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National Surety Corp. v. K&C Framing, Inc.

Court of Special Appeals of Maryland

April 17, 2018

NATIONAL SURETY CORPORATION
v.
K&C FRAMING, INC., ET AL.

          Circuit Court for Prince George's County 00CAL1323508

          Eyler, Deborah S., Berger, Zarnoch, Robert A. (Senior Judge, Specially Assigned), JJ.

          OPINION

          EYLER, DEBORAH S., JUDGE.

         In the Circuit Court for Prince George's County, National Surety Corporation ("National Surety"), as subrogee of Metropolitan Apartments at Camp Springs, LLC ("Metropolitan"), sued WCS Construction, LLC ("WCS"), the general contractor on a large construction project, and numerous subcontractors for negligence and "breach of the contract/breach of warranty[.]"[1]

         WCS and the subcontractors moved for summary judgment on the ground that Metropolitan had waived its subrogation rights in its contract with WCS ("the Prime Contract"), and therefore National Surety's claims against them were barred. WCS and some of the subcontractors also moved for summary judgment on the ground that Metropolitan had waived any right to loss of use damages in the Prime Contract and therefore National Surety's claims for business interruption damages were barred. The circuit court granted summary judgment in favor of WCS and the subcontractors on both grounds.

         On appeal, National Surety presents four questions, [2] which we have condensed and rephrased as three:

I. Did the circuit court err by granting summary judgment in favor of WCS based upon Metropolitan's waiver of subrogation in the Prime Contract?
II. Did the circuit court err by granting summary judgment in favor of the subcontractor appellees based on Metropolitan's waiver of subrogation in the Prime Contract?
III. Did the circuit court err by granting summary judgment in favor of WCS and the subcontractor appellees based upon a waiver of loss of use damages in the Prime Contract?

         For the following reasons, we shall affirm the judgment of the circuit court.

         FACTS AND PROCEEDINGS

         In 2003, Metropolitan contracted with Global Construction, LLC ("Global"), to be the construction manager for Metropolitan's planned 367-unit apartment complex in Camp Springs, Prince George's County ("the Project"). Global acted in that capacity until September 6, 2005, when Metropolitan terminated the contract with Global.[3] WCS began acting as the construction manager for the Project soon after Global was terminated. Around seven months later, on April 10, 2006, WCS executed the Prime Contract with Metropolitan. That contract, which we shall discuss in greater detail, infra, consisted of standard form AIA documents, as modified by the parties.

         On January 31, 2007, while work on the Project was in progress, WCS filed a complaint to establish a mechanics' lien against Metropolitan, in the Circuit Court for Prince George's County. In the mechanics' lien case, WCS alleged that Metropolitan was not making payments as required by the Prime Contract. The parties agreed to hold the mechanics' lien case in abeyance and engage in settlement negotiations. Work continued on the Project and, on May 4, 2007, the Project was "substantially completed" within the meaning of that phrase in the Prime Contract.

         On June 12, 2007, Metropolitan and WCS entered into a "Settlement Agreement and Final Release of Claims and Waiver of Liens" ("the Settlement Agreement"). We shall discuss the pertinent terms of the Settlement Agreement, infra. On July 31, 2007, the Project was fully completed and final payment was made, in compliance with the Settlement Agreement.

         Four years later, on August 23, 2011, central Maryland experienced a 5.8 magnitude earthquake, with its epicenter in north-central Virginia. In the aftermath, the Project suffered significant water intrusion and a mold outbreak, necessitating extensive repairs. Metropolitan took the position that the damage was a result of latent defects in construction for which WCS was responsible. At that time, the Project was covered by a property and business loss insurance policy Metropolitan had purchased from National Surety. Metropolitan submitted claims for its losses to National Surety, which denied them in part. Litigation between National Surety and Metropolitan ensued in the United States District Court for the Eastern District of Virginia.

         On August 21, 2013, in the Circuit Court for Prince George's County, National Surety filed the instant subrogation action against WCS, the subcontractors, and seven other defendants.[4] A first amended complaint was filed on November 22, 2013, stating claims for negligence in construction and "breach of contract/breach of warranty" against each defendant.

         Thereafter, following binding arbitration between National Surety and Metropolitan, the extent of Metropolitan's losses covered by the National Surety policy was found to be $39, 333, 460, comprising $27, 633, 900 in property damages and $11, 699, 560 in business interruption damages. An order approving the binding arbitration appraisal in that amount was entered by the United States District Court for the Eastern District of Virginia on March 22, 2016. Metropolitan Apartments at Camp Spring, LLC v. National Surety Corp., No. 1:14-CV-107, 2016 WL 4650007 (E.D. Va. Mar. 22, 2016).

         On May 13, 2016, WCS filed a motion for summary judgment in the instant case, arguing that on the undisputed material facts it was entitled to judgment on all of National Surety's claims as a matter of law because Metropolitan had waived its subrogation rights in the Prime Contract. By separate motion for summary judgment, it argued that it was entitled to summary judgment based upon Metropolitan's waiver of loss of use damages in that contract. Also, between May 13 and 16, 2016, the four subcontractor appellees moved for summary judgment on various bases not pertinent to the issues on appeal. They each subsequently supplemented their motions to adopt WCS's argument that National Surety's claims were barred by the waiver of subrogation. Ramsey and Mid-Atlantic also adopted the arguments from WCS's motion for summary judgment based upon the waiver of loss of use damages.

         In its opposition to the motions, National Surety argued that the subrogation waiver in the Prime Contract no longer was operative, for either of two reasons. First, the Settlement Agreement had extinguished the waiver by modification. Second, and alternatively, the Settlement Agreement was a substitute contract that discharged all prior rights and obligations under the Prime Contract, including the waiver of subrogation. National Surety maintained that to the extent the Settlement Agreement did not unambiguously extinguish or discharge the waiver of subrogation, its effect on that waiver provision was an issue of fact that was not susceptible of decision on summary judgment.[5] National Surety made the same argument regarding the loss of use damages waiver in the Prime Contract.

         On August 26, 2016, the court heard argument on the motions for summary judgment. It ruled that the parties to the Settlement Agreement intended that it modify the Prime Contract but not that it be a "complete substitute" for the Prime Contract, and that the waivers of subrogation and loss of use damages in the Prime Contract were not extinguished by that modification. It determined that the waivers were binding on National Surety, as Metropolitan's subrogee, and barred its claims against WCS and against Marside, Ramsey, and Mid-Atlantic.

         On September 19, 2016, the court granted summary judgment in favor of subcontractor K&C and against National Surety for the "reasons stated in open Court on August 26, 2016, [and at a subsequent hearing on] September 2, 2016."

         This timely appeal followed.

         STANDARD OF REVIEW

         Our standard of review on appeal from the grant of summary judgment is well-established:

An appellate court reviewing a summary judgment examines the same information from the record and determines the same issues of law as the trial court. PaineWebber Inc. v. East, 363 Md. 408, 413, 768 A.2d 1029, 1032 (2001) (citation omitted) . . . . We recently reiterated the standard of review for a trial court's grant or denial of a motion for summary judgment in Myers v. Kayhoe, 391 Md. 188, 892 A.2d 520 (2006):
The question of whether a trial court's grant of summary judgment was proper is a question of law subject to de novo review on appeal. Livesay v. Baltimore, 384 Md. 1, 9, 862 A.2d 33, 38 (2004). In reviewing a grant of summary judgment under Md. Rule 2-501, we independently review the record to determine whether the parties properly generated a dispute of material fact and, if not, whether the moving party is entitled to judgment as a matter of law. Id. at 9-10, 862 A.2d at 38. We review the record in the light most favorable to the nonmoving party and construe any reasonable inferences that may be drawn from the facts against the moving party. Id. at 10, 862 A.2d at 38.
[Myers] at 203, 892 A.2d at 529.

United Servs. Auto. Ass'n v. Riley, 393 Md. 55, 67 (2006). Thus, we review the circuit court's grant of summary judgment in favor of WCS and the subcontractor appellees on National Surety's claims de novo.

         DISCUSSION

         Pertinent Documents

         Before addressing the questions presented, we shall review the relevant terms of the Prime Contract and the Settlement Agreement, as they are central to all the issues.

         Prime Contract

         The Prime Contract consisted of two main documents: 1) "AIA Document A131 CMc-2003 and AGC Document 566, Standard Form Agreement Between Owner and Construction Manager" ("the A131 Document"); and 2) "AIA Document A201-1997, General Conditions of the Contract for Construction" ("the General Conditions").

         The A131 Document identified Metropolitan as the "Owner" and WCS as the "Construction Manager" and spelled out WCS's responsibilities in taking over from Global; its compensation; its reimbursement for costs; and other matters. As pertinent, it required that, during the construction phase of the Project, Metropolitan "purchase and maintain liability and property insurance, including waivers of subrogation, as set forth" in the General Conditions.[6] § 8.2. It stated that, during the construction phase of the project, "[c]laims, disputes or other matters in question between the parties" shall be resolved as provided in sections 4.3 through 4.6 of the General Conditions, and that "[c]laims arising out of or relating to the [Prime] Contract shall be decided by Arbitration . . . ." § 9.1.

         In the General Conditions, Metropolitan was identified as the "Owner" and WCS was identified as the "Contractor." Section 1.1.1, "The Contract Documents, " described all the documents making up the Prime Contract, including "Modifications issued after execution of the [Prime] Contract." As pertinent, a "Modification" is defined as "a written amendment to the [Prime] Contract signed by both parties[.]" Section 1.1.2, entitled "The Contract, " stated that "[t]he [Prime] ...


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