MILLER-DAVIS COMPANY v AHRENS CONSTRUCTION, INC
Docket No. 145052
Supreme Court of Michigan
Decided April 15, 2014
495 Mich. 161 | 848 N.W.2d 95
KELLY, J.
Argued November 7, 2013 (Calendar No. 5).
Miller-Davis Company, the general contractor and construction manager for the construction of a natatorium housing an indoor pool at the Sherman Lake YMCA, brought an action in the Kalamazoo Circuit Court against Ahrens Construction, Inc. (a subcontractor), and Merchants Bonding Company (a surety), alleging breach of contract as a result of faulty workmanship when installing the roofing system covering the natatorium. The subcontract had incorporated by reference the project plans and specifications and required Ahrens to indemnify Miller-Davis from and against any liabilities, claims, damages, losses, actions, and expenses arising out of the subcontract. After a moisture problem involving condensation in the natatorium developed, the project architects discovered significant deficiencies in Ahrens‘s work. Ahrens moved for summary disposition on the basis that the statute of repose for architects, engineers, and contractors,
In a unanimous opinion by Justice KELLY, the Supreme Court held:
The six-year statute of limitations in
1. An indemnity contract creates a direct, primary liability between the indemnitor and the indemnitee that is original and independent of any other obligation. The language of the subcontract between Ahrens as indemnitor and Miller-Davis as indemnitee was clearly intended to apply as broadly as possible. The Court of Appeals erred by determining that the indemnity clauses did not apply because no one had brought a claim or demand against Miller-Davis within the meaning of those clauses. The agreement for corrective work that the YWCA and Miller-Davis entered into indicated that the YMCA had a claim or demand against Miller-Davis that was resolved at the latter‘s expense. That the YMCA and Miller-Davis resolved their dispute without legal action did not alter Ahrens‘s obligation to indemnify Miller-Davis for the corrective work it was required to undertake in light of Ahrens‘s default. Accordingly, the indemnity clauses applied to Miller-Davis‘s corrective work.
2. Causation of damages is an essential element of any breach of contract action, including an action for indemnity. A party asserting a breach of contract must establish by a preponderance of the evidence that (1) there was a contract (2) that the other party breached (3) thereby resulting in damages to the party claiming the breach. The Court of Appeals misconstrued the relevant causation inquiry. Miller-Davis incurred costs undertaking the corrective work that Ahrens refused to perform. To the extent that Ahrens was obligated to indemnify Miller-Davis for the costs of the corrective work, its breach of that obligation caused Miller-Davis‘s claimed damages. Whether Ahrens‘s nonconforming work caused the moisture problem was not relevant to the analysis. Ahrens was obligated to install the roof system in accordance with the plans and specifications and correct any nonconforming installation, regardless of whether its nonconforming work caused the problem. Ahrens‘s refusal to correct its nonconforming work was a but-for cause of the agreement for corrective work, which passed the liability for that work on to Miller-Davis. Miller-Davis‘s duty to undertake the corrective-work obligation shirked by Ahrens resulted in the out-of-pocket expenses that Miller-Davis sustained in the course of reinstalling the roof. Because Miller-Davis presented sufficient evidence to estab-
lish that Ahrens‘s breach of the indemnity clauses caused those losses, it was entitled to damages in the amount of its losses.
3. The six-year limitations period of
Court of Appeals’ judgment reversed in part with respect to discussion of indemnity claim, and case remanded to circuit court for entry of judgment in favor of Miller-Davis and determination of entitlement to attorney‘s fees under the indemnification clauses.
LIMITATION OF ACTIONS — BREACHES OF CONTRACT — INDEMNITY ACTIONS — ACCRUAL.
The six-year limitations period of
contains indemnification provisions may be breached when the promisor fails to perform under the contract and again when it refuses to indemnify the promisee for damages caused by remedying the breach; the accrual date under
Field & Field, PC (by Samuel T. Field), for Ahrens Construction, Inc.
KELLY, J. After nearly a decade of litigation and alternative dispute resolution proceedings, the indemnification contract underlying the troubled natatorium roof in this case again wends its way to this Court. We previously held that the six-year period of limitations of
specifications, and Miller-Davis‘s indemnity action necessarily accrued at a later point. We therefore reverse that portion of the Court of Appeals’ opinion discussing Miller-Davis‘s indemnity claim, and remand this case to the Kalamazoo
I. FACTS AND PROCEDURAL HISTORY
Miller-Davis Company was an “at risk” contractor1 for the Sherman Lake YMCA‘s natatorium project.2 Miller-Davis hired defendant Ahrens Construction, Inc., as a subcontractor to install similar roof systems on three rooms, including the natatorium. The contract incorporated by reference the applicable project plans and specifications, the American Institute of Architects General Conditions (AIA A201), the project manual, and a written guarantee of Ahrens‘s work.3 AIA A201 required the subcontractor to “assume toward the Contractor all the obligations and responsibilities which the Contractor, by these Documents, assume[d] toward the Owner and Architect.”4 It further obligated Ahrens to “bear costs of correcting such rejected Work, including additional testing and inspections and compensation for the Architect‘s services and expenses made necessary
thereby,”5 and to correct at its expense any work “found to be not in accordance with the Contract Documents” within one year of Substantial Completion.6 Ahrens agreed to install all products in accordance with the manufacturer‘s instructions and the requirements of the plans and specifications. Ahrens further agreed to indemnify Miller-Davis from and against any liabilities, claims, damages, losses, actions, and expenses arising out of the subcontract.
Ahrens substantially completed the work on June 11, 1999, at which point its Written Guarantee commenced. The Guarantee provides in relevant part:
[Ahrens] hereby agree[s] that all work furnished to the project is guaranteed against deficiencies and defects in materials and/or workmanship for a period of one (1) year, as described in the Contract Documents.
* * *
We agree to satisfy such obligations, which appear within the guarantee period without cost to the Owner.
* * *
Nothing contained in this agreement shall be construed to establish a period of limitation with respect to any other obligation we may have under the Contract Documents or to alter any longer period of time as may be prescribed by law of the Contract Documents.
A certificate of substantial completion issued on June 25, 1999. During the winter season of 1999-2000, Sherman Lake YMCA experienced excessive condensation in the natatorium, which it termed the “natatorium moisture problem” (NMP). As a result of the accumulated conden-
sation, it sometimes appeared to be raining
In February 2003, the project architects opened the roof and discovered significant deficiencies with Ahrens‘s installation of the roof system, namely inch-wide gaps between the Styrofoam blocks and sub-T supports, and many gaps and tears in the vapor barrier. The architects determined that the installation was not in substantial compliance with the contract, and directed reinstallation of the roof system using salvageable materials to the extent possible. The corrective work contained three elements not contained in the original design: Procor, a waterproofing agent; expanding foam insulation; and butyl caulk sealant.
By letter dated April 2, 2003, Miller-Davis notified Ahrens that the roof system was not installed in accordance with the manufacturer‘s requirements and the subcontract guidelines. Miller-Davis‘s May 5, 2003 letter to Merchants Bonding Company, Ahrens‘s surety, explicitly declared Ahrens in default and requested a conference within fifteen days. The parties met on June 27, 2003, and Ahrens agreed to review the corrective work plans and provide a plan for performance within a week. Neither Ahrens nor its bonding company provided such a plan. On July 15, 2003, Miller-Davis gave Ahrens notice of default, terminated Ahrens‘s right to perform the contract, and demanded the bonding company perform under the bond. In that letter, plaintiff noted that Sherman Lake YMCA was “considering declaring a Contractor Default....” The bonding company notified Miller-Davis that Ahrens had waived the surety‘s right to perform under the bond.
Miller-Davis and Sherman Lake YMCA entered into an Agreement for Corrective Work on August 27, 2003. Pursuant to the agreement and at the direction of the architects, Miller-Davis installed Procor, expanding foam insulation, and butyl caulk. On December 8, 2003, an independent contractor certified that Miller-Davis had completed the corrective work. Sherman Lake YMCA has not since experienced the NMP.
Miller-Davis filed suit in the Kalamazoo Circuit Court against Ahrens and its bonding company in May 2005, alleging breach of contract and seeking indemnification and bond collection.7 Following a bench trial, the circuit court found that Ahrens‘s work was deficient and that it caused the NMP. The court rejected Ahrens‘s assertion that it had ceased involvement with the project before July 2003, noting that the parties had engaged in a series of meetings regarding corrective work from March to July 2003. Although the court found that “no claims, suits, actions, recoveries, or demands were ever made or recovered” by Sherman Lake YMCA against Miller-Davis, it found that Miller-Davis had nonetheless suffered damages as a result of Ahrens‘s deficient work and awarded Miller-Davis damages of $348,851.50.
On appeal, Ahrens argued that the circuit court erred by not granting summary disposition in its favor based on the contractor‘s statute of repose,
The Court of Appeals
On remand, the Court of Appeals explained that
crued at the time of the wrong upon which it was based rather than the time when damage resulted.13 According to that distinction, the Court of Appeals determined that “the underlying basis for [Miller-Davis‘s] claim is that defendant breached a contract provision providing that ‘[a]ll... work furnished on this order shall comply with the terms and requirements of the plans and specifications....‘”14 As a result, it held that Ahrens‘s breach occurred upon the date of substantial completion, which was beyond the six-year statute of limitations for breach of contract actions supplied by
The Court of Appeals also held that the indemnity clauses did not affect its conclusion, explaining that “no one had brought a claim or demand against plaintiff within the meaning of the indemnification clause.”15 The Court of Appeals found that “defendant did not breach [the indemnity] provision[s] of the contract,” and Miller-Davis could not use the date of defendant‘s
tiff, not plaintiff‘s subcontract with defendant.”17 Finally, the Court of Appeals determined that Miller-Davis had failed to provide evidence causally linking Ahrens‘s nonconforming work to the NMP, which it considered to be the basis for Miller-Davis‘s claim for damages.18
We again granted Miller-Davis‘s application for leave to appeal, requesting that the parties brief:
(1) whether the indemnification clause in the plaintiff‘s contract with defendant Ahrens applies to this case; (2) if so, whether the plaintiff‘s action for breach of that provision was barred by the statute of limitations,
MCL 600.5807(8) ; and (3) whether the plaintiff adequately proved that any breach of the indemnification clause caused its damages, including the issue whether the trial court clearly erred in concluding that defendant Ahrens’ performance of nonconforming work caused the natatorium moisture problem.19
II. STANDARD OF REVIEW
Resolution of this case requires interpretation of
sustain it23 or if, although there is some evidence to support it, the reviewing court is left with the definite and firm conviction that a mistake has been committed.24
III. ANALYSIS AND APPLICATION
To determine whether Miller-Davis has an actionable claim for indemnification, we will first consider the language of the indemnity clauses, ascertaining whether they apply to the facts of this case. If these clauses apply, we must then consider whether Miller-Davis has shown that Ahrens‘s failure to conduct corrective work caused Miller-Davis‘s damages. Finally, we determine whether Miller-Davis sustained any such damages within the six-year limitations period for breach of contract actions found in
A. INDEMNIFICATION
An indemnity contract creates a direct, primary liability between the indemnitor and the indemnitee that is original and independent of any other
As with any other contract, our primary task in construing a contract for indemnification is to give effect to the parties’ intention at the time they entered into the contract.27 We determine the parties’ intent by examining the language of the contract according to its plain and ordinary meaning.28 In doing so, we avoid an interpretation that would render any portion of the contract nugatory.29 We assess the threshold question whether a contract‘s indemnity clause applies to a set of facts by a “straightforward analysis of the facts and the contract terms.”30
Where parties have expressly contracted for indemnification, “the extent of the duty must be determined from the language of the contract.”31 To this end, the indemnity clauses in the parties’ subcontract are critical in applying general indemnification principles to the facts of this case. The subcontract provides in relevant part:
You [Ahrens] as Subcontractor/Supplier agree to defend, hold harmless and indemnify Miller-Davis Company... from against all claims, damages, losses, demands, liens, payments, suits, actions, recoveries, judgments and expenses including attorney‘s fees, interest, sanctions, and court costs which are made, brought, or recovered against Miller-Davis Company, by reasons of or resulting from, but not limited to, any injury, damage, loss, or occurrence arising out of or resulting from the performance or execution of this Purchase Order and caused, in whole or in part, by any act, omission, fault, negligence, or breach of the
conditions of this Purchase Order by the Subcontractor/Supplier, its agents, employees, and subcontractors regardless of whether or not caused in whole or in part by any act, omission, fault, breach of contract, or negligence of Miller-Davis Company. The Subcontractor/Supplier shall not, however, be obligated to indemnify Miller-Davis Company for any damage or injuries caused by or resulting from the sole negligence of Miller-Davis Company.32
The plain language of this clause is inclusive.33 The clause uses the terms “all” or
The language used by the parties in contracting for indemnity is unambiguous and clearly intended to apply as broadly as possible. Nevertheless, the Court of Appeals determined that the indemnity clauses were inapplicable because “no one had brought a claim or demand against plaintiff within the meaning of the indemnification clause.”35 While the indemnity clauses specifically mention a “claim,” they also trigger liability more broadly, when “damages, losses, demands,” or “expenses,” result from “any act, omission, fault, negligence, or breach....” Furthermore, the definition of “claim” itself is broad. Black‘s Law Dictionary defines a claim as the “aggregate of operative facts giving rise to
a right enforceable by a court,” and “any right to payment or to an equitable remedy....” 36 Moreover, AIA A201, § 4.3.1, incorporated into the subcontract, defines a claim as “a demand or assertion by one of the parties seeking, as a matter of right, relief with respect to the terms of the Contract,” as well as “other disputes and matters in question... arising out of or relating to the Contract.” It further requires any claims to be made in writing.
To determine whether Sherman Lake YMCA made a written claim or demand against Miller-Davis, we look to the Agreement for Corrective Work they entered into. That agreement specified that Miller-Davis “acknowledges it has responsibility to correct work or replace materials that are not in compliance with the contract documents” and that “subcontractor Ahrens did not install one or more components of the Roof System in accordance with the Owner-Contractor contract documents.” The purpose of the agreement was to “avoid differences or any dispute that may be time consuming, financially expensive and/or not in the best interest of any of [the parties] or the users of the Project,” and it goes on to outline “the rights and obligations” of the parties. “Nothing herein,” it continues, “shall... release any rights of claim the Owner, and/or the Contractor may now have or hereafter acquire against any third person regarding responsibility for the NMP....” The agreement termed this course of action a “compromise, settlement and accord... to effect a settlement of contested claims.”
A straightforward reading of the Agreement for Corrective Work confirms that Sherman Lake YMCA possessed a claim or demand against Miller-Davis that was resolved—at Miller-Davis‘s expense—by this settle-
ment between them. That Sherman Lake YMCA and Miller-Davis succeeded in resolving their dispute without resort to legal action does not alter Ahrens‘s obligation to indemnify Miller-Davis for the corrective work it was required to undertake in light of Ahrens‘s default. The indemnity provisions do not require Sherman Lake YMCA to prove liability or initiate a lawsuit or arbitration proceeding against Miller-Davis for Miller-Davis to seek indemnification from Ahrens for the corrective work it performed under the Agreement, nor do we see any question regarding the reasonableness of that agreed-upon work or Miller-Davis‘s
B. CAUSATION
We turn next to the Court of Appeals’ conclusion that Miller-Davis is not entitled to indemnification because it has failed to sufficiently demonstrate that Ahrens‘s nonconforming work caused the NMP.39 As the Court of
Appeals recognized, causation of damages is an essential element of any breach of contract action, including an action for indemnity.40 A party asserting a breach of contract must establish by a preponderance of the evidence that (1) there was a contract (2) which the other party breached (3) thereby resulting in damages to the party claiming breach.41
The Court of Appeals, however, misconstrued the relevant causation inquiry. There is no dispute that Miller-Davis incurred costs in undertaking the corrective work that Ahrens refused to perform, and that Miller-Davis has claimed those costs as damages. Therefore, to the extent that Ahrens was obligated to indemnify Miller-Davis for the costs of the corrective work, its breach of that obligation caused Miller-Davis‘s claimed damages. Whether Ahrens‘s nonconforming work caused the NMP is not relevant to this analysis.
Nor do the terms of the subcontract require Miller-Davis to show that Ahrens caused the NMP. Under the subcontract, Ahrens is obligated to indemnify Miller-Davis for, among other things, all claims and demands made or brought against Miller-Davis “by reasons of or resulting from, but not limited to, any injury, damage, loss, or occurrence arising out of or resulting from the performance of execution of [the subcontract] and caused, in whole or in part, by any act, omission, fault, negligence, or breach of the conditions of this [subcontract] by” Ahrens. At no point did Sherman Lake YMCA demand, or Miller-Davis guarantee, to correct the NMP. Indeed, the Agreement for Corrective Work made clear that Miller-Davis did not concede that Ahrens‘s work
caused the NMP: “The Contractor does not acknowledge that its or any subcontractor‘s non-conforming work or materials were or are a contributing or the sole cause of the NMP.” Rather, Miller-Davis acknowledged only that it “has the responsibility for construction of the Project in accordance with the Owner-Contractor contract documents” under the Agreement for Corrective work, never promising to resolve the NMP. Correspondingly, Miller-Davis
Ahrens, for its part, was obligated to install the roof system in accordance with the plans and specifications and to correct any nonconforming installation, regardless of whether its nonconforming work caused the NMP.42 Accordingly, as the terms of the subcontract and the Agreement for Corrective Work make clear, Miller-Davis was only obligated, in light of Ahrens‘s default, to correct Ahrens‘s nonconforming work; whether such correction resolved the NMP is separate from the question whether Ahrens‘s nonconforming work caused Miller-Davis damages for which it could seek indemnification.
Miller-Davis has shown that Ahrens‘s failure to undertake corrective work caused those damages by way of Sherman Lake YMCA‘s demand that Miller-Davis itself correct the work.43 Ahrens‘s refusal to correct its nonconforming work was a “but for” cause of the Agreement for Corrective Work, which passed liability for that work on to Miller-Davis. Miller-Davis‘s duty to undertake the corrective-work obligation shirked by Ahrens resulted in the out-of-pocket expenses—
“damages” or “losses“—sustained by Miller-Davis in the course of reinstalling the roof. Because Miller-Davis presented sufficient evidence to establish that Ahrens‘s breach of the indemnity clauses caused its losses in correcting Ahrens‘s work, Miller-Davis is entitled to damages in the amount of its losses.44 We therefore reverse the Court of Appeals’ contrary conclusion.
C. STATUTE OF LIMITATIONS
Nevertheless, Ahrens also asserts that Miller-Davis brought its breach of contract action beyond the relevant limitations period.
The Court of Appeals examined the subcontract to determine the wrong on which Miller-Davis‘s claims were based, explaining that the “underlying basis” for its claims was Ahrens‘s breach of the contract provision that “‘[a]ll materials and/or work furnished on this order shall comply
While these contract claims were both based on terms within the same agreement, nothing in
Ahrens first failed to perform under the contract when it installed a roof that did not conform to plan specifications. The cause of action for this breach accrued by April 1999, when Miller-Davis made its last payment to Ahrens under the subcontract. This oc-
curred more than six years before Miller-Davis brought suit in May 2005. As a result, Miller-Davis‘s cause of action for breach of Ahrens‘s promise to install a roof conforming to plan specifications is barred by
However, Ahrens‘s breach of the indemnity provision provides an independent basis for Miller-Davis‘s current indemnification claim. This breach necessarily occurred after Ahrens‘s breach of the underlying promise to conform its work to the subcontract‘s specifications. This is because no demand or claim upon Miller-Davis could trigger Ahrens‘s obligation to indemnify until after Ahrens had breached its promise to install the roof system according to the specifications. Miller-Davis offers three potential points of first accrual for this claim: February 26, 2003 (when Miller-Davis conducted a partial tear-off of the roof and discovered the nonconforming work); August 27, 2003 (when Miller-Davis settled Sherman Lake YMCA‘s claims via the Agreement for Corrective Work); and December 8, 2003 (when an independent engineering firm certified that Miller-Davis had corrected Ahrens‘s defective work). We need not decide which of these dates marks the accrual of Miller-Davis‘s cause of action for indemnity because we agree the claim did not accrue before February 2003 and Miller-Davis‘s May 2005 complaint was therefore well within the six-year period of limitations. Accordingly, we hold that Miller-Davis‘s indemnification claim was not barred by
IV. CONCLUSION
The Court of Appeals erred by concluding that the indemnity clauses in the parties’ subcontract were inapplicable because no third party made a claim or demand upon Miller-Davis. Rather, Miller-Davis en-
tered into the Agreement for Corrective Work with Sherman Lake YMCA that clearly established Sherman Lake YMCA‘s claim against Miller-Davis that Ahrens‘s
Because Sherman Lake YMCA made a claim or demand upon Miller-Davis for corrective work which Ahrens was obligated to perform, and Ahrens refused to indemnify Miller-Davis for undertaking that work, Miller-Davis has established that Ahrens caused its damages. We therefore reverse that portion of the Court of Appeals’ opinion discussing Miller-Davis‘s indemnity claim, and remand this case to the Kalamazoo Circuit Court for entry of judgment in Miller-Davis‘s favor and to determine whether Miller-Davis is entitled to attorney‘s fees under the relevant indemnification clauses.
YOUNG, C.J., and CAVANAGH, MARKMAN, ZAHRA, McCORMACK, and VIVIANO, JJ., concurred with KELLY, J.
Notes
A person shall not maintain an action to recover damages for injury to property, real or personal, or for bodily injury or wrongful death, arising out of the defective or unsafe condition of an improvement to real property, or an action for contribution or indemnity for damages sustained as a result of such injury, against any state
licensed architect or professional engineer performing or furnishing the design or supervision of construction of the improvement, or against any contractor making the improvement, unless the action is commenced within either of the following periods:(a) Six years after the time of occupancy of the completed improvement, use, or acceptance of the improvement.
(b) If the defect constitutes the proximate cause of the injury or damage for which the action is brought and is the result of gross negligence on the part of the contractor or licensed architect or professional engineer, 1 year after the defect is discovered or should have been discovered. However, an action to which this subdivision applies shall not be maintained more than 10 years after the time of occupancy of the completed improvement, use, or acceptance of the improvement.
No person may bring or maintain any action to recover damages or sums due for breach of contract, or to enforce the specific performance of any contract unless, after the claim first accrued to himself or to someone through whom he claims, he commences the action within the periods of time prescribed by this section.
* * *
(8) The period of limitations is 6 years for all other actions to recover damages or sums due for breach of contract.
Except as otherwise expressly provided, the period of limitations runs from the time the claim accrues. The claim accrues at the time provided in sections 5829 to 5838, and in cases not covered by these sections the claim accrues at the time the wrong upon which the claim is based was done regardless of the time when damage results.
Indeed, another clause provides:
You [Ahrens] agree to defend and save harmless and to indemnify MILLER-DAVIS COMPANY from any and all liens or claims arising out of the performance or fulfillment of this order and to furnish such guarantees as may be required, as to workmanship and materials. (Emphasis added.)