully compensated for its losses by Turner,
Sunnnit commenced this litigation against Republic Franklin, seeking the recovery of additional
insurance proceeds to pay over to Turner.z Republic Franklin in turn filed a third-party
complaint against Turner seeking to recover from Turner any amounts Summit might recover
and pay to Tumer.3 The third-party complaint against Turner was based in part on R.C. 2305.31
and Republic Franklin's right of subrogation against Tumer.4
The trial court, without opinion, granted Turner's motion to dismiss,5 and the Court of
Appeals incorrectly affirmed. (Exhibit A) The result of the dismissal of the third-party
complaint against Turner is that, if Summit's claims are successful, Turner will be paid under an
insurance policy issued to Summit, not to 'turner, indemnifying Tumer for its negligence. This
is directly contrary to R.C. 2305.31.
Not only did the Court of Appeals fail to apply R.C. 2305.31, but it misinterpreted other
provisions in the construction agreement between Summit and Turrter as to the waiver of
subrogation. That agreement provides, in pertinent part:
Z Ttuner first attempted to present a claim under the Republic Franklin policy. When Republic rejected thatclaim on grounds that Turner was not an insured under the policy, Summit presented the claim on Turner's behalf.[T.d. 36 ¶ 18.1 As this was decided on Turner's motion to dismiss, the allegations of Republic Franklin's Third-Party Complaint must be accepted as true.
3 Republic Franklin initially sought to dismiss Summit's claim because Tumer is the real-party in interest.That motion however was denied. As it is an interlocutory order, it was not appealed and is therefore not at issue.
° T.d. 36.
5 T.d. 57.
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11.3.5. If during the Project construction period the Owner insuresproperties ... adjoining or adjacent to the site by property insurance underpolicies separate from those insuring the Project ... the Owner shall waiveall rights in accordance with the terms of Subparagraph 11.3.7 fordamages caused by fire or other perils covered by this separate propertyinsurance....
and
11.3.7. Waivers of Subrogation. The Owner and Contractor waive allrights against (1) each other ... for damages caused by fire or other perilsto the extent covered by property insurance obtained pursuant to thisParagraph 11.3 or other property insurance applicable to the Work....6
The Court of Appeals upheld Turner's motion to dismiss based on the erroneous finding that
11.3.5 waived claims against Turner, even though the collapsed building was not "adjoining or
adjacent to the site," but instead was on the site. As noted above, the construction agreement
between Turner and Sununit identifies 2161 Grandin Road as the construction site, which is the
same premises on which Republic Franklin insured property.7 Thus, Turrter's negligence caused
damage to insured property on the site, not off it, and the waiver provision was, accordingly, not
triggered.s
IV. ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW.
Proposition No. 1: R.C. 2305.31 prohibits an agreement whereby a negligentcontractor obtains indemnity for damages through an agreement to pursueand receive the property owner's insurance policies.
The Court of Appeals erred by failing to follow R.C. 2305.31, which expressly prohibits
contracts or agreements to indemnify negligent contractors for liability resulting from their own
negligence. For purposes of Turner's motion to dismiss, it is indisputable that Turner's
6 T.d. 49, Ex. D.
' T.d. 49, Ex. D; CMA at 0078.
e Turner also relied upon a clause waiving claims for "loss of use." Brief of the Appellee at 8. The Court ofAppeals did not reach this argument. In any event, the same errors would be made that are discussed in the textwere that clause to be relied upon as it would result in a violation of R.C. 2305.31 and would involve factualinferences in favor of the moving party, not the claimant.
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negligence caused the January 18, 2004 collapse as alleged in the third-party complaint.
Moreover, the Tumer Agreement by its terms, establishes that the amounts Tumer pays were
compensation to Summit for losses resulting from the January 18 collapse. Finally, under this
agreement, Summit was to reimburse Turner for these amounts out of any insurance proceeds
that Summit might recover. The net effect therefore is an agreement indemnifying Turner for
amounts Turner paid as compensation for its own negligence under an agreement other than
Turner's own insurance policy. That plainly violates R.C. 2305.31.
R.C. 2305.31 provides in pertinent part:
A[n] ... agreement ... in connection with or collateral to, a contract oragreement relative to the ... construction ... of a building ... including ...excavating connected therewith, pursuant to which contract or agreementthe promisee ... has hired the promisor to perform work, purporting toindemnify the promisee ... against liability for ... damage to propertyinitiated or proximately caused by or resulting from the negligence of thepromisee, its independent contractors, agents, employees, or indemniteesis against public policy and is void. Nothing in this section shall prohibitany person from purchasing insurance from an insurance companyauthorized to do business in the state of Ohio for his own protection....
One month and two days after the collapse, on February 20, 2004, Summit and Turner entered
into the Turner Agreement, whereby 'furner agreed to "compensate" Summit for all loss
resulting from the collapse. Summit, in turn, agreed to pay Turner for these amounts out of
proceeds from an insurance policy that was purchased by Summit, not by Turner for its own
protection.
The Tumer Agreement provides in pertinent part:
H. Summit Collapse-Related Expenses and Loss.
a. Turner shall compensate Summit for all losses and expensesit has incurred or shall incur in any way arising out of orrelating to the result of the Collapse....
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The Turner Agreement continues, obligating Summit to pay over to Tumer any recovered
insurance proceeds, thereby indemnifying Turner for its own negligence 9
These provisions operate to permit a negligent contractor to escape liability for damage
caused by its own negligence or that of its subcontractor in violation of R.C. 2305.31.10 Here,
Tumer was an independent contractor of Summit's. Turrter, and/or its subcontractors
undermined the foundation of the Upper School causing it to collapse. Tumer then agreed to
"compensate Summit for all losses and expenses" that result from the collapse, as the quid pro
quo for Tumer's continued employment as Summit's construction manager.tt
The Turner Agreement thus falls squarely within the scope of R.C.2305.31. The
Agreement was negotiated and entered into as an agreement collateral to a construction contract.
Further, by its express terms, the promisee (Summit), agrees to indemnify its independent
contractor (Tumer) for amounts paid by Turner as a direct result of Turtter's own negligence.12
Consequently, unless Republic Franklin is permitted to pursue Turner for its negligence, Turner
and Summit will have circumvented R.C. 2305.31, entering into an agreement or understanding
that permits Tumer to be indemnified for its negligence out of an insurance policy that Turner
did not purchase. The Court of Appeals decision to the contrary was error.
T.d. 49, Ex. G.
10 See, e.g., Liberty Mutual Ins. Group v. Travelers Prop. & Cas. Co., No. 80560, 2002 WL 1933244 (OhioCt. App. 8 Dist. Aug. 22, 2002) at 3-4 ("R.C. 2305.31 prohibits indemnity agreements, in construction-related
contracts described therein, whereby the promisor agrees to indemnify the promisee for damages caused by orresulting from the negligence of the promisee, regardless whether such negligence is sole or concurrent."), appcalnot allowed, 98 Ohio St.3d 1410, 781 N.E.2d 1019 ( 2003), quoting Kendall v. U.S. Dismantling Co. (1985), 20 OhioSt.3d 61, 485 N.E.2d 1047.
t t'f.d. 49, Ex. G.
12 The Court of Appeals erroneously contended that R.C. 2305.31 does not apply because it provides that thedamages must "result[] from the negligence of the promisee." Exhibit A at 4. But this is wrong: the statute providesthat the negligence may be caused by the promisee or its independent contractors. Turner was au independentcontractor of the promisee and its negligence is therefore within the scope of the statute.
7
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Proposition of Law No. 2: On a motion to dismiss, the trial court cannotinfer facts adverse to the moving party.
The Court of Appeals also applied an incorrect legal standard. On a motion to dismiss,
all factual allegations in a complaint must be accepted as true, and all reasonable inferences must
be drawn in favor of the non-moving party.
Our standard of review when presented with a motion to dismisspredicated on Civ.R. 12(B)(6) is well established. The factual allegationsof the complaint and items"properly incorporated therein must be acceptedas true. Furthermore, the plaintiff must be afforded all reasonableinferences possibly derived therefrom. It must appear beyond doubt thatplaintiff can prove no set of facts entitling [it] to relief.t3
The Court of Appeals misapplied this fundamental precept and, instead, erroneously
resolved all inferences in favor of the moving party - Turner. [("When reviewing a ruling on a
Civ.R. 12(B)(6) motion to dismiss, we must ... make all reasonable inferences in favor of the
moving party.") (emphasis added)] 14 As a result, the Court of Appeals failed to accept the facts
as alleged in Republic Franklin's Third-Party Complaint, including that Turner negligently
caused the January 18 collapse. Instead, the Court inferred, in Tumer's favor, that Turrter's
payments to Sumtnit were based on "exigent circumstances" and not on admitted liability. This
was error.
Similarly, the Court of Appeals ignored the allegation that Ttuner's work was being
performed on the insured location - 2] 61 Grandin Road, Cincinnati, Ohio. Rather, the Court of
Appeals made the contrary factual determination that the work was being performed at a location
"adjoining or adjacent to the" insured location, thereby improperly expanding the scope of the
13 See, e.g. Vail v. The Plain Dealer Publishing Co. (1995), 72 Ohio St.3d 279, 649 N.E.2d 189; Danis Bldg.
Constr. Co. v. Employers Fire Ins. Co., No. 19264, 2002 WL 31641229 (Ohio Ct. App. Nov. 22, 2002) at 1132,
citing Brzeczek v. Standard Oil Co. (1982), 4 Ohio App.3d 209, 212, 447 N.E.2d 760 (emphasis added).
1" Exhibit A, Judgment Entry at 3.
8
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construction agreement's subrogation waiver to include damage to the collapsed building. This
too was error.
Had the Court not made these improper inferences and resolved all inferences in favor of
Republic Franklin, as it was required to do on a motion to dismiss, reversal of the trial court's
order would have immediately followed. Turner's liability would not have fallen within the
scope of the waiver provision.
Proposition of Law No. 3: A waiver of subrogation clause only applies andextends to the extent of the express terms of the waiver provision.
The Court of Appeals' failure to apply the correct standard on appeal improperly
expanded the scope of the subrogation waiver contained in the construction agreement. The
construction agreement provides that "[i]f during the Project construction period the Owner
insures properties .. . adjoining or adjacent to the site by property insurance under policies
separate from those insuring the Project ... the Owner shall waive all rights ... for damages
caused by fire or other perils covered by this separate property insurance." The clear meaning of
this clause is that, where property adjoining or adjacent to the site is insured, claims against the
contractor are waived. The clause, in contrast, does not address property on the site. And there
is no waiver for claims arising out of damage to such property. "Thus, for example, if Sunvnit
owned a building off the site and Turner's operations on the site somehow damaged that
property, then Summit would have waived claims arising out of that damage. Here, however, the
building at issue was on the site, not adjacent to it, and not adjoining it. The clause, therefore,
does not apply.
9
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The only manner in which the Court of Appeals Judgment Entry might be justified given
the plain language of the clause is if the Court somehow inferred that the collapsed building was
not on the site, but adjacent to it. But such an inference is precisely what is ruled out by the
standard of review of an order granting a motion to dismiss. All inferences must be drawn
against the moving party and in favor of the claimant. As such, the Court of Appeals should
have inferred that the building was on the site, not adjoining to it.
The error in the Court of Appeals' decision is self-evident. "fhe Court of Appeals,
without citation, repeatedly states that the damaged property was off and adjacent to the site. For
example, at page 6 of the Judgment Entry, the Court of Appeals stated:
We hold that because Summit had insured its property adjacent to theWork under a separate policy of insurance, Summit effectively waived itsrights to recover damages from Turner under the CMA.
(Exhibit A, p. 6). But there was (and is) no evidence that the collapsed building was "adjacent
to" the site. The Court evidently assumed that, because Republic's policy insured existing
property, not the construction work, the insured property was off-site. But that assumption was
wrong. In fact, both the policy and the Construction Management Agreement applied to the
same premises. The insured property was on, not adjacent to the site, and therefore not within
the waiver clause.
Proposition of Law No. 4: The Court of Appeals ignored the plain languageof the CMA.
Not only did the Court of Appeals err by failing to resolve inferences and factual issues in
favor of the non-moving party, but the Court read one term out of the contractual documents
altogether and inserted a different word in its place.
10
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According to the Court of Appeals, the subrogation waiver provision applied because the
collapsed property was "adjacent to the Work."15 But, that is not what the CMA provides. The
CMA provides a waiver only as to property "adjoining or adjacent to the site." The Court of
Appeals therefore improperly read the term "site" out of the CMA and inserted in its place the
term "work." Ohio law prohibits such linguistic manipulation.
The Court of Appeals was required to afford meaning to the language of the contract as
written, and not substitute its own wording for the words of the written instrtnnent.'G The Court
of Appeals did not do this. The Court read the term "site" out of the subrogation waiver
provision and substituted in its place the term "work." This rewrote the contract. The Court of
Appeals, therefore, violated settled Ohio law, improperly broadened the subrogation waiver
provision and, consequently, permitted a waiver where none existed.'7
Exhibit A, Judgment Entry at 6 (emphasis added).
1 6 Brakefire, Inc. v. Overbeck (2007), 144 Ohio Misc.2d 35, 878 N.E.2d 84 at '55 ("The court should notinterpret the words [ in a contract] beyond their plain meaning or rewrite the contract if there is no ambiguity in thelanguage of the contract itself")
17 There is a fundamental difference between the "work" and the "site." Work is performed on the site."Work," therefore, is necessarily narrower in scope than "site." Thus, while the collapsed building might have beenlocated adjoining or adjacent to the "work," it was not located adjoining to or adjacent to the "site," since thecollapsed building was itself located on the "site:'
By way of example, a homeowner might have a new room constructed by expanding its house, and thecontractor might negligently cause damage to the house. Under these circumstances, the damaged property wouldbe "adjacent to the Work," but it would not be adjacent to the site. The work was performed at the same site as thedamaged property. Yet, under the Court of Appeals' misreading of the CMA, the homeowner would have waivedany right to recovery against the negligent contractor. That is not what the CMA provides.
1]
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V. CONCLUSION
For the reasons stated above, the Court should accept jurisdiction of this appeal and
reverse the Court of Appeals' decision.
OF COUNSEL:
Lon A. Berk, Esq. (pro hac vice)
Michael S. Levine, Esq. (pro hac vice)
HUNTON & WILLIAMS, LLP
1751 Pinnacle DriveMcLean, VA 22102]berk(ahunton.commlevine a),hunton.comPhone: 703-714-7400Fax: 703-918-4050
Respectfully submitted,
Mark A. Vander Laan (061329 )Timothy S. Mangan (0069287)DINSMORE & SHOHL, LLP1900 Chemed Center255 East Fifth StreetCincinnati, OH 45202Phone: (513) 977-8200Fax: (513) 977-8141mark.vanderlaan(â dinslaw.comtim.manganna,dinslaw.com
Counsel For AppellantRepublic-Franklin Insurance Co.
12
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CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing has been duly served upon the following by
regular U.S. mail this --9-̂Iday of May, 2008:
Gregory A. Ruehlmann, Esq.David Pepper, Esq.SQUIRE SANDERS & DEMPSEY, LLP312 Walnut Street, Suite 3500Cincinnati, OFI 45202Phone: (513) 361-1200Fax: (513) 361-1201
Counsel for Tlaird Party Defendant -Appellee Turner Construction Company
Michael K. Yarbrough, Esq.Adam P. Hall, Esq.D. Scott Gurney, Esq.Scott R. Brown, Esq.
FROST BROWN TODD
2500 PNC Center
201 E. Fifth StreetCincinnati, OH 45201-5715
Thomas L. Gabelman, Esq.Phillip J. Smith, Esq.VORYS, SATER, SEYMOUR
AND PEASE, LLP
Suite 2100, Atrium Two
221 East Fourth StreetP.O. Box 0236
Cincinnati, OFI 45201-0236
Counsel for Summit Country Day School
1498006334829-1
13
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I IiiiiriiIN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
[n76467n9
THE SUMMIT COUNTRY DAYSCHOOL,
Plaintiff,
vs.
REPUBLIC-FRANKLIN INSURANCECO.,
Defendant/Third-PartyPlaintiff-Appellant,
vs.
TURNER CONSTRUCTION CO.,
Third-Party Defendant-Appellee.
ENTEREDMAR 2 6 2Q08
APPEAL NO. C-070044TRIAL NO. A-o5o6733
JUDGMENT ENTRY.
We consider this appeal on the accelerated calendar, and this judgment entry
is not an opinion of the court.'
Third-party plaintiff-appellant, Republic-Franklin Insurance Company,
appeals the trial court's judgment dismissing its third-party complaint asserting
subrogation claims, as well as claims for unjust enrichment and tortious interference
with a contract and a business relationship, against third-party defendant-appellee,
Turner Construction Company. Because the waiver-of-subrogation provision in the
construction contract between plaintiff, The Summit Country Day School, and
1 See S.Ct.R.Rep.Op. 3(A), App.R. tt.i(E), and Loc.R. 12.
EXHII3IT A
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OHIO FIRST DISTRICT COURT OF APPEALS
Turner also applied to damaged property "adjoining or adjacent" to the construction
work, we affirm.
Effective July 1, 2003, Republic issued to Summit a commercial property-
insurance policy that contained a provision permitting Summit to waive its rights of
recovery against another party in writing, if such waiver was given prior to a loss of
Summit's covered property or income. A few weeks later, Summit hired Turner to
construct a new school building ("the Work") immediately behind and adjacent to
the existing school building on its property. The construction management
agreement ("the CMA") between the parties included a standard document used in
the construction industry-a form agreement drafted in 1987 by the American
Institute of Architects called the General Conditions of the Contract for Construction
("AIA 201"). As required by the AlA 201, Summit purchased "all-risk" property
insurance ("the Builder's Risk policy) to cover the Work. The AIA 2oi also contained
the following waiver-of-subrogation provisions at issue here:
11.3.5 If during the Project construction period the Owner insures
properties *** adjoining or adjacent to the site by property insurance under policies
separate from those insuring the Project * * * the Owner shall waive all rights in
accordance with the terms of Subparagraph 11.3.7 for damages caused by fire or
other perils covered by this separate property insurance. * * *
"u.3.7 Waivers of Subrogation. The Owner and Contractor waive all
rights against (i) each other * * * for damages caused by fire or other perils to the
extent covered by property insurance obtained pursuant to this Paragraph 11.3 or
other property insurance applicable to the Work ***."
Due to allegedly negligent excavating by Turner, a portion of the existing
school building collapsed, resulting in extensive property damage and lost income.
2
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OHIO FIRST DISTRICT COURT OF APPEAILS
(Fortunately, the collapse occurred over a holiday weekend when school was not in
session.) As a result, Republic advanced Summit $25o,ooo, recognizing that this
amount was insufficient to cover the loss in the event that Summit's claim was
covered under the Republic policy. No other funds were paid to Summit. Due to the
exigent circumstances, Turner and Summit entered into an agreement ("the
February Agreement") under which Turner advanced Summit the funds to cover the
loss and Summit agreed to repay Turner those funds if Summit recovered any
insurance proceeds from Republic. In the February Agreement, Turner indicated
that it was not admitting liability for the collapse.
In August 2005, Summit sued Republic for breaching its obligation to make
payment for covered losses under the policy. Republic then filed a third-party
complaint against Turner asserting seven claims. Turner moved to dismiss the
complaint arguing that Sumniit had waived its subrogation rights in the CMA and,
thus, that Republic could not assert any claims against Turner. The trial court
granted the motion.
In its single assignment of error, Republic now maintains that the trial court
erred in dismissing its third-party complaint against Turner. When reviewing a
ruling on a Civ.R. 12(B)(6) motion to dismiss, we must accept all factual allegations
in the complaint as true and make all reasonable inferences in favor of the moving
party.2 To uphold the dismissal of Republic's complaint, it must appear beyond all
doubt that Republic can prove no set of facts entitling it to relief.3
2 Vail v. Plain Dealer Publishing Co., 72 Ohio St.3d 279, 1995-Ohio-i87, 649 N.E.zd 182, citingMitchell v. Lawson Milk Co. (1988),40 Ohio St.3d 190, 192,532 N.E.2d 753-3 OBrien v. University Community Tenants Union, lnc. (1975), 42 Ohio St.2d 242, 327 N.E.2d753, syllabus.
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OHIO FIRST DISTRICT COURT OF APPEALS
In support of its assignment of error, Republic first argues that the waiver-of-
subrogation provision in the CMA violated R.C. 2305.31, Ohio's anti-indemnity
statute, because it required Republic, as Summit's insurer, to indemnify Turner for
its own negligence. But we note that Turner was not seeking indemnification from
Summit but was instead seeking to enforce the waiver-of-subrogation provision in
the CMA. A waiver-of-subrogation provision allocates risk among the parties and is
not an indemnity clause. "A distinction must be drawn between contractual
provisions which seek to exempt a party from liability to persons who have been
injured or whose property has been damaged [i.e., an indemnity clause] and
contractual provisions * * * which in effect simply require one of the parties to the
contract to provide insurance for all the parties."4
But even if a waiver of subrogation is construed as an indemnity agreement,
R.C. 2305.31 is inapplicable to the circumstances here. R.C. 2305.31 is intended only
to "prohibit[] indemnity agreements, in the construction-related contracts described
therein, whereby the promisor agrees to indemnify the promisee for damages
caused by or resulting from the negligence of the promisee." 5 (Emphasis added.)
The purpose of R.C. 2305.31 is to protect contractors from being compelled to
assume liability for the negligence of others.6 Accordingly, the statute is applied to
prohibit a general contractor (the promisee) from hiring a subcontractor and
imposing on the latter (as promisor) the condition that the subcontractor must
indemnify the hiring contractor for its own negligence. But that was not the case
here where Turner was the promisor, the one who was hired, and Summit was the
4 Danis Bldg. Constr. Co. v. Employers Fire. Ins. Co., 2.dDist. No. 19264, 2oo2-Ohio-6374, atciting ^
U.SkDlmt antGa'ng ^o. (oi98g),(1 98
2), Ohio St.3d 6r, 485 N.E. 2d i 4E, 2 paragraph7b
2o one ofthe syllabus.6 Stickovich V. Cleveland, 143 Ohio App.3d 13, 28, 2ooi-Ohio-4rry, 757 N.E.2d 5o.
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OHIO FIRS'I' DISTRICT COURT OF APPF.ALS
promisee, the one who did the hiring? Since Summit was not attempting to force
Turner to indemnify Summit for its own negligence, we hold that R.C. 2305.31 is not
applicable in this case.
Next, Republic argues that waiver-of-subrogation provisions are exculpatory
clauses, which are generally prohibited. But Ohio law is clear that waiver-of-
subrogation provisions are valid and enforceable, as such provisions are part of a
larger arrangement under which parties to a construction contract allocate the risks
involved and spread the costs of different types of insurance.8
Republic also contends that any valid waiver of rights was limited to the
Builder's Risk policy, which Summit had purchased to insure the Work, and did not
apply to Republic's policy, which covered Summit's existing property. But this
argument completely disregards the plain language of paragraph 11.3.5 of the CMA,
which contained a waiver of damages for separately insured property adjoining or
adjacent to the construction site "in accordance with the terms of paragraph 11.3.7
for damages caused by fire or other perils covered by this separate property
insurance." Republic tries to bolster its argument by citing other jurisdictions that
have held that the waiver contained in paragraph 11.3.7 only applies to insurance
covering the construction work. But we do not find these cases persuasive because in
each case there was not a separate policy of insurance covering "non-work" property,
7 See Kovach v. Warren Roofin & Illumination Co., 8th Dist. No. 88430, 2007-Ohio-2514 ('1'0determine whether an indemnd^cation agreement violates R.C. 2305.31, the relevant inquiry iswhether a promisor would be indemnifying a promisee for the promisee's own negligence underthe contract).e Nationwide Mutual Fire Ins. Co. u. Sonitrol, Inc. of Cleveland ( 1996), to9 Ohio App.3d 474,482, 672 N.E.2d 687; Len Immke Buick, Inc. v. Architectural Alliance (1992), 81 Ohio App.3d459, 464, 611 N.E.zd 399; Insurance Co. of North America v. Wells (1973), 35 Ohio App.zd r73,177, 3oo N.E.zd 46o.
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OHIO FIRST DISTRICT COURT OF APPEAIS
and none of the courts addressed the specific language of paragraph 11.3.5 at issue
here.9
Finally, Republic argues that if paragraph 11.3.5 was intended to waive
Summit's rights of recovery for damages to property other than the Work, then the
CMA would not have included provisions requiring Turner to buy liability insurance
and to indemnify Summit against covered losses. But paragraph 11.3.7 reconciled
any inconsistency among these provisions by expressly stating that "[a] waiver of
subrogation shall be effective as to a person or entity even though that person or
entity would otherwise have a duty of indemnification, contractual or otherwise."
Under Ohio law, contract terms are to be given their plain and ordinary
meaning10 Here, paragraph 11.3.5 of the CMA clearly provided that if property
adjoining or adjacent to the construction work site was covered under property
insurance obtained by the owner, the owner then had to "waive all rights in
accordance with the terms of [paragraph] 11.3.7 for damages caused by fire or other
perils [to the extent] covered by this separate property insurance." Clearly,
paragraph 11.3.5 effectively extended the waiver of subrogation to non-work areas
covered by separate insurance11 Accordingly, we hold that because Summit had
insured its property adjacent to the Work under a separate policy of insurance,
Summit effectively waived its rights to recover damages from Turner under the CMA.
Therefore, Republic, as a subrogee, may not recover from Turner any money it may
pay to Summit to cover Summit's loss. We specifically note that this is not
9 See Butler v. Mitchell-Hageback, Inc. (Mo.1995). 895 S.W.2d 15; Silverton u. Phoenix IleatSource System, Inc. (Colo.App.1997). 948 P.2d 9; Midwestern Indem. Co. u. Sys. Guilders, Inc.(lnd.App.2004), 8o1 N.E.2d 661.- See Nationwide Mut. Fire Ins. Co. u. Guman Bros. Farin, 73 Ohio St.3d 107, i995-Ohio-244,652 N.E.2d 684.1 Accord St. Paul Fire & Marine Ins. Co. v. Elkay Mfg. Co. (2oo3), Del. Superior Ct. Nos. C.A.98C-rr-262 and C.A. 99C-11-244 2003; Chadwick v. CIS, Ltd. (t993), 137 N.H.515, 629 A.2d 82o;c.f. Knob Noster R-VIII School I7ist. v. Dankenbring (Mo.App.Ct.2007), 22o S.W. 3d 809.
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OHIO FIRST DISTRICT COURT OF APPEAI.S
intrinsically unfair to Republic, as its policy contained a provision allowing Summit
to waive its rights of recovery in writing, prior to a loss. Presumably, Republic
calculated its premium accordingly.
In conclusion, the trial court properly dismissed Republic's four subrogation
claims against Turner for negligence, professional negligence, breach of contract, and
breach of warranty, as well as the claims for unjust enrichment and tortious
interference with a contract and business relationship. At the heart of the last three
claims was the assertion that Summit had a duty to assign its rights to recovery to
Republic. But we have already held that Summit had effectively waived its rights to
recovery under the CMA. We also note that Summit did not gain any additional
rights under the February Agreement, which was executed after the loss.
Therefore, the single assignment of error is overruled, and the judgment of
the trial court is affirmed.
A certified copy of this Judgment Entry shall be sent to the trial court under
App.R. 27. Costs shall be taxed under App.R. 24.
IIILDEBRANDT, P.J., SUNDERMANN and HENDON, JJ.
To the Clerk:
Enter upon the Journal of t e Cour t̂'ô /March 26, 2oo8
per order of the Court .l GIIPresiding Judge
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