Munters Euroform GmbH v. American National Power, Inc. and Hays Energy Limited Partnership

• Court: Court of Appeals of Texas
• Decided: August 31, 2009
• Docket: 03-05-00493-CV
• Status: Published

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-05-00493-CV

Munters Euroform GmbH, Appellant

v.

American National Power, Inc. and Hays Energy Limited Partnership, Appellees

FROM THE DISTRICT COURT OF HAYS COUNTY, 22ND JUDICIAL DISTRICT NO. 02-1232, HONORABLE RONALD G. CARR, JUDGE PRESIDING

MEMORANDUM OPINION

Munters Euroform GmbH appeals from a judgment in favor of appellees

American National Power, Inc. and Hays Energy Limited Partnership for damage to a construction

project. Euroform contends that the judgment is erroneous because the appellees’ claims are within

the waiver of subrogation included in the underlying construction contract. Euroform also contends

that the judgment is erroneous because Hays’s claims were barred by the economic loss doctrine.

We affirm.

Appellees1 hired Alstom Power, Inc. to build a gas-fired power plant. Each turbine

is installed inside of an air filter house that also contains air filters and an evaporative

1 Although the construction contract and the insurance contract name only Hays as the owner of the property and as the insured, appellees refer to themselves in the singular as American National Power. Because Euroform does not challenge this nomenclature, we will treat appellees together as the owners of the damaged property, as the entity that entered the contract with Euroform, and as the insured. cooling system. Although the parties agreed in paragraph 26.2 of the Construction Contract that

Alstom would buy builder’s risk insurance that named appellees as the loss payee, the parties

also agreed in paragraph 26.5 that appellees retained the right to purchase insurance. For insurance

purchased under paragraph 26.2, the parties agreed that, “[a]s respects the Builder’s Risk, Marine

and Delayed Opening insurance, subrogation is waived in favor of the Contractor, all Subcontractors,

the Owner and their respective officers, agents and employees.” Paragraph 26.5 provided in part

as follows:

The Owner retains the right to arrange for the insurance described in Sections 26.2(a) and 26.2(b) covering the interests of all interested parties (the Owner, Contractor, the independent engineer and Subcontractors); provided that Contractor has the right to approve the wording in such insurance policies. If the Owner arranges such insurance, costs and premiums on insured claims shall be paid by the Owner, and the insurance coverage must contain the following: . . . (c) additional insured status and waiver of subrogation to all parties . . .

The parties agreed in paragraph 9.5 that subcontractors were not third-party beneficiaries of the

construction contract “except to the extent expressly provided for in this Contract.”

Appellees purchased insurance from Factory Mutual Insurance Company. In addition

to appellees, the policy expressly lists among the insured “Vend[o]rs and/or suppliers and/or

engineering consultants and/or subcontractors of any tier and/or other parties to the extent required

by contract” for “loss or damage arising out of their site activities only . . . for their respective rights

and interests as described in their contracts or agreements.” The insurance policy contains the

following language under the heading “Subrogation Waiver”:

2 Upon the payment of any claim under this Policy, the Insurers shall be subrogated to all the rights and remedies of the Insured arising out of such claim against any person or corporation whatsoever except that the Insurers hereby waive all rights which they may have acquired by a payment of a claim under this Policy to recover the amount so paid from any person or corporation with whom the Insured, prior to the occurrence of the loss or damage, shall have agreed to waive their rights to recovery in respect of any loss or damage which may be caused by such person or corporation.

The Insurers hereby agree to waive all rights of subrogation or action which they may have or acquire against any of the parties included in the Insured or otherwise indemnified by this Policy, arising out of one loss or event in respect of which a claim is made thereunder.

There is no contract directly between appellees and Euroform. Euroform supplied

the evaporative cooling system to one subcontractor and, as a subcontractor itself of Alstom,

supervised personnel of another subcontractor who installed the evaporative cooling systems. The

subcontracting agreement in which Euroform agreed to supervise the installation states that

Euroform would provide insurance coverage for its supervisory employees and that Euroform would

be liable to Alstom for all damages incurred on the basis of a “culpable” violation by Euroform of

the agreement. Euroform’s subcontract with Alstom is silent regarding subrogation.

A fire started during installation of one of the evaporative cooling system, damaging

the filter house in which that system was being installed. Factory Mutual paid appellees $1,488,458

under the policy for property damage related to the fire, then filed suit in appellees’ name seeking

to recover damages from Munters Corporation, Euroform, and others on various theories. Appellees

alleged that the fire was caused by negligence as well as manufacturing and marketing defects.

Euroform sought summary judgment contending that appellees had waived their claims

against Euroform and that, consequently, Factory Mutual had no claims to which they could be

3 subrogated. The trial court denied the motion for summary judgment. The jury found that the fire

was negligently caused, that appellees incurred $1,488,458 in damages as a result, and that Euroform

was responsible for twenty percent of the damages. Another subcontractor was found responsible

for the remaining share of damages. Euroform filed a motion for judgment notwithstanding the

verdict, contending that appellees and Factory Mutual waived their rights to subrogation as a matter

of law. Euroform reiterated the argument it had made in its motion for summary judgment that

the clause in the construction contract stating that “subrogation is waived” against subcontractors,

combined with the clause in the insurance contract in which Factory Mutual agrees it cannot be

subrogated to claims waived by appellees, results in a waiver by Factory Mutual of subrogation

rights against appellees’ subcontractors. The trial court denied the motion and entered judgment

based on the verdict.

Euroform contends that the trial court erred by rendering judgment against it

because subrogation was waived under both the construction and the insurance contracts. We review

the denial of a motion for judgment notwithstanding the verdict under a no-evidence standard.

Tanner v. Nationwide Mut. Fire Ins. Co., No. 07-0760, 2009 Tex. LEXIS 127, at *4 (Tex. Apr. 17,

2009) (citing City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005)). We credit evidence

favoring the jury verdict if reasonable jurors could, and disregard contrary evidence unless

reasonable jurors could not. Id. (citing Central Ready Mix Concrete Co. v. Islas, 228 S.W.3d 649,

651 (Tex. 2007)). We will uphold a judgment based on the jury’s finding if more than a scintilla of

competent evidence supports it. Id. (citing Wal-Mart Stores, Inc. v. Miller, 102 S.W.3d 706, 709

(Tex. 2003) (per curiam)). We must decide whether the evidence at trial could allow reasonable and

4 fair-minded people to reach the verdict under review. Id. (citing City of Keller, 168 S.W.3d at 827).

Similar standards govern review of motions for summary judgment and directed verdict. Keller, 168

S.W.3d at 823, 825.

This case turns on contract interpretation. Subrogation rights may be waived or

altered by contract. Trinity Universal Ins. Co. v. Bill Cox Constr., Inc., 75 S.W.3d 6, 8

(Tex. App.—San Antonio 2001, no pet.). Courts must try to give effect to all contractual terms

so none will be rendered meaningless. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d

462, 464 (Tex. 1998). Courts must read all provisions together and give each provision its intended

effect. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).

Euroform contends that the clear intent of appellees and the general contractor was

to shift liability to the insurer by preventing the insurer from pursuing allegedly negligent parties.

Euroform asserts that they intended to achieve this goal by providing that subrogation was waived

in the construction contract and in the insurance policy issued pursuant to that contract. Appellees

contend that Euroform was not a third-party beneficiary of the construction contract, and that the

construction contract did not waive subrogation against a subcontractor because it did not release

the owner’s claims against the subcontractor. Appellees also claim that Euroform lacks standing

to enforce the terms of the insurance policy and that the insurance policy failed to waive subrogation

because the construction contract did not release appellees’ claims against subcontractors. They

finally contend that the “additional insured” provisions in the construction contract did not waive

subrogation because Euroform was not an additional insured because it lacked an insurable interest

in the property and because it damaged the property of others.

5 Although the construction contract contains language that declares that “subrogation

is waived” as to various parties,2 the right to subrogation is not the owner’s or the contractor’s

to waive. Owners and contractors can waive their claims against each other. See Temple Eastex, Inc.

v. Old Orchard Creek Partners, Ltd., 848 S.W.2d 724, 730-31 (Tex. App.—Dallas 1992,

writ denied); see also Trinity Universal Ins. Co., 75 S.W.3d at 13-15. Because a subrogee insurer

stands in the shoes of the subrogor insured with the insurer’s claims limited to those the subrogor

could bring and subject to the same defenses, the subrogor’s waiver of its claims extinguishes the

subrogee’s right to bring those claims in the subrogor’s name. Mid-Continent Ins. Co. v. Liberty

Mut. Ins. Co., 236 S.W.3d 765, 774 (Tex. 2007). However, the right to subrogation belongs to

the insurer. Austin Indep. Sch. Dist. v. H.C. Beck Partners, No. 03-07-00228-CV, 2009 Tex. App.

LEXIS 1756, at *7, n.3 (Tex. App.—Austin Mar. 13, 2009, pet. filed) (mem. op.). Although the

subrogor can waive a claim and thereby prevent a subrogee from pursuing it, the subrogee’s right

to pursue otherwise vital claims cannot be waived by the subrogor. See id.

The parties to the construction contract did not waive their right to pursue

claims against each other, but declared that “subrogation is waived in favor of the Contractor, all

Subcontractors, the Owner and their respective officers, agents and employees.” Appellees did not

thereby or elsewhere waive their right to pursue claims against Alstom (or, by extension, Euroform).

Thus, cases holding that owners’ waivers of their right to pursue claims against contractors prevent

the owners’ insurers from pursuing claims against the contractors and subcontractors (as third-party

2 The contract states in relevant part that “subrogation is waived in favor of . . . all Subcontractors.”

6 beneficiaries of the main contract) do not control this case. See, e.g., Trinity Universal, 75 S.W.3d

at 9, 11-12; Temple Eastex, 848 S.W.2d at 729-31. The parties to the construction contract did not

have the power to directly waive Factory Mutual’s subrogation rights. Although we must try to give

effect to all terms of a contract, we cannot interpret contracts in ways that allow parties to exercise

powers they do not possess, particularly when that exercise purports to deprive another party of

its rights. The subrogation waiver clause may have some meaning, but it does not mean either

that appellees waived their right to sue subcontractors or that appellees waived Factory Mutual’s

right to subrogation. The right to subrogation is waived in this case only if Factory Mutual waived

its subrogation rights.

We find no evidence that Factory Mutual waived its subrogation rights. The

insurance contract demonstrates the contrary. The parties agreed as follows:

Upon the payment of any claim under this Policy, the Insurers shall be subrogated to all the rights and remedies of the Insured arising out of such claim against any person or corporation whatsoever except that the Insurers hereby waive all rights which they may have acquired by a payment of a claim under this Policy to recover the amount so paid from any person or corporation with whom the Insured, prior to the occurrence of the loss or damage, shall have agreed to waive their rights to recovery in respect of any loss or damage which may be caused by such person or corporation.

This is not a waiver by Factory Mutual of its right to subrogation, but merely an acknowledgment

that a waiver of the claimant’s claims would bar the insurer from pursuing the claims waived by the

claimant. As discussed, there is no waiver by appellees of any of their claims in evidence. Appellees

declared that “subrogation is waived,” but that does not constitute a waiver of appellees’ claims

and appellees lacked the power to waive Factory Mutual’s right. At most, the construction contract

7 appears to contain a commitment by appellees to obtain a waiver of subrogation from their insurer.

That is not, in itself, either a waiver of appellees’ claims or a waiver of the insurer’s subrogation

rights. See H.C. Beck, 2009 Tex. App. LEXIS 1756, at *5-6, *9-10.

Euroform also contends that appellees waived their right to subrogation by agreeing

to include subcontractors as additional insureds. To preserve a complaint for our review, a party

must have presented to the trial court a timely request, objection, or motion that states the specific

grounds for the desired ruling if they are not apparent from the context of the request, objection,

or motion. Tex. R. App. P. 33.1(a); see also Plano Lincoln Mercury, Inc. v. Roberts, 167 S.W.3d

616, 620 (Tex. App.—Dallas 2005, no pet.). Appellees contend that Euroform did not own

any property on site, so it could not be an additional insured under a property insurance policy.

Appellees also argue that Euroform’s negligent damage of other insured’s property prevents

Euroform from claiming protection under any subrogation waiver. The trial record does not reveal

that this argument was raised at trial. Euroform did not raise this argument in its motion for partial

summary judgment, its motion for directed verdict, or its motion for judgment notwithstanding

the verdict. It is not the type of argument on which we can reverse when raised for the first time

on appeal. Euroform has not shown error by the trial court in failing to grant relief on an argument

not presented to the trial court.

Euroform also sought a directed verdict on the ground that appellees’ claims were

barred by the economic loss doctrine. The trial court denied the motion. The economic loss doctrine

prevents contracting parties from recovering tort damages from their contracting partners in addition

to damages available through contractual remedies. It applies when losses from an occurrence arise

8 from failure of a product and the damage or loss is limited to the product itself. Equistar Chems.,

L.P. v. Dresser-Rand Co., 240 S.W.3d 864, 867 (Tex. 2007). It does not preclude tort recovery if

a defective product causes physical harm to the ultimate user or consumer or other property of

the user or consumer in addition to causing damage to the product itself. Id. Even if Euroform is

entitled to invoke the doctrine despite lacking privity of contract with appellees, the fire damaged

property other than the evaporative cooler supplied by Euroform. Euroform did not establish as a

matter of law that its evaporative cooler was an integrated component part of a machine that

damaged only the integrated machine. See Signal Oil & Gas v. Universal Oil Prods., 572 S.W.2d

320, 322-25 (Tex. 1978). The fire damaged an air-intake filter and other equipment that was not

manufactured by Euroform and was not the subject of its subcontracts. These facts are more like the

case in which a misrepaired water heater caused a fire and destroyed a house, giving rise to recovery

in tort. See Montgomery Ward & Co. v. Scharrenbeck, 204 S.W.2d 508, 509-10 (Tex. 1947). We

are also not persuaded by Euroform’s argument that the economic loss doctrine in Texas precludes

recovery in tort when a subcontractor’s actions or product damages property outside the scope of the

subcontract, but within the scope of the overall contract, citing Casa Clara Condo. Ass’n v. Charley

Toppino & Sons, Inc., 620 So.2d 1244 (Fla. 1993). The economic loss rule is intended to prevent

tort recovery when the loss is only economic loss to the subject of a contract. Southwestern Bell Tel.

Co. v. DeLanney, 809 S.W.2d 493, 494-95 (Tex. 1991). This prevents over-recovery for a single

injury. This principle does not require limiting recovery from a subcontractor to the subject of a

subcontract when the subcontractor’s action or product damages property beyond the scope of the

9 subcontract. The court did not err by overruling the motion for directed verdict on this issue or by

rendering judgment for appellees based on the jury’s verdict.

Affirmed.

G. Alan Waldrop, Justice

Before Justices Puryear, Pemberton and Waldrop

Affirmed

Filed: August 31, 2009