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Premier Entertainment Biloxi, LLC v. P.T.E. Systems International, LLC

Court of Appeals of Mississippi

September 12, 2017

PREMIER ENTERTAINMENT BILOXI, LLC D/B/A HARD ROCK HOTEL & CASINO APPELLANT
v.
P.T.E. SYSTEMS INTERNATIONAL, LLC APPELLEE

          DATE OF JUDGMENT: 08/29/2016

         COURT FROM WHICH APPEALED HARRISON COUNTY CIRCUIT COURT, SECOND JUDICIAL DISTRICT HON. ROGER T. CLARK TRIAL JUDGE.

          ATTORNEYS FOR APPELLANT: JAMES JOSEPH CRONGEYER JR. MICHAEL W. ULMER.

          ATTORNEY FOR APPELLEE: THOMAS LYNN CARPENTER JR.

          BEFORE LEE, C.J., BARNES AND WESTBROOKS, JJ.

          BARNES, J.

         ¶1. After several post-tension cables failed during construction of the Hard Rock Hotel and Casino, the general contractor, Roy Anderson Corporation (Anderson), submitted a claim for costs associated with the cable failure to the insurance company for Premier Entertainment Biloxi LLC d/b/a/ Hard Rock Hotel & Casino (Premier). Having failed to receive reimbursement, Anderson filed an action for breach of contract against Premier in Harrison County Circuit Court, Second Judicial District. The action alleged that Premier was contractually required to purchase and maintain a builder's "all-risk" insurance and was liable for costs not covered by insurance. Anderson sought over a million dollars in damages and costs attributable to the cable failure. Premier denied liability, and filed a third-party action against P.T.E. Systems International, LLC (PTE), the cable supplier, asserting claims of common-law indemnity, breach of implied warranty of merchantability, breach of implied warranty of fitness, products liability, and breach of express warranty. PTE filed a motion to dismiss, which the circuit court granted, concluding there existed no "implied contractual indemnity" against PTE for Anderson's claims. On appeal, we find the court erred in granting PTE's motion to dismiss.

         FACTS AND PROCEDURAL HISTORY

         ¶2. Premier and Anderson entered into a contract, which provided that materials for the Hard Rock construction project would be purchased under an "owner direct purchase program" that exempted Premier from a 3.5% contractor's tax.[1] Although Premier purchased the construction materials, Anderson selected, utilized, and installed the materials. Under the general provisions of the contract, Premier agreed to purchase and maintain a builder's "all-risk" insurance policy and to be liable for losses "not fully compensated by insurance." "Section 11.3.1 - Property Insurance" provided:

The Owner shall purchase and maintain, in a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located, property insurance written on a builder's risk "all-risk" or equivalent policy form in the amount of the initial Contract Sum, plus value of subsequent Contract Modifications and cost of materials supplied or installed by others, comprising total value for the entire Project at the site on a replacement costs basis without optional deductibles. . . . It is understood and agreed that Owner is bearing all risk of loss to the property for which Owner has an insurable or financial interest during construction, and in the event of a loss during construction[, ] Owner agrees to look solely to the proceeds of the Builder's Risk Insurance which Owner has agreed to furnish. . . . If Contractor is damaged by the failure or neglect of Owner to purchase or maintain insurance as described above, without so notifying Contractor in writing, then Owner shall bear all reasonable costs properly attributable thereto.
As regards any loss or damage which is of a type covered by insurance actually obtained by the Owner or which would have been covered by insurance that the Owner could have but failed to obtain, the Owner shall be liable to the Contractor to the extent such loss is not fully compensated by insurance, whether as a result of policy deductibles, exclusions, lapse of coverage, gaps in coverage, coverage limits, inadequacy of coverage, or other reason which causes the loss to be uninsured, in whole or in part.

         ¶3. During construction in 2013, at least eighteen PTE 270 KSI post-tensioned cables failed below the rated and specified strength of the cables, resulting in repair costs of $1, 629, 977.[2] Anderson notified Premier of the cable-breaking incidents on August 23, 2013, and later provided a statement of property loss and damages. On January 30, 2015, Anderson sent Premier a letter asserting a claim on the builder's risk insurance for "losses and damages related to the Broken Post Tension Cables[.]" On February 27, 2015, Anderson submitted a claim to Integro Insurance Brokers, requesting reimbursement of $1, 629, 977 for the "direct physical loss and damage to property" as a result of the failed post-tension cables.[3] The insurance adjuster, Vericlaim, investigated the claim and, in a report dated November 10, 2015, acknowledged Anderson was a named insured under the builder's risk policy, but also noted that "the adjustment team ha[d] yet to establish whether significant delay/impact claim was incurred by the Insured as a result of this event." Premier was listed as the "Insured" in the letter. The report further stated: "At this stage, we are keeping an open mind as to whether subrogation will be a factor in the adjustment of the claim."

         ¶4. On November 23, 2015, Anderson sued Premier for the breach of contract, claiming that under the contract's general conditions Premier was responsible for the costs associated with the cable breakage because it was required "either (A) to obtain 'all risk' builder's risk insurance or (B) to be liable to [Anderson] for any loss not fully compensated by such insurance."[4] The complaint alleged Premier had breached its contractual obligations as it "ha[d] neither (a) produced insurance coverage for the property loss suffered by [Anderson, ] nor (b) compensated [Anderson] for its property loss."

         ¶5. In its answer, Premier denied there was a breach of contract since it had obtained the required "all-risk" insurance and counterclaimed that Anderson was responsible for all workmanship and materials under the terms of the contract, entitling Premier to "indemnity for [Anderson's] claim" arising from the cable work. On March 22, 2016, Premier filed an "Unopposed Motion for Leave to File Third-Party Complaint" under Mississippi Rule of Civil Procedure 14 and, on March 31, 2016, Premier filed a third-party complaint against PTE, the cable supplier, alleging claims of common-law indemnity, breach of implied warranty of merchantability, breach of implied warranty of fitness, products liability, and breach of express warranty. Premier argued that its liability was "entirely derivative of the conduct of PTE[.]"

         ¶6. PTE filed a motion to dismiss under Mississippi Rules of Civil Procedure 12(b)(6) and 14, contending that because Anderson's claim against Premier concerns its failure to act, i.e., "procure insurance to address this risk, " the action against PTE should be dismissed "for improper third party practice." The circuit court granted PTE's motion and entered a final judgment of dismissal in its favor, concluding:

[Anderson] has alleged a breach of contract by [Premier]. The alleged breach is the failure to obtain adequate "all risk" builders insurance. . . . Whether the insurance purchased covers this loss is not the question. Who was "negligent" is not the question. The question is whether the fact that [Anderson] has not been compensated for the loss is a breach of the contract between it and [Premier]. . . . [Anderson] is not suing [Premier] for the failure of the cables, but for failing to insure the project. . . . The simple breach of contract is not a tort and while the contract may impose the ...

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