Security National Insurance Company v. Briohn Bldg Corp et al

Filing 51

AMENDED ORDER signed by Judge J P Stadtmueller on 11/7/12 granting 25 Motion for Summary Judgment of defendants Briohn Building Corporation and the Cincinatti Insurance Company. See Order. (cc: all counsel)(nm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
SECURITY NATIONAL INSURANCE
COMPANY,
Plaintiff,
v.
BRIOHN BUILDING CORPORATION,
THE CINCINATTI INSURANCE
COMPANY, K. KRANSKI & SONS, INC.,
and THE TRAVELERS INDEMNITY
COMPANY, INC.,
Defendants.

Case No. 12-CV-88-JPS

AMENDED ORDER1

In this diversity action, Security National Insurance Company
(“Security”) seeks to recover losses suffered by its insured, Traffic and
Parking Control, Inc. (“TAPCO”), as subrogee against the defendants.
(Docket #1). The defendants, Briohn Building Corporation (“Briohn”) and
Cincinatti Insurance Company (“Cincinatti”), have filed a motion for

1

The Court recently entered an order (Docket #48) granting Security
National Insurance Company’s motion to amend (Docket #41) the Court’s previous
order and judgment granting summary judgment in full (Docket #37, #38). The
Court now enters this amended order, correcting the order lines to reflect that the
Court’s grant of summary judgment is limited to the motion of the defendants
Briohn Building Corporation and Cincinatti Insurance Company. Security’s claims
against K. Kranski & Sons, Inc., and the Travelers Indemnity Company, Inc., shall
remain intact, as those defendants did not file a motion for summary judgment.
Additionally, any cross-claims alleged by Kranski and Travelers against Briohn and
Cincinatti shall remain intact, as there has not been a summary judgment motion
filed on those claims. Finally, for clarity’s sake, the Court notes that in this amended
order it has also changed the phrasing it initially used to describe the parties to be
more specific (e.g., where the Court originally referred generically to “defendants”
or “parties,” it now inserts more specific language where necessary to clarify which
defendants or parties it refers to).

summary judgment, which is now fully briefed, thus, this motion is now ripe
for decision. (Docket #25, #27, #31, #34).
1.

BACKGROUND
As TAPCO alleged in its complaint, TAPCO engaged the services of

Briohn to renovate TAPCO’s warehouse in Brown Deer, Wisconsin. (DPFF
¶ 2).2 Briohn then subcontracted the design and construction of the
warehouse’s fire suppression system to K. Kranski & Sons (“Kranski”).
(DPFF ¶ 3).
During construction, Briohn and Kranski allegedly used a faulty water
pipe without testing it. (DPFF ¶ 5). That pipe burst on August 8, 2010,
causing extensive damage to TAPCO’s building and its contents, in the
amount of $2,133,526.55. (DPFF ¶¶ 6, 8).
As TAPCO’s insurer, Security settled with TAPCO for those damages.
(DPFF ¶¶ 7, 9). Security then brought this suit against Briohn, Kranski,
Cincinnati (Briohn’s insurer), and Travelers Indemnity Company
(“Travelers”; Kranski’s insurer), seeking subrogation of the amounts it paid
to TAPCO as a result of Briohn’s and Kranski’s alleged negligence. (Docket
#1).
If the foregoing were the totality of the facts, this would be a
straightforward matter with only negligence and damages at issue—but such
is not the case.
Rather, what is truly at issue in this summary judgment motion is the
meaning of a clause found in the contract between TAPCO and Briohn. That

2

The Court will use the abbreviation “PPFF” to designate Plaintiff’s
Proposed Findings of Fact, and “DPFF” to designate Defendant’s Proposed
Findings of Fact.

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contract allocates responsibility for obtaining insurance between TAPCO and
Briohn. (DPFF ¶ 17). For instance, the contract requires Briohn to obtain
workers’ compensation insurance, commercial general liability insurance,
and other forms of insurance inapplicable to the case at hand (Contract
§ 12.1). TAPCO, on the other hand, is required by the contract to obtain
builders risk insurance that would cover 100% of the insurable value of the
“Work” to be performed. (Contract § 12.2).
Additionally—in the clause germane to this dispute—the parties
waived their rights to subrogation, though the parties disagree over the
extent of that waiver. (Contract § 12.2.1). The relevant provision provides, in
relevant part:
Notwithstanding any other provisions contained
in this Contract, the Owner and Contractor each
waives all rights against each other and any of
their agents and/or employees, each of the other,
from damages caused by fire or other perils to the
extent covered by property insurance obtained
pursuant to this Contract or other property insurance
applicable to the Work, except such rights as they
have to proceeds of such insurance held by the
owner as fiduciary.
(Contract § 12.2.1)(emphasis added). In the same provision, the contract
requires that any insurance policies issued provide waivers of subrogation.
(Contract § 12.2.1).
2.

DISCUSSION
From the above-quoted language, Security and movants Briohn and

Cincinatti extrapolate two different readings of the contract. The defendants,
Briohn and Cincinatti, argue that the subrogation waiver applies to the entire
project, and that the contract therefore bars Security’s subrogation claims in

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their entirety. (Defs.’ Br. in Supp. Mot. 7–9). Security, on the other hand,
argues that the contract’s terms limit the waiver only to work performed on
the building under the contract; under Security’s theory, non-work property
(such as the contents of TAPCO’s building, losses from interruption of work,
and portions of the building not affected by the contract) should not be
subject to that waiver, and therefore subrogation would be available to
Security on such property. (Pl.’s Resp. 2).
The outcome of the summary judgment motion of Briohn and
Cincinatti rests on the Court’s interpretation of that single phrase. If the
Court determines that the waiver covers the entirety of TAPCO’s property,
then it must grant the motion of Briohn and Cincinatti. Conversely, if the
Court determines that the waiver should apply only to work covered by the
contract between TAPCO and Briohn, then the Court must deny the
defendants’ motion, and a trial may be appropriate to determine issues
relating to the scope of that contract, Briohn and Kranski’s negligence, and
damages.
2.1

Summary Judgment Standard

Summary judgment is appropriate when the movant can make two
separate showings: first, that there are no genuine issues of material fact; and,
second, that based upon those facts the movant is entitled to judgment as a
matter of law. Fed. R. Civ. P. 56(c). The Court must review all of the evidence
in the light most favorable to the non-moving party, and, if it determines that
a reasonable jury could return a verdict for the nonmoving party, it must
deny summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,
255 (1986).

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The first condition for summary judgment is satisfied here, at least
insofar as the dispositive term of the contract is concerned. The parties do not
dispute the language of the contract. They both agree that the contract
contains a waiver of subrogation rights, and they both agree (implicitly, in
Security’s case) that the case must be dismissed in its entirety if the Court
determines that the waiver extends to the entirety of TAPCO’s property.
(Defs.’ Br. in Supp. 4–10, Pl.’s Resp. 3–11). Those are the facts material to the
motion for summary judgment of Briohn and Cincinatti.
While there are other facts that remain in dispute (such as the scope
of the contract between TAPCO and Briohn, Briohn and Kranski’s
negligence, and TAPCO’s damages), those facts are not material insofar as
the motion for summary judgment at hand. However, if the Court finds that
the scope of the subrogation waiver is limited to the work performed by
Briohn and Kranski—and does not cover TAPCO’s non-work property—then
those facts become material to the disposition of the case, and the Court must
deny summary judgment.
Nonetheless, given the parties’ arguments, the Court will treat the
material facts regarding the contract between TAPCO and Briohn as not
being in dispute for the purpose of deciding the summary judgment motion
entered by Briohn and Cincinatti.
Thus, there is only one issue before the Court, and it is dispositive. The
Court must determine the appropriate legal interpretation of the subrogation
waiver clause in the parties’ contract.
2.2

Legal Issue: Scope of Contract’s Waiver Clause

As already discussed, the Court must determine the extent to which
the following language waives any right to subrogation:

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Notwithstanding any other provisions contained
in this Contract, the Owner and Contractor each
waives all rights against each other and any of
their agents and/or employees, each of the other,
from damages caused by fire or other perils to the
extent covered by property insurance obtained
pursuant to this Contract or other property insurance
applicable to the Work, except such rights as they
have to proceeds of such insurance held by the
owner as fiduciary.
Contract § 12.2.1 (emphasis added). More specifically, the Court must decide
the scope of the phrase “to the extent covered by property insurance
obtained pursuant to this Contract or other property insurance applicable to
the Work,” since it is that phrase that defines the extent to which the TAPCO
waived its subrogation rights.
In reaching a conclusion on that issue, the Court must apply
Wisconsin law. Home Valu, Inc. v. Pep Boys, 213 F.3d 960, 963 (citing McGeshik
v. Choucair, 9 F.3d 1229, 1232 (7th Cir. 1993), Green v. J.C. Penney Auto Ins. Co.,
806 F.2d 759, 761 (7th Cir. 1986)). In applying Wisconsin law, the Court
would generally apply the law of the Wisconsin Supreme Court. Home Valu,
213 F.3d at 963 (citing McGeshik, 9 F.3d at 1232, Green, 806 F.2d at 761). If,
however, “the Wisconsin Supreme Court has not spoken on the issue,” then
the Court must treat “decisions by the state’s intermediate appellate courts
as authoritative ‘unless there is a compelling reason to doubt that [those]
courts have got the law right.’” Home Valu, 213 F.3d at 963 (alterations
original) (quoting Rekhi v. Wildwood Indus., 61 F.3d 1313, 1319 (7th Cir. 1995)).
Moreover, if the Court is “faced with two opposing and equally plausible
interpretations of state law, ‘[it] generally [should] choose the narrower
interpretation which restricts liability, rather than the more expansive
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interpretation which creates substantially more liability.’” Home Valu, 213
F.3d at 963 (alterations added) (quoting Birchler v. Gehl Co., 88 F. 3d 518, 521
(7th Cir. 1996); also citing Todd v. Societe Bic, S.A., 21 F.3d 1402, 1412 (7th Cir.
1994)).
Applying Wisconsin law, it is clear that the scope of the waiver
extends over the entirety of TAPCO’s property, and thus summary judgment
is appropriate. To begin, waiver of subrogation clauses are valid and
enforceable in Wisconsin. Jindra v. Diedrich Flooring, 181 Wis. 2d 579, 596, 511
N.W.2d 855, 859 (1994) (“One may waive subrogation explicitly in writing.”).
Furthermore, the Wisconsin Court of Appeals has examined language
that is practically the same as the language at issue here and determined that
such language waived subrogation over the entirety of the damaged
property—it was not limited simply to the work for which the parties had
contracted. Wisconsin State Local Gov’t Prop. Ins. Fund v. Thomas A. Mason Co.,
2008 WI App. 49, ¶¶ 10–13, 308 Wis. 2d 512, 748 N.W.2d 476. In Thomas A.
Mason, the parties waived all subrogation rights “to the extent covered by
property insurance obtained pursuant to this Paragraph 11.4 or other
property insurance applicable to the Work.” Id., at ¶ 4. That language is
nearly identical to the language at issue here, and the Thomas A. Mason court
determined that such language should be deemed to be a waiver of
subrogation to all of the insured’s property—and not limited to the work. Id.,
at ¶ 13. Applying Thomas A. Mason to this case, it is clear that the waiver of
subrogation clause in the contract at issue should be construed to cover all
of TAPCO’s property, thus preventing Security from now seeking
subrogation.

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And Thomas A. Mason should certainly apply to this case. The
Wisconsin Supreme Court has not issued a decision on this topic and,
therefore, the Court should apply decisions of Wisconsin’s intermediate
appellate courts, such as Thomas A. Mason, to the facts of this case. See Home
Valu, 213 F.3d at 693. There is no “compelling reason to doubt” Thomas A.
Mason’s legal conclusion and, therefore, the Court should apply those
conclusions. Id. Furthermore, there is no meaningful distinction between the
clause and facts in that case and those that appear in this matter. In Thomas
A. Mason, both the subrogation waiver and the definition of “the Work” was
practically identical to those items in this matter. Compare Thomas A. Mason,
2008 WI App. ¶ 4, with (Contract § 12.2.1). Furthermore, any emphasis that
the Thomas A. Mason court placed on the parties’ failure to fill out a separate
endorsement page (which is not present in this case) is completely inapposite:
the court there treated that page as a nullity and determined that it did not
modify the insurance contract, which the court had previously determined
waived subrogation as to the insured’s entire property. Id., at ¶ 13. Thus, the
Thomas A. Mason court’s decision was not swayed by the existence of that
endorsement page, and should not affect the Court’s analysis here.
Moreover, the Court should apply Thomas A. Mason to this case as
opposed to the contrary—but extra-territorial—cases cited by Security. (See
Pl.’s Resp. at 5–7, 9–11). Sitting in diversity, this Court applies Wisconsin law;
it has no choice in the matter. Green, 806 F.2d at 761. Thus, no matter the
wisdom of any of the non-Wisconsin law cited by Security, the Court is
bound to apply Thomas A. Mason, because that case established a rule of law
that is applicable to this matter. Id. Furthermore, even if there were some
question as to which approach the Court should apply, as discussed above,
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the Court should lean towards applying narrower, liability-restrictive rules
of law, of which the Thomas A. Mason rule is one, limiting the ability of parties
to subrogate. See Home Valu, 213 F.3d at 963, Birchler, 88 F. 3d at 521, Todd, 21
F.3d at 1412; see also Thomas A. Mason, 2008 WI App. at ¶ 13. It is also a
widely-accepted rule of law, which further justifies the Court’s decision to
follow it. See, e.g., Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490,
493–94 (citing Commercial Union Ins. Co. v. Bituminous Cas. Corp., 851 F.2d 98,
101 (3rd Cir.1988); Tokio Marine & Fire Ins. Co. v. Employers Ins. of Wausau, 786
F.2d 101, 104-05 (2nd Cir.1986); American Ins. Co. v. L.H. Sowles Co., 628 F.2d
967, 968-69 (6th Cir.1980); Richmond Steel, Inc. v. Legal & Gen. Assurance Soc'y,
Ltd., 821 F.Supp. 793, 799-802 (D.P.R.1993); Industrial Risk Insurers v. Garlock
Equip. Co., 576 So.2d 652, 656-57 (Ala.1991); United States Fidelity & Guar. Co.
v. Farrar's Plumbing & Heating Co., 158 Ariz. 354, 762 P.2d 641, 642
(Ct.App.1988); *494 Housing Inv. Corp. v. Carris, 389 So.2d 689, 689-90
(Fla.Dist.Ct.App.1980); E.C. Long, Inc. v. Brennan's of Atlanta, Inc., 148
Ga.App. 796, 252 S.E.2d 642, 647 (1979); South Tippecanoe Sch. Bldg. Corp. v.
Shambaugh & Son, Inc., 182 Ind.App. 350, 395 N.E.2d 320, 332-33 (1979); Willis
Realty Assocs. v. Cimino Constr. Co., 623 A.2d 1287, 1288-89 (Me.1993);
Haemonetics Corp. v. Brophy & Phillips Co., 23 Mass.App.Ct. 254, 501 N.E.2d
524, 526 (1986); Chadwick v. CSI, Ltd., 137 N.H. 515, 629 A.2d 820, 826-27
(1993); Trump-Equitable Fifth Avenue Co. v. H.R.H. Constr. Corp., 106 A.D.2d
242, 485 N.Y.S.2d 65, 67-68 (N.Y.App.Div.), aff'd, 66 N.Y.2d 779, 497 N.Y.S.2d
369, 488 N.E.2d 115 (1985); Touchet Valley Grain Growers, Inc. v. Opp & Seibold
Gen. Constr., Inc., 119 Wash.2d 334, 831 P.2d 724, 728 (1992)).
As to the plain language of the Contract, the Court agrees with
Security that such language is somewhat ambiguous, and does seem to favor
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a more-restrictive view of the parties’ waiver of subrogation clause. (Pl.’s
Resp. 3–5). Nonetheless, regardless of the Court’s view of that language, the
Court is bound to follow Wisconsin law and, accordingly, must apply Thomas
A. Mason, which calls for application of the more-expansive reading.
3.

CONCLUSION
As such, being required to apply the Thomas A. Mason rule of law, the

Court is obliged to determine that the waiver of subrogation clause in the
contract between TAPCO and Briohn applies broadly to cover the entirety
of TAPCO’s property. Therefore, it must grant the motion for summary
judgment entered by Briohn and Cincinatti. (Docket #25).
Accordingly,
IT IS ORDERED that the motion for summary judgment of the
defendants, Briohn Building Corporation and the Cincinatti Insurance
Company (Docket #25), be and the same is hereby GRANTED.
Dated at Milwaukee, Wisconsin, this 7th day of November, 2012.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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