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The Indiana Supreme Court has reversed a 2022 trial court decision denying U.S. Automatic Sprinkler Corporation’s summary judgment motions in a property damage dispute.
The court remanded the case to Marion Superior Court for the entry of summary judgment in favor of the company.
The case centered around a leaky sprinkler system that caused extensive property damage in December 2016 to four commercial tenants at the Sycamore Springs Office Complex in Indianapolis.
Surgery Center, one of the four tenants, contracted with U.S. Automatic Sprinkler Corporation to both install the sprinkler system and conduct periodic inspections and testing.
Surgery Center had requested the landlord’s permission to install the sprinkler system at the office complex. The landlord agreed but amended Surgery Center’s lease agreement by requiring the tenant to be “solely” responsible for maintenance of the system and to maintain “adequate insurance coverage in the event any damage is caused by the failure of said sprinkler system to its leased premises and other leased premises which are situated directly under the sprinkler equipment.”
Chief Justice Loretta Rush wrote that on Nov. 28, 2016, Automatic Sprinkler performed a scheduled inspection of the system and identified no issues.
However, on Dec. 12, the complex landlord’s maintenance employee discovered water leaking from a main drain connected to the sprinkler system.
Although the landlord, by Surgery Center’s lease agreement, retained the right to “enter the Premises to make inspections or repairs in or to the Premises … at any time in the event of an emergency,” the maintenance employee did not perform any work on the system and, instead, asked Automatic Sprinkler to take a look at the leak.
An employee from Automatic Sprinkler came to the property and “messed with some valves” connected to the sprinkler system but ultimately observed that the air pressure and water pressure were normal.
Neither the maintenance employee nor Automatic Sprinkler received Surgery Center’s approval before examining the system that day.
Less than a week later, Rush wrote, water in the sprinkler system froze and ruptured the pipes, causing flooding and property damage to all four tenants — each of whom had procured insurance for their respective properties.
Traveler’s Indemnity Company, which covered Surgery Center’s losses, filed a subrogation action against Automatic Sprinkler, as did the other tenants. The actions were consolidated in Marion Superior Court, which denied Surgery Center’s motions for summary judgment.
The Court of Appeals of Indiana affirmed the denial as to Travelers but reversed as to the other tenants.
Reversing the trial court in full, Rush wrote there was no dispute as to any genuine issue of material fact.
“Automatic Sprinkler performed work on Surgery Center’s sprinkler system on December 12. And though the parties disputed the nature and extent of this work, it is undisputed that the work was completed without Surgery Center’s ‘request and authorization,’” Rush wrote. “It is also undisputed that Automatic Sprinkler and the Non-Contract Tenants do not share a contractual relationship, that the alleged negligence did not pose a risk of personal injury, and that the Non-Contract Tenants sought recovery for only property damages and loss of business income.”
The court ruled that Travelers was barred from seeking subrogation recovery against Automatic Sprinkler.
“The Inspection Agreement’s unambiguously broad subrogation waiver and agreement to insure evince the parties’ intent to shift all risk of loss — irrespective of its source — to insurance,” the chief wrote.
The high court also rejected the argument that Automatic Sprinkler owed a duty to the non-contract tenants, citing common-law rules for determining when a contractor can be liable for a third party’s property damages.
The chief justice wrote that imposing third-party liability on companies — like Automatic Sprinkler — would force them to “insure against a risk the amount of which they may not know and cannot control.”
“We find no reason to reallocate this risk and abandon the privity requirement when, as here, the allegedly negligent work created a risk to only property and the third parties suffered only property damage,” she wrote.
Justices Mark Massa, Geoffrey Slaughter, and Derek Molter concurred with Rush.
Justice Christopher Goff concurred in part and dissented in part with a separate opinion.
Goff wrote that he would affirm the denial of summary judgment as to the three non-contract tenants.
“Fundamentally, tort law controls the allocation of losses between those who suffer and those who cause those losses. Reasons of fairness and incentives support the general rule that those who negligently harm the person or property of others should bear the cost,” Goff wrote. “There is no persuasive reason to give contractors special immunity from liability after negligent work has been accepted. This does not mean contractors should face unlimited liability for their errors. There must be unreasonable conduct and proof that the damage was foreseeably caused by the contractor.”
The case is U.S. Automatic Sprinkler Corporation v. Erie Insurance Exchange, et al., 22S-CT-264.
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