Brown Mech. Contractors, Inc. v. Centennial Ins. Co.
Docket: 81-35, 81-36, 81-78 and 81-79
Court: Supreme Court of Alabama; January 6, 1983; Alabama; State Supreme Court
The case involves consolidated appeals resulting from a fire that destroyed a partially constructed cooling tower and damaged its foundation, leading to disputes over liability and insurance coverage among various contractors and insurers. Marley Cooling Tower Company (Marley) was contracted by Republic Steel Corporation (Republic) to construct the cooling tower, while Goodner Construction Company (Goodner) was responsible for the concrete foundation and related installations, subcontracting the piping work to Brown Mechanical Contractors, Inc. (Brown). Both Marley and Goodner accepted all risks associated with their respective construction contracts and took precautions to protect property on Republic's premises.
Marley obtained a $5 million insurance policy from Centennial Insurance Company and National Union Fire Insurance Company (the insurers) to cover property loss, although it is unclear if Goodner secured similar coverage. The fire, which occurred on October 17, 1979, completely destroyed the cooling tower, which was 88% finished, and also damaged the foundation. Importantly, no Marley employees were present at the site at the time, and Marley was not deemed responsible for the fire itself; liability was attributed to contractual obligations instead of tort.
Republic sought damages from Marley for both the cooling tower loss and the foundation damage. Marley contested the claim, submitting a proof of loss only for the cooling tower while reserving the right to claim for the foundation damages later, depending on contractual interpretations. The parties failed to reach an agreement, leading to Marley rebuilding the cooling tower at its own expense (accepted by Republic) and Goodner repairing the foundation, which Republic financed. The insurers sought a declaratory judgment to clarify coverage obligations and subrogation rights, resulting in dissatisfaction from all parties involved in the litigation except for Republic.
Insurers initiated a declaratory action to establish they owed no coverage for foundation damages and that their subrogation rights would arise upon payment for cooling tower losses, attributing the fire to the negligence of defendants Goodner and Brown. Marley counterclaimed for coverage regarding potential obligations to Republic for foundation damages and crossclaimed against Goodner and Brown for $173,164.76 for damages related to both the cooling tower and foundation. Marley later added a claim against Republic for $16,975.00, reflecting a withheld credit. Republic denied coverage for foundation damages and crossclaimed against Goodner and Brown for negligent losses, later amending to seek foundation damages solely from Goodner. Goodner denied negligence and claimed the action was premature, demanding a jury trial and filing a cross-claim against Brown for indemnification.
The trial court found in a detailed opinion that: 1) Goodner's defense of prematurity was rejected, affirming the insurers' entitlement to subrogation; 2) Marley was liable to Republic for both foundation and cooling tower damages, with a credit applied; 3) insurers were obligated to cover both damages for Marley; 4) Goodner and Brown's negligence was the proximate cause of the fire, making them jointly liable; and 5) the contract did not require Brown to indemnify Goodner for his own negligence.
On appeal, the court addressed several issues: A) Goodner and Brown's claim of premature subrogation was rejected; B) Goodner's demand for a jury trial was denied; C) Marley's liability for foundation damages was reversed, limiting it to the cooling tower; D) the proximate cause of the fire was affirmed as Goodner's and Brown's negligence; E) no reversible error was found in evidentiary rulings contested by Brown; and F) denial of indemnity from Brown to Goodner was upheld.
Goodner and Brown assert that the insurers lack standing to pursue subrogation until they have compensated their insured, Marley, citing Aetna Insurance Company v. Hann, which stipulates that subrogation rights arise only after payment is made. They acknowledge, however, that a court can address subrogation and liability issues in one action even before payment is made, referencing Barnes v. Tarver and Liverpool, London, Globe Ins. Co. v. Federal Land Bank. Goodner and Brown argue that the current declaratory judgment action is barred under Hann, contrasting it with permissible third-party claims in prior cases. The court counters this by stating that the payment requirement serves the insured's interests, and Marley, not Goodner and Brown, is the one who can object to the lack of payment. The court can condition any judgment for the insurers on their payment to Marley, thus satisfying Hann's requirements.
Goodner and Brown's assertion regarding the prohibition of an "original bill" in the absence of payment is challenged, as the court sees no difference in the procedural outcomes between impleading subrogation defendants and the current declaratory action. The court clarifies that the standing requirement is distinct from the rule in Hann; a concrete stake in the outcome exists since the court can enforce payment to Marley.
In a separate issue, Goodner claims a violation of its constitutional right to a jury trial due to the trial court allegedly ignoring its timely jury demands. The insurers argue these demands were either untimely or waived. Goodner is entitled to a jury trial concerning tort liability within the declaratory judgment framework as per Rule 57 of the Alabama Rules of Civil Procedure.
A jury trial must be demanded within 30 days after the last pleading related to the issues for which a jury trial is sought, as stipulated by Rule 38(b). If a party fails to specify issues in their demand, they are considered to have demanded a jury trial for all triable issues. A timely demand is critical, as late demands result in a waiver of the right to a jury trial under Rule 38(d). After waiving this right, a jury trial may only be granted at the court's discretion as per Rule 39(b).
In the case involving Goodner, several procedural missteps occurred regarding jury demands. Goodner first demanded a jury trial in response to Republic's cross-claim, subsequently demanding a jury trial on all issues under that cross-claim in another answer. However, Goodner did not make a jury demand in their response to the insurers' complaint. Republic then moved to strike Goodner's jury demand as untimely. The trial court ruled that the original action was properly triable without a jury, while issues raised in crossclaims could be tried by a jury. Consequently, the court denied the jury demand for the original action, allowing it to proceed without a jury, and disjoined the crossclaims for future consideration.
Following this, a two-day trial occurred, leading to the trial court's "substitute order" that granted Republic's motion to strike Goodner's jury demand and ordered a bench trial for the entire case except for Republic's disjoined counterclaim against Goodner. A detailed chronology of events was provided, outlining the timeline of the proceedings from the initial complaint to the final judgment issued on August 31.
Determining the applicability of Goodner's jury demands requires analyzing the issues and parties involved. Goodner's initial jury demand indicated a request for a jury trial on "all issues in the entire case," despite not including a jury demand in its response to the insurers' complaint alleging negligence. Republic's and Marley's cross-claims raised Goodner's negligence, and the trial judge appeared to recognize a jury demand against the insurers. Under Rule 38(c), jury demands are presumed to apply broadly unless restricted, leading to the assumption that Goodner's demand was valid concerning the negligence issues.
Goodner contends it met the timeliness requirement of Rule 38(b) by including jury demands with its answers. However, Republic argues that its motion for default barred Goodner from claiming a jury trial as a right because Goodner's demand was only timely in relation to its late answer. The case law suggests that a prior entry of default could preclude late filings, but Republic's motion for default was never ruled upon, although it was enough for Republic to have filed it. The trial court had the discretion to enter a default judgment, potentially limiting Goodner's right to a jury trial.
Consequently, the trial court correctly struck Goodner's jury demand as untimely against Republic. In contrast, since the insurers did not move for default, Goodner's jury demand was timely against them. Therefore, if timeliness were the only issue, both Republic and the insurers would be required to try the negligence claims before a jury.
However, timeliness is not the sole concern, as Republic and the insurers argue that Goodner waived its right to a jury trial through its litigation conduct. It is suggested that this situation reflects estoppel rather than waiver since Goodner did not intend to forfeit its right. Goodner claims that the posttrial "Substitute Order," which struck its jury demands as untimely, was the first notice of no jury trial. This assertion contradicts earlier proceedings where the July 2 order denied a jury for the insurers' original action while recognizing triable issues in the cross-claims. Goodner had a responsibility to ascertain that the insurers' complaint included allegations of negligence, which warranted a jury trial. Confusion was evident at trial when attorneys questioned whether Goodner's and Marley's cross-claims would be addressed.
The court expressed difficulty in recalling numerous cases and indicated that it would need to review its previous orders. Goodner's attorney provided a copy of the order for the court's reference. The court stated that it could not try cross-claims due to an existing jury demand that needed to be honored, noting that such claims would be disjoined. Marley’s attorney requested a non-jury adjudication for issues with their insurance carrier, a request supported by Brown's attorney. Goodner's attorney clarified that they did not want to waive their right to a jury in response to Republic's cross-claims but sought clarification on a separate indemnity cross-claim against Brown Mechanical. The court acknowledged the need to separate cross-claims involving a jury demand from those that could be tried without a jury.
During the trial, which proceeded without objections regarding relevance, Goodner's negligence was a central issue, with testimonies and cross-examinations conducted accordingly. Near the trial's conclusion, Republic amended its cross-claim against Goodner to include a contract claim, which prompted a discussion about the severance of the cross-claim. Goodner's attorney sought confirmation of the cross-claim's severance, which the court affirmed, stating that the jury-demanded claim would not be heard in this court.
Goodner and its attorney later indicated they understood the court's intention to hear only non-jury matters, yet Goodner failed to notify the court that negligence issues were being litigated despite the jury demand. Goodner argued that all aspects of the case needed resolution to address both the insurers' claims and Goodner's indemnity cross-claim, which did not request a jury. The court concluded that Goodner was estopped from claiming a jury trial because it had consented to a non-jury trial, which it should have recognized as its sole opportunity to litigate. The court determined that even if the assent was unintentional, it did not warrant a second chance, referencing that a late jury demand results in waiver. It noted that the waiver standard applied to constitutional rights does not equate to the right to a jury trial.
In Fenstermacher v. Philadelphia National Bank, the plaintiff's request for final equitable relief and participation in a consolidated hearing led to a waiver of the right to a jury trial, even before the demand period expired. In Southland Reship, Inc. v. Flegel, a timely jury demand was waived when a party acquiesced to a nonjury hearing regarding liability, reserving the jury trial for damages only. A dispute between Marley and Republic over an insurance claim centered on the interpretation of contract paragraphs 12(a) and 16(d). Paragraph 12(a) stated that the contractor was responsible for all loss or damage to the work prior to its acceptance, while paragraph 16(d) required the contractor to take precautions to prevent damage on Republic's premises. The trial court concluded that Marley was liable for both the cooling tower and its foundation damages, rejecting Marley's claim of limited responsibility.
Under Alabama law, the trial court must first determine if a contract is ambiguous before interpreting its terms. The threshold determination of ambiguity is a legal question. The trial court failed to address this issue, and it was found that the contract was not ambiguous. The interpretation that "the work" in paragraph 12(a) referred solely to the cooling tower was supported, as nothing in the contract indicated otherwise. While there was a possibility that the parties understood the terms to encompass all work at the site, including foundation work by another contractor, the trial court should have considered extrinsic evidence to assess any latent ambiguities. The construction contracts for Marley and another contractor were based on the same preprinted form, implying that each contractor was responsible for losses related only to their respective work.
Marley is only responsible for losses arising from its own negligence, as outlined in paragraph 16(d). The literal interpretation, which suggests Marley is liable for all property losses of Republic, is not intended. Comparisons with Goodner's contract, which contains the same provision, confirm that Marley is not liable for damages to Goodner's construction. There is no contractual basis for holding Marley accountable for any losses beyond its work on the cooling tower, nor did Marley agree to insure Republic's entire plant, contrary to Republic's claims. The insurers are obligated to cover the cooling tower loss but are not liable for the foundation damages, which are attributed to Marley.
In the causation analysis, Goodner and Brown acknowledge their breach of duty but contest that it caused the fire. They argue that the possibility of a careless act causing damage does not establish proximate cause. The trial court's findings detail that Goodner, as the prime contractor, failed to ensure safety during the welding performed by Brown, who also neglected necessary precautions. Sparks from welding could have ignited a fire in the cooling tower, which was first detected hours later in the area where welding occurred. Expert testimony supported the conclusion that welding was the most probable cause of the fire, notwithstanding Goodner and Brown's claims that it was merely a possible cause. The trial court's factual findings are presumed correct unless clearly erroneous.
Reynolds identified welding as the sole source of fire, prompting the trial judge to probe the distinctions between certain, probable, and possible causes. Goodner and Brown contest Reynolds's conclusion, arguing it was based on the incorrect assumption that the plywood was old and damaged; however, Reynolds's testimony did not necessitate this assumption, as he mentioned that a single spark could ignite a fire from a crack. They also overlooked that the fire might have originated from welding spatter smoldering in drainage holes. While Brown's welding expert, H.B. Rucker, claimed that weld spatter lacked sufficient heat to ignite the fire, Goodner asserted that the court should favor Rucker's testimony as the only qualified expert. This argument ignores another expert, Forrest Smith, who supported Reynolds's position on the potential of weld spatter to cause ignition. The court found no compelling reasons to dismiss welding as a cause of the fire and deemed Reynolds's explanations for rejecting alternative causes credible. The trial court, having the best opportunity to assess the witnesses and conflicting evidence, was justified in its decision.
Regarding evidentiary issues, Brown challenged the admission of three pieces of evidence. Firstly, he objected to a question posed to Reynolds by the insurers' attorney, claiming it was leading and misrepresented Reynolds's testimony. However, the trial court allowed the question after clarifying that Reynolds had indeed considered welding as the cause. Although leading, the judge had discretion to permit it. Secondly, Brown contended that a letter from a subcontractor was hearsay, asserting it was used to prove that cutting work with an acetylene torch was finished by noon on the day of the fire. The court found this letter did not constitute hearsay, as it was pertinent to explaining the basis of Reynolds's expert opinion.
The trial court had discretion to admit a letter for a limited purpose, despite potential issues with the factual basis of an opinion. Brown argued that the trial judge's questioning of Reynolds was leading and suggestive; however, no objection was raised during trial, and the questioning is deemed proper. The main issue addressed is Brown's liability to Goodner under their indemnification contract, which requires Brown to defend and indemnify Goodner from claims related to Brown's work. The court noted that the indemnity provision was insufficient to indemnify Goodner for its own negligence, referencing *Industrial Tile, Inc. v. Stewart*, which allows indemnification for one's own negligence only when the agreement is clear and unequivocal. The court found that unlike in *Industrial Tile*, where the indemnity language was explicit, the agreement between Goodner and Brown lacked clarity regarding indemnification for Goodner's negligence. The language referred specifically to work performed "by, for and on behalf of the subcontractor," which does not encompass Goodner's independent actions, such as inadequate supervision of Brown's work. Consequently, the contract did not unambiguously express an intent for Brown to indemnify Goodner for its own negligence, supported by comparisons to prior case law.
An ambiguous contract is generally interpreted against the party that drafted it, as established in U.S. Fidelity & Guaranty Co. v. Mason Dulion Co. The court identified an ambiguity in an indemnity agreement due to conflicting provisions requiring mutual reimbursement for wrongful acts, favoring the contractor who drafted the agreement. Similarly, in Georgia, Florida, Alabama Transportation Co. Inc. v. Deaton, Inc., the ambiguity was construed against Goodner, the drafter of a preprinted contract form. The court noted that the degree of control retained by the indemnitee over the liability-related activity is crucial; in previous cases, equipment lessors could seek indemnity due to their lessees' control. However, Goodner's situation differs because it is liable as a prime contractor for not managing its subcontractor properly. Goodner referenced Mitchell v. Moore to support its indemnity claim, but in that case, the lease's language explicitly indicated the landlord's responsibility for common area maintenance, showing an intention to indemnify. Ultimately, the court denied indemnity to Goodner based on the contract language, the identity of the drafter, and the indemnitee's control. The judgment was partially reversed, and the case was remanded for further clarification on Goodner's and Brown's liability for foundation damages, including the affirmance penalty and interest on the judgment, following requests from the parties involved.
The trial court did not issue a final judgment in favor of Republic against Goodner and Brown, believing that foundation damages would be covered by insurers. However, since it has been determined that the insurers have no coverage for the foundation damages, the court is directed to enter a judgment against Goodner and Brown for those damages under Republic's negligence cross-claim. This decision renders moot Republic's contract cross-claim against Goodner. Both Republic and the insurers seek a ten percent affirmance penalty under Code of 1975, 12-22-72, applicable when a stayed money judgment is affirmed. However, this statute is inapplicable to Republic, as no final judgment has been reviewed in its favor against Goodner and Brown. For the insurers, the judgment was not outrightly affirmed, as it was contingent on payment to the insured, which alters the decree in favor of appellants and precludes the application of the affirmance penalty. Goodner and Brown are correct in asserting that their liability for interest on the insurers’ judgment for the cooling tower does not commence until the insurers make that payment. Consequently, it is held that Goodner and Brown are not liable for the statutory affirmance penalty. The case is remanded for the trial court to (1) enter judgment for Republic against Goodner and Brown for the foundation damages and (2) determine the interest accrued on the insurers' judgment since payment to their insured. The opinion is extended, and the application is overruled.
Continuance of the trial from May to July diminished any concerns regarding the last-minute jury demand affecting the reliance on the planned bench trial. The clarity of Marley's contract, in conjunction with Goodner's contract, negated the need to consider trial testimony on the matter. Republic's argument for the admissibility of a letter as substantive evidence under the business records exception to the hearsay rule was deemed unnecessary, as the letter was introduced to support Reynolds's expert testimony specifically. Generally, hearsay is only admissible for expert opinions if it is typically relied upon by experts and is considered trustworthy. However, in jury trials, such hearsay may be excluded if deemed unduly prejudicial, and the trial court may provide a cautionary instruction. The subcontract relevant to the case was partially reviewed, confirming it included the indemnity clause but not the additional inconsistent clause noted in a prior case. Goodner's argument for a second theory of indemnity, based on the distinction between active and passive fault, was found insufficiently developed for consideration on appeal, lacking citations and clarity on whether it was pursued in lower court proceedings.
