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ACE AMERICAN INS. CO. v. KEYSTONE CONSTRUCTION & MAINTENANCE SERVICES, INC.
United States District Court, D. Connecticut.
September 27, 2012.
The construction contract compels the purchase of an insurance policy. The insurance policy actually purchased provides that subcontractors of policyholders are additional insureds. When a policy says that, to the extent required by the contract, a party is an additional insured, and the contract insures that party's interest, the combination of these terms seems to me to suggest, if not to compel, the conclusion that the party is an additional insured. I see no more reasonable construction. Bluewater finds other language in the Kleen/O&G Contract to support its argument that subcontractors are additional insureds. It notes that the first sentence of the section on "Builder's All Risk Insurance" provides that the Owner shall purchase and maintain insurance "for the benefit of Owner and the Financing Parties, as well as the benefit of the Contractor and other project participants." Bluewater's Mot. to Dismiss, Ex. A at 12.3. Thus, Bluewater argues, the All Risk Insurance is for the benefit of project participants such as the subcontractors. Bluewater also argues that to "insure the interests of" the subcontractors clearly means to include the subcontractors as additional insureds under the insurance policy. Bluewater notes that the language of the Kleen Contract is very broad — it insures the "value for the entire Facility at the site on a replacement costs basis." Bluewater also points to the language of the insurance agreement, which states that "To the extent required by any contract or subcontract for the Insured Project . . . all owners, all contractors and subcontractors of every tier . . . are recognized as Additional Insureds hereunder." Bluewater argues that this provision anticipates that when Bluewater is insured, it will be as an "additional insured."6 In sum, I believe the Kleen/O&G contract provides that subcontractors are covered by the insurance agreement. The clearest reading of the contract provides that, if subcontractors are to be insured, it is as "additional insureds." b. Whether the Doctrine of Waste Precludes Subrogation Subrogation is an equitable doctrine, and "`[t]he determination of what equity requires in a particular case, the balancing of equities, is a matter for the discretion of the trial court.'" Wasko v. Manella, 269 Conn. 527, 542 (2004) (quoting Kakalik v. Bernardo, 184 Conn. 386, 395 (1981)). Because subrogation is an equitable doctrine, a court can decide that subrogation is inappropriate in certain circumstances. In doing so, however, a court must bear in mind that "`[s]ubrogation is a highly favored doctrine . . . which courts should be inclined to extend rather than restrict.'" Wasko, 527 Conn. at 543 (quoting Westchester Fire Ins. Co. v. Allstate Ins. Co., 236 Conn. 362, 372 (1996)). The Connecticut Supreme Court has held that, as a policy matter, a landlord's insurer has no right of subrogation against a tenant. DiLullo v. Joseph, 259 Conn. 847, 851 (2002). The Court in DiLullo was motivated by the fact that the tenant's rent presumably included some calculation of the landlord's insurance premium, and to hold otherwise would create a strong incentive "for every tenant to carry liability insurance in an amount necessary to compensate for the value, or perhaps even the replacement cost, of the entire building, irrespective of the portion of the building occupied by the tenant." Id. at 854. This would lead to two different individuals carrying insurance policies on the entire building, which the Court held would be a form of economic waste. Two years after DiLullo, the Connecticut Supreme Court held a homeowner's insurer did have a right of subrogation against a houseguest. Wasko, 527 Conn. at 545. The Court in Wasko noted that there would be no economic waste in that situation, because a houseguest would already be covered by his third-party liability coverage; the parties would not be buying insurance to cover the same property in the way that they were in DiLullo. Id. at 546. The Court also held that a tenant would not expect to be sued in a subrogation action, but that social houseguests would expect to be sued for negligent conduct in another's home. Id. at 547.
1. Unless otherwise noted, all background information is taken from the Third Amended Complaint.
2. Although the plaintiffs made similar allegations with regard to Algonquin, at the motion hearing the plaintiffs admitted that they had no reason to believe Algonquin was involved in developing gas blow protocols.
3. In response to the motion to dismiss, the plaintiffs provided the court with an affidavit describing Spectra's involvement in the gas blows. I am unable to consider that additional material at the motion to dismiss stage.
4. Plaintiffs' various builder's risk insurance policies follow the form of a single lead policy issued by Ace American Insurance Company. Unless otherwise noted, the term "insurance policy" refers to Kleen's insurance agreements with the plaintiffs.
5. In support of their argument, the plaintiffs cite Stop & Shop Supermarket Co. v. Abco Refrigeration Supply Corp., 48 Conn.Sup. 301 (2003). Stop & Shop was also a subrogation action, in which the defendant claimed to be an additional insured. The contract in that case stated that "Unless otherwise provided, the Owner shall purchase and maintain . . . property insurance upon the entire Work at the site to the full insurable value thereof. This insurance shall be on an all-risk policy form and shall include interests of the Owner, the Contractor, Subcontractors, and Sub-subcontractors in the Work and shall insure against the perils of fire." Id. at 305. The Court concluded that the defendant was not an "additional insured" under that agreement because "[w]hen Stop & Shop wanted to designate others as additional insureds, it did so." Id. at 311. I believe there is more evidence in this case that the subcontractors were actual insureds under the contract, including the fact that the Contractor was considered a fiduciary for the "insureds," including the subcontractors.
6. Perhaps the least convincing of Bluewater's arguments is that the contract should be read in the subcontractors' favor because the contract is ambiguous. "`As with contracts generally, a provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading. . . . Under those circumstances, any ambiguity in the terms of an insurance policy must be construed in favor of the insured because the insurance company drafted the policy.'" Johnson v. Conn. Ins. Guar. Ass'n, 302 Conn. 639, 640 (2011) (quoting Conn. Med. Ins. Co. v. Kulikowski, 286 Conn. 1, 5-6 (2008)). The ambiguity here stems not from the insurance agreement, however, but the contract between Kleen and O&G. There is no indication that Kleen alone drafted the contract, and thus the usual rule regarding ambiguity in insurance agreements does not apply here.
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