WAUSAU UNDERWRITERS INSUR CO V AJAX PAVING INDUSTRIES INC
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STATE OF MICHIGAN
COURT OF APPEALS
WAUSAU UNDERWRITERS INSURANCE
COMPANY,
FOR PUBLICATION
May 27, 2003
9:10 a.m.
Plaintiff-Appellant,
v
No. 236823
Oakland Circuit Court
LC No. 00-027384-CK
AJAX PAVING INDUSTRIES, INC.,
Defendant-Appellee.
Updated Copy
July 7, 2003
Before: Markey, P.J., and Cavanagh and Hoekstra, JJ.
CAVANAGH, J.
Plaintiff Wausau Underwriters Insurance Company appeals as of right from an order
granting defendant Ajax Paving Industries, Inc.'s, motion for summary disposition under MCR
2.116(C)(10). We reverse and remand for further proceedings.
Under its contract for highway construction work with the Michigan Department of
Transportation (MDOT), defendant was required to purchase owners and contractors protective
(OCP) liability insurance. Defendant ultimately purchased an OCP policy from plaintiff for
MDOT's benefit. Subsequently, two individuals who were allegedly injured during the
construction project filed a lawsuit against MDOT. Defendant's comprehensive liability insurer,
American International Group, Incorporated (AIG), provided MDOT's defense and negotiated a
settlement. The AIG then required plaintiff to pay its OCP policy limits before defendant or the
AIG would contribute to the settlement. Under protest, plaintiff paid its policy limits and
commenced the instant action seeking contractual indemnification from defendant as MDOT's
subrogee. Thereafter, defendant was granted summary disposition on the ground that defendant
fulfilled its contractual obligation to indemnify MDOT by purchasing the OCP policy and that
the policy provided primary coverage. Plaintiff appeals.
First, plaintiff claims that the trial court erred in failing to address whether the
indemnification agreement in the construction contract between defendant and MDOT was
enforceable. We disagree. This Court reviews de novo a trial court's grant of summary
disposition. Pinckney Community Schools v Continental Cas Co, 213 Mich App 521, 525; 540
NW2d 748 (1995). Here, the trial court implicitly held that the indemnification agreement was
enforceable and that by purchasing the OCP policy from plaintiff, defendant indemnified MDOT
and, thus, complied with that agreement. Consequently, plaintiff 's argument is without merit.
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Next, plaintiff argues that the trial court erred in concluding that plaintiff was not entitled
to contractual indemnification by defendant as MDOT's subrogee. We agree.
The contract between MDOT and defendant provided as follows:
1.07.08 Damage Liability and Insurance.—The Contractor shall save
harmless and indemnify the State, the Commission, and the Department and its
employees against all claims for damages to public or private property and for
injuries to persons arising out of and during the progress and to the completion of
the work.
a. Workmen's Compensation Insurance.—The Contractor, prior to the
execution of the contract, shall file a certification that the Contractor carries
Workmen's Compensation Insurance.
b. Bodily Injury and Property Damage.—The Contractor, prior to
execution of the contract, shall file with the Department copies of completed
certificates of insurance, as evidence that the Contractor carries adequate
insurance, satisfactory to the Director, to afford protection against all claims for
damages to public or private property, and injuries to persons, arising out of and
during the progress of the work, and to its completion and, where specified in the
proposal, similar insurance to protect the owner of premises on or near which
construction operations are to be performed.
1. Bodily Injury and Property Damage Other Than Automobile.—[This
provision set forth minimum limits of property damage and bodily injury liability
covering each contract.]
2. Owners Protective Liability.—Bodily injury and property damage
protection shall be extended to the Department and the Commission . . . .
3. Bodily Injury Liability and Property Damage Liability Automobiles.—
[This provision set forth minimum limits of property damage and bodily injury
liability covering each contract.]
In accordance with subsection 1.07.08(b)(2) of the contract, defendant purchased an OCP policy
from plaintiff that named MDOT as the insured and defendant as the designated contractor. The
OCP policy provided that plaintiff would "pay those sums that the insured becomes legally
obligated to pay as damages because of 'bodily injury' or 'property damage' to which this
insurance applies." The policy also provided that the contractor was responsible for the payment
of all policy premiums and that "[i]f the insured has rights to recover all or part of any payment
we have made under this Policy those rights are transferred to us." Whether plaintiff is entitled
to reimbursement from defendant for payments made in settlement of bodily injury claims filed
against MDOT is the issue presented.
Plaintiff claims that it is entitled to reimbursement, by operation of the subrogation
doctrine, as a consequence of the indemnification provision contained in the contract between
MDOT and defendant. Defendant claims, and the trial court agreed, that defendant satisfied its
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contractual duty to indemnify MDOT by purchasing an OCP policy on MDOT's behalf. We
agree with plaintiff—plaintiff, as subrogee, is entitled to reimbursement from defendant of
settlement payments made on MDOT's behalf because of MDOT's contract with defendant.
A long-established rule of contract interpretation is that the intent of the parties is
ascertained and enforced according to the plain language of the contract. Zurich Ins Co v CCR &
Co (On Rehearing), 226 Mich App 599, 603-604; 576 NW2d 392 (1997). Clear, unambiguous,
and definite contract language must be enforced as written and courts may not write a different
contract for the parties or consider extrinsic evidence to determine the parties' intent. UAW-GM
Human Resource Ctr v KSL Recreation Corp, 228 Mich App 486, 491; 579 NW2d 411 (1998),
quoting Sheldon-Seatz, Inc v Coles, 319 Mich 401, 406-407; 29 NW2d 832 (1947). A contract
that is clear and unambiguous is construed as a matter of law. Port Huron Ed Ass'n v Port
Huron Area School Dist, 452 Mich 309, 323; 550 NW2d 228 (1996).
Here, we must first consider the contract between MDOT and defendant because any
rights that plaintiff acquired with regard to defendant are derivative of MDOT's rights. See Auto
Club Ins Ass'n v New York Life Ins Co, 440 Mich 126, 135-136; 485 NW2d 695 (1992), quoting
16 Couch, Insurance, 2d (rev ed), § 61:37, pp 120-121. The contract mandated that defendant
"save harmless and indemnify the State . . . against all claims . . . ." Consistent with the obvious
intention to insulate MDOT from all potential liability, the contract required that defendant
purchase worker's compensation insurance and bodily injury and property damage insurance.
Three specific types of bodily injury and property damage insurance policies were mandated,
including policies that provided insurance coverage for claims arising out of automobile usage
and "other than automobile" claims, as well as claims against the owners. It is this third policy,
the OCP insurance policy, that is at issue in this case.
OCP policies are typically purchased by a general contractor for the benefit of the project
owner. See, generally, Galganski, Owners and Contractors Protective Liability: An Insurance
Tool in Construction, 15-JAN Construction Law 8 (1995). Having such a policy in the project
owner's name protects the owner from any delay in defending against a legal action instituted
against it during the construction project. Id. Unless the contractor is a designated, named
insured, the OCP policy does not provide insurance coverage for the contractor. Instead, the
policy usually provides the owner with coverage for allegations of vicarious liability arising out
of the contractor's construction activities and for allegations involving the owner's supervision of
the construction activities. See id.
In this case, the trial court partially premised its dismissal of plaintiff 's contractual
indemnification claim on the "other insurance" clause of the OCP policy, which provided:
The insurance afforded by this policy is primary insurance and we will not
seek contribution from any other insurance available to you unless the other
insurance is provided by a "contractor" other than the designated "contractor" for
the same operation and job location designated in the Declarations.
The trial court reasoned that "by the policy terms, [plaintiff] agreed that its policy's coverage
would be primary, and specifically waived any right for recovery against any other insurance
coverage purchased for MDOT's benefit by [defendant]." However, by the plain language of the
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provision, plaintiff only agreed that its coverage was primary with regard to "any other insurance
available to [MDOT]." The only insurance that could be "available" to MDOT would be
insurance policies in which MDOT was a named insured, e.g., a commercial general liability
[CGL] policy. Here, plaintiff is not seeking contribution from any other insurance available to
MDOT; rather, it is seeking indemnification from defendant and, in effect, insurance available to
defendant as a named insured. Therefore, we reject the trial court's reliance on the "other
insurance" clause as an appropriate ground for dismissal of plaintiff 's claim.
The trial court also premised its dismissal of plaintiff 's action on the ground that
defendant fulfilled its contractual duty to indemnify MDOT by purchasing the OCP policy as
required by their contract. We reject the contention that a contractual obligation to procure
insurance effectively extinguishes an express contractual right to indemnification contained
within the same contract. The clear and unequivocal terms of the contract mandated that
defendant "save harmless and indemnify the State . . . against all claims . . . ." It did not
condition or otherwise circumscribe MDOT's right to be free from liability and entitlement to
reimbursement of any loss on defendant's purchase of insurance. That the contract also
contained provisions obligating defendant to obtain specific insurance policies as security against
the potential liability does not fulfill the other explicit contractual obligation to indemnify the
state "against all claims . . . ." If the parties had intended to waive claims against each other if
insurance covered any losses, they could have included such a waiver clause within the contract.
Similarly, the parties could have incorporated a subrogation waiver clause in the contract or
requested a subrogation waiver endorsement in the OCP policy. We will not rewrite the parties'
contract under the guise of interpretation. See Upjohn Co v New Hampshire Ins Co, 438 Mich
197, 207; 476 NW2d 392 (1991).
Defendant posits other arguments on appeal in support of the trial court's holding. First,
defendant claims that the terms "indemnify" and "insure" are legally equivalent and, thus, by
securing insurance in MDOT's name, defendant fulfilled its contractual obligation to indemnify
MDOT. We disagree that the terms "insure" and "indemnify" are legally equivalent; for
example, an insurance policy may not cover the entire loss but when one promises to indemnify
another, the promise is to reimburse for the entire loss. See, e.g., Black's Law Dictionary (7th
ed).
Similarly we reject defendant's argument that permitting MDOT to seek indemnity for
the loss that was covered by the OCP policy causes the coverage that defendant purchased to be
rendered illusory because defendant "received nothing in return for it [sic] payment of the
premium." Defendant was required to purchase the policy under the construction contract and it
was for MDOT's benefit—the named insured—not defendant's benefit. The award of the
construction contract, which was conditioned in part on defendant procuring the policy, was a
result. Defendant's claim that it expected to otherwise benefit from MDOT's OCP policy is
unsupported by legal authority or its contract with MDOT. Further, obviously the OCP policy
coverage was not illusory but fulfilled its intended purpose to protect MDOT from being
embroiled in a protracted litigation since its policy limits were paid to settle the third-party
claims filed against MDOT, while defendant and its insurance company refused to pay the
settlement. In addition, the premium for MDOT's OCP policy was $12,075 and the premium for
defendant's CGL policy was $185,750. This large disparity in premiums tends to illustrate that
the CGL policy was intended to cover the majority of the risk associated with the construction
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project and that indemnification was contemplated. See, e.g., North Star Reinsurance Corp v
Continental Ins Co, 82 NY2d 281, 292; 624 NE2d 647 (1993).
Defendant's reliance on Kehoe v Commonwealth Edison Co, 296 Ill App 3d 584; 694
NE2d 1119 (1998), is also misplaced. In that case, the issue was whether the purchase of
insurance for the owner by a contractor, pursuant to a construction contract, barred the owner's
contribution action against the contractor. After review of the contract, the court determined that
such claim was barred because the contract showed "the parties' intent to provide for potential
losses first by the mechanism of insurance and then by indemnification." Id. at 591. However,
the construction contract at issue there contained the following provision: "'to the extent the
Owner is compensated by insurance as to which the Owner's insurance carrier's rights of
subrogation have been waived or are required to be waived in accordance with the Contract,' the
contractor is not required to provide indemnification." Id. No comparable provision was
included in the construction contract between MDOT and defendant. Accordingly, we reject the
trial court's analogous "hierarchy of responsibility" rationale in support of its holding, i.e., the
OCP policy provided MDOT's primary protection, followed by defendant's CGL policy, and
then, if necessary, indemnification.
In sum, pursuant to their construction contract, defendant was obligated to "save harmless
and indemnify" MDOT against all claims "arising out of and during the progress and to the
completion of the work." Defendant's procurement of insurance policies for itself and an OCP
policy for MDOT's benefit did not discharge its contractual duty or negate MDOT's
corresponding contractual right to indemnification. The contract did not include any applicable
waiver provisions but, instead, its clear and unambiguous language evidences an intent to
insulate MDOT from liability. It is undisputed that plaintiff is MDOT's rightful subrogee;
therefore, the trial court erred in summarily dismissing its action against defendant.
Reversed and remanded for proceedings consistent with this opinion. We do not retain
jurisdiction.
/s/ Mark J. Cavanagh
/s/ Jane E. Markey
/s/ Joel P. Hoekstra
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