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) 977-8141mark.vanderlaankdinslaw.comtim.nrangan@dinslaw.com

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) 918-4050lberkkhunton.commlevine@hunton.com

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

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

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

ii

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

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.

2

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.

3

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.

4

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.

5

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....

6

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

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

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

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

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]

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

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

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

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

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.

3

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.

4

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.

5

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.

6

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

7

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