Tri-State Ins. Co. of Minnesota v. Commercial Group West

Tri-State Ins. Co. of Minnesota v. Commercial Group West - Appellee Brief

IN THE SUPREME COURT

STATE OF NORTH DAKOTA

Tri-State Insurance Company of Minnesota,
Plaintiff and Appellant
vs.
Supreme Court No. 2005007
Commercial Group West, LLC, a North
Dakota Limited Liability Company; and
Lawson, Inc., a North Dakota corporation,
d/b/a DL Enterprise Construction,
Defendant and Appellee,
-AND-
Commercial Group West, LLC,
Third-Party Plaintiff,
vs.
Dennis Lawson; Virginia Lawson; and
Lawson, Inc., a North Dakota corporation,
d/b/a DL Enterprise Construction,
Third-Party Defendants.

Appeal from Judgment entered on January 5, 2005,

District Court, Northwest Judicial District, Ward County, North Dakota

The Honorable Gary Holum, Presiding; and

The Honorable William McLees, Presiding

BRIEF OF DEFENDANT/APPELLEE,

LAWSON, INC., A NORTH DAKOTA CORPORATION,

d/b/a DL ENTERPRISE CONSTRUCTION

Steven A. Storslee (03346)
STORSLEE LAW FIRM, P.C.
Attorneys for Appellee/Defendant
Lawson, Inc.
P.O. Box 4007
Bismarck, ND 58502-4007
Ph: 701.222.1315

TABLE OF CONTENTS

Page No.

I. Statement of the Issue ¶ 1
II. Procedural Statement of the Case ¶ 2
III. Statement of Facts ¶ 8
IV. Law and Argument ¶ 20
A. "Builders Risk" insurance is property coverage
designed to cover property during construction ¶ 22
B. The parties intended that Lawson was to be an
additional insured under the builder's risk policy ¶ 28
C. The builder's risk policy insured property of Lawson ¶ 33
D. The District Court's Opinion that Lawson was not
an "express" insured ¶ 37
E. Cases from other jurisdictions ¶ 39
F. The implied co-insured cases in North Dakota ¶ 46
G. Application of the implied co-insured doctrine
to the facts of this case ¶ 52
H. Tri-State's subrogation claim against Lawson is
barred as a matter of public policy ¶ 55
V. Conclusion ¶ 60

TABLE OF AUTHORITIES

Cases: Paragraph No.

Agra-By-Products, Inc., v. Agway, Inc.
347 N.W.2d 142 (N.D. 1984) ¶ 46
American National Fire Ins. Co. v. Hughes
2003 ND 43, 658 N.W.2d 330 ¶¶ 27, 49, 50, 54, 56, 59
Baugh-Belarde Construction Co. v. College Utilities Corp.
561 P.2d 1211 (Alas. 1977) ¶ 40
Board of Education of the Jordan School Dist. v. Hales
566 P.2d 1246 (Utah 1977) ¶ 40
Community Credit Union of New Rockford v. Homelvig
487 N.W.2d 602 (N.D. 1992) ¶¶ 47, 48, 50, 54
Fireman's Ins. Co. v. Wheeler
566 N.Y.S.2d 692 (N.Y. App. Div. 1991) ¶ 50
General Insurance Co. of America v. Stoddard Wendle Ford Motors
410 P.2d 904 (Wash. 1966) ¶ 39
Glens Falls Ins. Co. v. Globe Indemnity
38 So.2d 139 (1948) ¶ 40
Home Insurance Company v. Pinski Brothers, Inc.
500 P.2d 945 (Mont. 1972) ¶ 55
Housing Development Corp. of Florida v. Carris
389 So.2d 689 (Fla. Ct. App. 1980) ¶ 43
Indiana Ins. Co. v. Carnegie Construction Co.
661 N.E.2d 776 (Ohio Ct. App. 1995) ¶ 43
Louisiana Fire Ins. Co., v. Royal Indemnity Co.
38 So.2d 807 (La. App. 1949) ¶ 40
McBroome-Bennett Plumbing, Inc., v. Villa France, Inc.
515 S.W.2d 32 (Tex. App. 1974) ¶ 44
Midwest Lumber Co. v. Dwight E. Nelson Const. Co.
196 N.W.2d 377 (Neb. 1972) ¶¶ 42, 43
Morsches Lumber, Inc. v. Probst
388 N.E.2d 284 (Ind. Ct. App. 1979) ¶ 43
Reeder v. Reeder
348 N.W.2d 832 (Neb. 1984) ¶ 50
Transamerica Insurance Co., v. Gage Plumbing & Heating Co., Inc.
433 F.2d 1051 (10th Cir. 1970) ¶ 40
Tuxedo Plumbing & Heating Co., Inc. v. Lie-Nielson
262 S.E.2d 794 (Ga. 1980) ¶ 43
United States Fire Insurance Company v. Beach
275 So.2d 473 (La. Ct. App. 1973) ¶ 40
Uren v. Dakota Dust-Tex
2002 ND 81, 643 N.W.2d 678 ¶¶ 48, 50, 54

Statutes:

N.D.C.C. 26.1-26-06 ¶ 30

Other Authorities:

John M. Zitter, Annotation, Insurance: Subrogation of
Insurer Compensating Owner or Contractor for Loss
Under "Builder's Risk" Policy Against Allegedly
Negligent Contractor or Subcontractor
22 A.L.R. 4th 701 ¶ 39
Keeton & Widiss, Insurance Law
§ 4.4 (b) at 340-341 (1981) ¶ 48

I. Statement of the Issue

[¶1] Did the District Court err by dismissing the subrogation claim of Tri-State against Lawson, Inc., d/b/a DL Enterprise Construction?

II. Procedural Statement of the Case

[¶2] This case was originally commenced when the plaintiff, Tri-State Insurance Company of Minnesota ("Tri-State") sued Commercial Group West, LLC. Commercial Group West then brought a third-party complaint against Lawson, Inc., d/b/a DL Enterprise Construction ("Lawson"). D.# 10. Tri-State then amended its complaint and added Lawson as a defendant. D.# 19, App. 5. Lawson brought a counterclaim against Tri-State. D.# 27, App. 10. Lawson also brought a cross-claim against Commercial Group West. D.# 27, App. 10. (All references to the Appendix in this brief are to the Appendix filed by Tri-State. Lawson has not filed a separate Appendix.)

[¶3] Commercial Group West brought an amended third-party complaint which added Dennis Lawson and Virginia Lawson as third-party defendants, in addition to Lawson, Inc. D.# 22. The third-party defendants answered the third-party complaint and made a counterclaim against Commercial Group West. D.# 28.

[¶4] Commercial Group West settled with Tri-State and was dismissed from the case. D.# 48. However, Tri-State claimed that as a part of the settlement, Commercial Group West had assigned its third-party claims to Tri-State.

[¶5] Lawson brought two separate motions for summary judgment. The first motion was the motion to dismiss Tri-State's complaint against Lawson. D.# 40, App. 22. This is the motion which is the subject of this appeal. Lawson and the rest of the third-party defendants brought a separate motion for summary judgment to dismiss the third-party complaint. D.# 43.

[¶6] A hearing on the motions for summary judgment was held on September 7, 2004. The District Court granted both motions for summary judgment. D.# 64, App. 316. Lawson stipulated to a voluntary dismissal of its counterclaim against Tri-State without prejudice and its counterclaim and cross-claim against Commercial Group West without prejudice. D.# 67, 68. Final judgment was entered on January 5, 2005. D.# 71, App. 336. Tri-State filed its notice of appeal on January 6, 2005, appealing from the District Court's ruling on both summary judgment motions. D.# 72, App. 71.

[¶7] However, Tri-State has not briefed or otherwise pursued its appeal in regard to the District Court's dismissal of the third-party action on which Tri-State claimed it had an assignment from Commercial Group West. Therefore, the only issue on appeal is the District Court's dismissal of Tri-State's complaint against Lawson. The second portion of the District Court's opinion dismissing the third-party complaint is, therefore, not involved in this appeal.

III. Statement of Facts

[¶8] This case involves construction of a motel known as the Quilt Inn located on Lake Metigoshe near Bottineau, North Dakota. It is a two-story structure. The motel was constructed by using prefabricated modules which were manufactured in Kenmare, North Dakota, by a company named Commercial Group West, LLC. The modules resemble mobile homes and are rectangular boxes which are constructed at the Commercial Group West factory in Kenmare and then shipped to the site. The modules are fully furnished at the time they are shipped from the factory. However, there are no roofs on the modules. The top of the modules are covered with plastic when they are shipped from the factory. A permanent roof for the modules is constructed by the building contractor after the units reach the site of the motel and are set in place on the foundation. The units are then insulated and the siding, soffit, and fascia are installed. Pictures of the modules at various stages of construction are located at pages 48 - 51 of the Appendix.

[¶9] The modules are lifted into place at the construction site using a crane. They are stacked on top of each other to make a two-story motel. App. 49 - 50. The plastic on the modules which are used for the ground floor of the motel is completely removed when the modules are set in place. The second-story modules are then set on top of the first floor modules. The plastic over the second story modules is left in place until the permanent roof is constructed.

[¶10] The owner of the motel was a company named Lake Metigoshe Properties, Inc. Both Lake Metigoshe Properties, Inc., and Commercial Group West, LLC, (the manufacturer of the modules) were controlled by the same individuals, namely, Ada Hauser and John Hauser. James Grueneich Depo., App. 53 -54.

[¶11] In April 2000, Lake Metigoshe Properties, Inc., entered into a contract with Commercial Group West, LLC, for the construction of the Quilt Inn motel. App. 55 - 65. Pursuant to the contract, Commercial Group West, LLC, agreed to manufacture the modules. A list of the individual duties of each of the parties was attached to the contract. Among other things, Lake Metigoshe Properties, Inc., agreed to purchase the builder's risk insurance on the project. App. 64.

[¶12] At about this same time, a company named Commercial Structures West, LLC, began to appear in the construction documents. According to the testimony of the Commercial Group representatives, Commercial Structures West, LLC, was going to be created in case contractors could not be retained to build the motel. Barry Olpp Depo., p. 39, App. 76. Commercial Group then began looking for contractors to do the actual on-site construction of the motel.

[¶13] The contractor retained to do the on-site construction of the motel was Lawson, Inc., d/b/a D.L. Enterprise Construction located in Minot. Lawson entered into a contract to do the construction of the motel, including certain portions of the foundation, setting the units in place and joining them together, and all of the roofing, insulating, and siding work. App. 107 - 108. Other contractors were retained to do a small amount of plumbing and electrical work.

[¶14] In addition to providing labor, tools, and equipment, including scaffolding, to construct the project, Lawson also provided certain materials such as the siding (Olpp Depo., pp. 54 - 55, App. 80) and insulation materials. Lawson Affidavit, App. 109.

[¶15] The on-site construction of the motel began during the beginning of June 2000. Shortly prior to that time, a representative of Lake Metigoshe Properties, Inc., James Grueneich, contacted the Western Insurance Agency in Minot to obtain builder's risk coverage for the project. The insurance agent at the Western Insurance Agency who handled the transaction was Casey Tompkins. Tompkins Depo., App. 117. Builder's risk coverage for the project was obtained through Tri-State Insurance, the plaintiff in this case, which is also known as Continental Western. Tompkins Depo., App. 120. Lake Metigoshe Properties, Inc., was the named insured. At the time the builder's risk coverage was obtained, the application and the insurance binder signed by Mr. Tompkins specifically stated that Commercial Structures West, LLC, was the builder of the project and was an additional insured on the builder's risk coverage:

Commercial Structures West LLC of Kenmare is the builder & should be an additional insured on the builders risk coverages.

Insurance Application, App. 140 - 141; and Binder, App. 142.

[¶16] When the builder's risk policy was actually issued by Tri-State Insurance (Continental Western), Commercial Structures West, LLC, was shown as a loss payee, rather than an additional insured on the builder's risk coverage. However, the deposition of Casey Tompkins, the insurer's agent, established that Commercial Structures West, LLC, was an additional insured on the policy as shown on the binder issued by Mr. Tompkins and that any contrary designation on the insurance policy was merely a mistake. App. 128. Tri-State does not dispute that Commercial Structures West, LLC, was an additional insured on the builder's risk coverage. Tompkins testified that the intent was to include the builder of the motel as an additional insured on the builder's risk coverage. Tompkins Depo., App. 119-120.

[¶17] According to the Commercial Group West representatives, Commercial Structures West, LLC, never came into existence and was not the builder of the motel. Olpp Depo., pp. 39 - 40, App. 76; Answers to Interrogatories, App. 150. Instead, all of the actual construction work done on-site was done Lawson (D.L. Enterprise Construction). Lawson was the on-site builder of the motel. The Commercial Group West, LLC, representative, Barry Olpp, testified that Commercial Group West, LLC, was merely the manufacturer and supplier of the modules used in the motel. Commercial Group West, LLC, never intended to do any on-site construction of the motel. Olpp Depo., p. 39, App. 76. Furthermore, Mr. Olpp also testified that it was never the intent of the parties that Commercial Structures West, LLC, would do any on-site construction, even if that company had been formed. Olpp Depo., p. 40, App. 76. In summary, neither Commercial Group West, LLC, nor Commercial Structures West, LLC, ever intended to pound a nail at the construction site. Olpp Depo., p. 40, App. 76. All of the work was to be done by contractors such as Lawson.

[¶18] On July 2, 2000, all of the modular units had been set in place. Lawson had installed the permanent roof for the structure on about four of the modular units. The remainder of the units still had the temporary plastic roofing on them, which had been installed at the factory. Lawson Depo., App. 166. A torrential wind/rainstorm occurred on July 2. The wind/rain damaged the interior of the units which had the plastic roofs on them. Lawson Depo, App. 166, 206, 207. The insurance agent, Casey Tompkins, was notified of the loss. He notified the builder's risk insurer, Tri-State Insurance. Tri-State retained the local adjusting firm of Heinrich & Company in Minot to do the adjustment of the claim. The Heinrich & Company adjuster assigned to the claim was Don Johannes. Mr. Johannes visited the site several times and inspected the damage with Mr. Lawson. Mr. Lawson then provided estimates to Mr. Johannes of the cost of repair. Johannes Depo., pp. 10, 27, 30, 31; App. 202, 206, 207. Mr. Johannes then sent these estimates to Tri-State. With the exception of a few minor changes to the estimates in regard to the cost of sheetrock and the rental of a piece of equipment, the estimates provided by Lawson were approved by Tri-State. Johannes Depo., App. 207. The final amount paid by Tri-State for the repair of the units including equipment, materials, and labor was $270,000. The payment was made by Tri-State in the form of two separate checks made payable to Lake Metigoshe Properties, Inc., and Commercial Structures West, LLC. App. 217, 218. Those checks were deposited by Lake Metigoshe Properties and checks were then issued to Lawson for repair of the damage. Johannes Depo., p. 27, App. 206.

[¶19] Tri-State originally sued only Commercial Group West. Tri-State subsequently amended its complaint to include Lawson as an additional defendant. Tri-State's claim is only for its own payments made under the builder's risk policy. Lake Metigoshe Properties declined to join in the case.

IV. Law and Argument

[¶20] This case involves a subrogation claim being made by Tri-State for payments made under a "builder's risk" policy against the builder, Lawson. As discussed below, a builder's risk policy was specifically designed to pay for damages which may occur to the project during construction caused by wind and rain. Tri-State acknowledges that the wind/rainstorm which caused the damage in this case was a covered peril under the policy and was paid accordingly. Lawson, as the builder, was an implied co-insured under the builder's risk policy. Since an insurance company cannot sue its own insured, the District Court correctly dismissed Tri-State's claim against Lawson as a matter of law.

[¶21] It should be kept in mind that Tri-State brought its claim against Lawson as a subrogation claim. Although Tri-State now tries to distance itself from Lake Metigoshe Properties in regard to the facts of this case, Tri-State cannot be placed in a better position than Lake Metigoshe Properties, merely because Tri-State brings a subrogation claim. In this case, the undisputed facts are that Lake Metigoshe Properties was obligated by its contract to obtain the builder's risk insurance policy for this project. In doing so, Lake Metigoshe Properties intended to insure the builder of the project under the policy as an additional insured. Tri-State accepted a premium from Lake Metigoshe Properties on the basis that it was insuring both Lake Metigoshe Properties and the builder of the project. Tri-State now claims that it accepted a premium for insuring a builder which never existed, Commercial Structures West. In essence, Tri-State claims it should be able to keep the premium for insuring a builder that never existed, but should also be permitted to sue the actual builder of the project, because Lake Metigoshe Properties never advised Tri-State that the name of the actual builder was Lawson instead of Commercial Structures West. However, as a subrogated party, Tri-State is responsible for the actions of Lake Metigoshe Properties, if Lake Metigoshe Properties never communicated a change in the name of the builder to Tri-State. Tri-State took a premium for insuring the builder of the project as an additional insured and is now claiming it can avoid that obligation by blaming its own insured, Lake Metigoshe Properties. Lawson had nothing to do with this series of events. Lake Metigoshe Properties was responsible for obtaining the builder's risk insurance on the project and making sure that insurance covered the builder so that the builder (Lawson) would not be required to obtain its own builder's risk insurance.

A. "Builder's Risk" insurance is property coverage designed to cover property during construction.

[¶22] A "builder's risk" policy is exactly what the name implies. It is a property insurance policy which covers the materials used in a project during construction. The builder's risk policy issued by Tri-State was a "specified perils" type of policy, which insured the project for damages caused by specified perils, including wind/rainstorms.

[¶23] There is no dispute that the damages to the motel caused by the rainstorm were paid by Tri-State as a covered peril under the terms of the builder's risk insurance policy. Tri-State now wants to collect those payments back from Lawson, based on the allegation that Lawson was negligent in the handling of the plastic roofs on the units and could have prevented or minimized the damages caused by the rainstorm. The allegations of negligence being made by Tri-State against Lawson are not relevant for purposes of this appeal, because the builder's risk policy provides property coverage for specified perils regardless of the negligence of those working on the project.

[¶24] The insurance agent for Tri-State, Casey Tompkins, succinctly explained that fact during his deposition. When the wind/rain damage to the motel was reported to him as the insurance agent for Tri-State, fault was never discussed, because it was irrelevant under the property coverage provided by the builder's risk policy:

A. Fault was never discussed, because we were dealing with a peril of wind and resultant water damage after the wind damage, and that was a property coverage. And we were dealing -- this is a property claim. We paid out two hundred and some thousand Dollars, Continental Western did, to pay for the property loss. . . .

Tompkins Depo., pp. 75-76, App. 132.

[¶25] The Tri-State builder's risk policy specifically states that if the loss is caused by a covered peril, the policy will provide coverage for the loss even if there was negligent construction or workmanship:

PERILS EXCLUDED

. . . .
3. "We" do not pay for loss or damage if one of the following exclusions apply to the loss. But if loss by a covered peril results "we" do pay for the resulting loss. [emphasis added]
a. Defects, Errors, and Omissions - "We" do not pay for loss caused by an act, defect, error, or omission (negligent or not) relating to:
1) design, specifications, construction, or workmanship;

App. 228. Tri-State paid for the damages to the motel because the damages were caused by a covered peril. It makes no difference whether there was negligent construction or workmanship on the project for purposes of coverage under the policy. The builder's risk policy provides property coverage caused by various perils, regardless of whether the damage was caused by negligence.

[¶26] For example, a homeowner purchases property coverage on his home. If the homeowner negligently leaves a pan of grease on a hot stove and causes the home to burn down, the homeowner can still recover under the insurance policy, even though his negligence caused the damages. The reason is that homeowners insurance coverage provides property coverage resulting from certain perils such as fire, regardless of whether the fire was caused by the negligence of the insured. Builder's risk policies, such as the one issued by Tri-State, are property coverage for a construction project. Therefore, even if Lawson was negligent, the loss was caused by a covered peril (wind/rain), and the builder's risk policy still provided coverage for the property damage, regardless of any alleged negligence. Since Lawson was an implied additional insured under the Tri-State builder's risk policy, the anti-subrogation rule and the insurance policy itself prevent Tri-State from suing Lawson for the payments made under the builder's risk policy.

[¶27] An entity is considered an additional insured "when, under the circumstances, the insurer is attempting to recover from the insured on the risk the insurer had agreed to take upon payment of premiums." American National Fire Ins. Co. v. Hughes, 2003 ND 43, ¶ 8, 658 N.W.2d 330. In this case, (1) the parties intended that Lawson was to be an additional insured under the Tri-State policy; and (2) Lawson was an implied co-insured as a matter of law. Therefore, Tri-State's subrogation claim against Lawson is barred by the anti-subrogation rule. An insurer cannot sue its own insured.

B. The parties intended that Lawson was to be an additional insured under the builder's risk policy.

[¶28] Lawson was not a "named insured" on the Tri-State builder's risk policy. Instead, the policy named Lake Metigoshe Properties, Inc., as the named insured and Commercial Structures West, LLC, as an additional insured. Commercial Structures West, LLC, never came into existence. The deposition of the Tri-State insurance agent, Casey Tompkins, indicates that it was the intent of the builder's risk policy to insure the builder of the motel project as an insured:

Q. So did you have a discussion then that this had to be Commercial Structures and not Commercial Group?
A. He just said that, yes, that that was who was going to be the contractor on it, so that's who we named.
Q. Would there have been a reason for you not to insure Commercial Group if they were the contractors putting up the project?
A. If we would have been asked to and if they were the contractor, no. It would have just strictly been a matter of what we were instructed to do.
Q. Okay. So your intent in naming the additional insured on this project was to provide that insurance coverage for the contractor that was setting up the project, building up the project; correct?
A. The physical damage on the building.

Tompkins Depo., App. 120.

[¶29] This is why Commercial Structures West was a named insured on the policy, in addition to the owners of the property, Lake Metigoshe Properties, Inc. At the time the policy was obtained, it was anticipated that Commercial Structures West was going to be the builder. However, Commercial Structures West was never formed and was never the builder of the motel project. Lawson was the builder of the project. The deposition of Mr. Tompkins clearly establishes that the builder's risk policy was intended to insure the contractor who actually built the motel. Therefore, even though Lawson was not specifically "named" on the insurance policy, everyone, including Tri-State, understood that the building contractor was to be an additional insured under the builder's risk policy.

[¶30] The application completed by Mr. Tompkins and sent to Tri-State indicated that:

Commercial Structures West LLC of Kenmare is the builder & should be an additional insured on the builders risk coverages. Com'l Structures West is contractor & has financial interest as bldg is being blt.

App. 140. The insurance binder issued by Mr. Tompkins also indicated that:

Commercial structures West LLC as additional insured on builder's risk property coverage.

App. 142. However, since the owners of Lake Metigoshe Properties, Inc., and Commercial Group West chose to use Lawson as the builder on the project, Commercial Structures West never came into existence. However, all of the testimony was consistent that the intent of the parties was to include the builder of the project as an additional insured under the builder's risk policy issued by Tri-State. Mr. Tompkins testified as follows:

Q. From that initial contact then with Mr. Grueneich, tell me what you recall looking at the documents, and from your own recollection, what discussions you had regarding naming an additional insured on this policy.
A. Commercial Structures West is the party. James told me was going to be putting up the structure.
Q. So was it the intent, when he came to you, that you would insure the entity that would be putting up the structure, as an additional insured, I should say?
A. Actually, under your builder's risk form what you have here, when the owner, Lake Metigoshe Properties is insuring the builder's risk instead of the contractor, there will be a middle ground before the materials become part of the structure and so we make the contractor -- it's a standard industry practice to name the builder under the property, builder's risk section, just as to provide clarification, basically, that the building damage coverage, the physical damage on the building, so there's no question. In other words, if there's a pallet of material sitting there and it isn't yet part of the structure, is it really the contractor's, is it really Lake Metigoshe Properties', so that was the discussion that Jim and I had. So that was the reason for Commercial Structures West, LLC being listed on this form.
Q. And they were listed on the form because they were the entity who was going to be up there putting the project together; correct?
A. That's what -- yes, that's what we were understanding.
Q. And so you intended by that discussion to have the entity putting the building together be the additional insured; correct?
A. On the builder's risk policy.
Q. Right.

Tompkins' Depo., App. 119 - 120. There was no affidavit, deposition testimony, or any other evidence submitted by any other representative of Tri-State which contradicted Mr. Tompkins' testimony. Mr. Tompkins is the agent of Tri-State in this controversy. N.D.C.C. 26.1-26-06.

[¶31] Tri-State is now trying to claim that since the builder of the project was incorrectly designated by Lake Metigoshe Properties as Commercial Structures West rather than Lawson, Tri-State is free to sue Lawson and not provide any coverage to Lawson as the actual builder of the project. However, according to the agent for Tri-State, Mr. Tompkins, Tri-State would have insured whomever Lake Metigoshe Properties told them was the builder of the project. According to Mr. Tompkins, "It would have just strictly been a matter of what we were instructed to do." App. 120. There is no further checking done by the insurer in regard to the contractor designated by the owner. As long as the contractor is specified by the owner as the builder of the project, Mr. Tompkins would have placed any name on the policy as an additional insured under the builder's risk policy. App. 122. In addition, the actual builder of the project has an insurable interest in the project, unlike someone who has no actual involvement either as an owner or builder. App. 122.

[¶32] Tri-State is claiming that it now "stands in the shoes" of Lake Metigoshe Properties in this case as a subrogated party. As a subrogated party, Tri-State cannot rely on the failure of Lake Metigoshe Properties to substitute the name "Lawson" as the actual builder of the project, rather than Commercial Structures West, which never came into existence. In summary, the undisputed evidence in this case establishes the following:

1. Lake Metigoshe Properties had the contractual obligation to obtain the builder's risk insurance policy and name the builder as an additional insured on that policy. As a result, Lawson did not attempt to obtain its own builder's risk insurance for the project.

2. The intent of Lake Metigoshe Properties and Tri-State was to name the actual builder of the project on the builder's risk policy as an additional insured. Only the actual builder of the project would have an insurable interest on the project in order to be named as an additional insured.

3. It would have made no difference to Tri-State if Lawson had been designated as the additional insured rather than Commercial Structures West, as long as Lawson was the actual builder of the project.

4. Lawson was the actual builder of the project, rather than Commercial Structures West.

5. The only reason Lawson was not named as the additional insured on the builder's risk policy issued by Tri-State was that Lake Metigoshe Properties failed to follow-up and substitute the name of Lawson for Commercial Structures West on the policy.

Tri-State cannot now claim that Lawson was not an additional insured under the builder's risk policy merely because the party from whom Tri-State inherits its rights in this case (Lake Metigoshe Properties) failed to substitute the name of Lawson on the builder's risk policy. It is undisputed that the intent of all of the parties was to include the actual builder of the project as an additional insured on the builder's risk policy. Tri-State took a premium on the policy and issued the policy under that very understanding. Tri-State should not be permitted to avoid its obligation. Lawson was the intended additional insured under the builder's risk policy and Tri-State cannot sue its own insureds. If this Court agrees, consideration of the additional issues in this case is not necessary.

C. The builder's risk policy insured property of Lawson.

[¶33] However, even if this Court determines that it was not the intent of the parties to name the builder as an additional insured under the builder's risk policy, it is undisputed that Lawson's property was insured under the terms of the Tri-State builder's risk insurance policy. Specifically, the policy insured the materials and scaffolding Lawson provided for the motel project.

[¶34] Builder's risk policies provide property coverage for materials, equipment, and labor intended for use on a particular construction project, regardless of who owns the property at the time of loss. In other words, the builder's risk policy covers the construction project as a whole, for certain types of damages during construction. In this case, the damage was caused by wind and rain. The damages were paid by Tri-State as a covered loss which was insured under the builder's risk policy.

[¶35] The builder's risk policy issued by Tri-State covered construction materials which went into the Lake Metigoshe motel project, in addition to various other types of property, such as scaffolding used on the project. The policy provided as follows:

PROPERTY COVERED
1. Buildings and Structures - "We" cover direct physical loss caused by a covered peril to buildings and structures described on the "declarations" while in the course of construction, erection, or fabrication. This includes materials and supplies which will become a permanent part of the buildings or structures, foundations, excavations, grading, filling, attachments, and permanent fixtures.
2. Scaffolding and Construction Forms - "We" cover direct physical loss, caused by a covered peril, to scaffolding or construction forms provided the scaffolding or construction forms are located at a building or structure described on the "declarations".
. . . .

ADDITIONAL COVERAGES

1. Transit and Storage Locations - "We cover direct physical loss caused by a covered peril to materials and supplies which will become a permanent part of buildings or structures described on the "declarations" while they are:
a. in transit; or

b. at an unscheduled storage location.

The most "we" pay under this coverage is $2,500 plus the "limit" indicated on the "declarations".

App. 226.

[¶36] The Tri-State insurance agent, Casey Tompkins, specifically testified that property of contractors such as Lawson was covered under the Tri-State builder's risk policy regardless of whether the policy designated the contractor as an additional insured:

Q. Let me ask you then another subject here, about subcontractors. What is the status, as far as you're concerned as the agent of the builder's risk inland marine coverage, on subcontractors?

. . . .

Q. (Mr. Storslee continuing) It was your understanding that Commercial Structures West, LLC was the general contractor on this project, is that it?

A. Yes.

Q. Okay. So what if they go out and hire a plumber and the plumber has property in the building when the loss occurs? Is -- is the plumber also an insured, as far as you're concerned, under the builder's risk inland marine?
A. Not until his property is installed in our building.

Q. And then there is coverage for that property?

A. For direct physical loss, yet. But it has to become a part of the building.

Tompkins Depo., pp. 71 - 72, App. 131. In this case, there is no dispute Lawson provided materials and labor which went into construction of the motel. There is also no dispute Lawson provided the scaffolding used on the project. See, Affidavit of Dennis Lawson, App. 109. Tri-State does not dispute these policy coverages.

D. The District Court's Opinion that Lawson was not an "express" insured.

[¶37] The District Court agreed that Lawson's materials and supplies used on the project, in addition to its scaffolding, were covered under the builder's risk policy, but determined that such coverage, standing alone, would not lead to a decision as a matter of law that Lawson was an "express" insured:

Lawson was covered by the builder's risk policy for the possible loss of materials and supplies which would be made a permanent part of the building and for scaffolding and construction forms on-site that they supplied, but the Court does not find that consideration of this argument, standing alone, could be lead [sic] to a decision, as a matter of law, that Lawson was an express insured.

Opinion, App. 326.

[¶38] The use of the term "express insured" is a matter of semantics. The important statement made by the District Court in that portion of its opinion was that Lawson's materials and supplies which would be made a permanent part of the building and Lawson's scaffolding used on the project were expressly covered by the builder's risk policy. In fact, any other contractors who worked on the project would have received the same express insurance coverage for their materials, supplies, and scaffolding. This is true regardless of whether Lawson was intended to be named as an additional insured on the builder's risk policy. Since builder's risk coverage is property coverage, the scope of its property coverage is broad enough to encompass the property of contractors. There is no requirement that such property be owned by the named insured or even by an additional insured named in the builder's risk policy. Therefore, Lawson was an implied co-insured under the builder's risk policy, regardless of whether Lawson's name ever appeared on the builder's risk policy as an additional insured. The District Court found that Lawson was an implied additional insured under the policy. App. 325.

E. Cases from other jurisdictions.

[¶39] Courts across the country have applied the anti-subrogation rule in the context of subrogation claims brought against building contractors by the insurer who provided the builder's risk coverage for the project. See, John M. Zitter, Annotation, Insurance: Subrogation of Insurer Compensating Owner or Contractor for Loss Under "Builder's Risk" Policy Against Allegedly Negligent Contractor or Subcontractor, 22 A.L.R. 4th 701. In General Insurance Co. of America v. Stoddard Wendle Ford Motors, the Supreme Court of Washington State stated:

Cases in which an insurance company attempts to recover, as a subrogee, against a party for whose benefit the insurance was written and whose negligence has occasioned the loss, are concededly rare, but there are some (mostly in the field of builder's risk insurance). The courts have consistently held, in the builder's risk cases, that the insurance company - - having paid a loss to one insured - - cannot, as subrogee, recover from another of the parties for whose benefit the insurance was written even though his negligence may have occasioned the loss, there being no design or fraud on his part.

410 P.2d 904, 908 (Wash. 1966).

[¶40] Other cases across the country which have adopted the same rationale include Transamerica Insurance Co., v. Gage Plumbing & Heating Co., Inc., 433 F.2d 1051 (10th Cir. 1970); Louisiana Fire Ins. Co., v. Royal Indemnity Co., 38 So.2d 807 (La. App. 1949); United States Fire Insurance Company v. Beach, 275 So.2d 473 (La. Ct. App. 1973); Glens Falls Ins. Co. v. Globe Indemnity, 38 So.2d 139 (1948). The rule applying the anti-subrogation rule in the context of a builder's risk policy is often referred to as the "Louisiana Rule" because of the trio of early cases coming out of that state. The Transamerica, supra, case is one of the cases frequently cited as authority for the rule. See also, Board of Education of the Jordan School Dist. v. Hales, 566 P.2d 1246 (Utah 1977); Baugh-Belarde Construction Co. v. College Utilities Corp., 561 P.2d 1211 (Alas. 1977). These cases are discussed in more detail in Lawson's District Court brief. App. pp. 33 - 38.

[¶41] In the present case, there is no dispute that the owner, Lake Metigoshe Properties, had the contractual responsibility to purchase builder's risk insurance on the project and that it did so in the form of the Tri-State policy. The policy was intended for the mutual protection of Lake Metigoshe Properties and the builder of the project. The loss resulted from a specified peril (wind/rain), which was specifically contemplated under the insurance policy as a risk which may be encountered during construction of the project. Cases from other jurisdictions which have contained similar facts have found that subrogation by the builder's risk insurer against the contractor is barred as a matter of law. [¶42] In Midwest Lumber Co. v. Dwight E. Nelson Const. Co., 196 N.W.2d 377 (Neb. 1972), the owner agreed to provide the builder's risk insurance on the project. During the course of construction, the building collapsed during a windstorm. The builder's risk insurer brought a subrogation claim against the contractor for failing to properly brace the structure. The Court dismissed the subrogation claim as a matter of law and stated:

It is apparent therefore that when the parties entered into the contract both had interests to protect against loss. It is evident that if each was interested only in protecting himself from loss each could have purchased his own insurance and he need not have consulted the other about it. The reason for including a specific provision for "builders risk or fire and extended coverage insurance . . . paid for by the Owner" could be only to protect the separate interest of both parties and to determine how the cost thereof was to be paid. Under the terms of this construction contract the cost of the insurance was to be paid by the owner rather than included in the costs of the contractor and then charged back to the owner as part of the contract price.

Id., p. 379.

[¶43] In Indiana Ins. Co. v. Carnegie Construction Co., 661 N.E.2d 776 (Ohio Ct. App. 1995), the walls of a building were also blown over during a windstorm during construction. The builder's risk insurer sued the contractor. The Ohio Court of Appeals followed the rationale of Midwest Lumber Co., supra. The Court also cited other cases in which the owner had agreed to purchase the builder's risk insurance. The Court stated:

These cases hold that where parties to a construction contract each have an insurable interest in the project to protect, an agreement that one party will maintain insurance on a project necessarily means, to the extent of the insurance agreed to be purchased, the parties have absolved one another of liability for any insured loss, and instead shifted that risk of loss to an insurer. "With agreements to insure. . . . neither party intends to assume a potential liability; rather, both are demonstrating 'normal' business foresight in avoiding liability and allocating it to an insurer." Morsches Lumber, Inc. v. Probst, supra, 188 Neb. at 287. By "expressly imposing the duty to insure against the loss on one of them [the parties expect] that the other will be protected as fully as if he had assumed the duty himself." Id.

Indiana Ins. Co., 661 N.E.2d, p. 780. See also, Housing Development Corp. of Florida v. Carris, 389 So.2d 689 (Fla. Ct. App. 1980); Tuxedo Plumbing & Heating Co., Inc. v. Lie-Nielson, 262 S.E.2d 794 (Ga. 1980); Morsches Lumber, Inc. v. Probst, 388 N.E.2d 284 (Ind. Ct. App. 1979). All of these cases stand for the principle that the parties contemplated that the construction project might be damaged during construction by certain recognized perils. The owner obligated himself to purchase builder's risk insurance which would insure the project during construction from these recognized perils, regardless of the alleged negligence of the contractor. In summary, the insurance is purchased for the mutual protection of the owner and the contractor, because both have a financial interest in the project. The owner agrees to purchase the builder's risk insurance directly. If the owner does not do so, the owner will eventually purchase the builder's risk insurance indirectly when the contractor includes the cost of such insurance in the contractor's bid for the project. It makes no sense for both the owner and the builder to each purchase builder's risk insurance for the project.

[¶44] The cases cited by Tri-State in its brief are not on point to the facts of the present case. In addition, the language of the insurance policies and construction contracts relied upon by the courts in those cases are not similar to the present case. As pointed out in the dissenting opinion in McBroome-Bennett Plumbing, Inc., v. Villa France, Inc., 515 S.W.2d 32 (Tex. App. 1974), some of those cases seem to confuse the principles of property insurance with those of liability insurance. Id.

[¶45] In summary, the Tri-State "builder's risk" policy insured the structure during construction and also insured Lawson's supplies, materials, and certain types of equipment (e.g., scaffolding) used to construct the motel. The "builder's risk" policy issued by Tri-State covered the motel construction project regardless of who owned the materials and equipment. If the loss was caused by a covered peril, the coverage applied, regardless of negligent construction. A builder's risk policy is a property coverage, not liability coverage. Therefore, Lawson was insured under the Tri-State builder's risk policy. Tri-State cannot sue a party who is insured under its own policy, especially on a builder's risk policy which specifically insured the property of all persons who provided supplies, materials, and certain types of equipment for the project. The District Court correctly dismissed Tri-State's subrogation claim against Lawson as a matter of law.

F. The implied co-insured cases in North Dakota.

[¶46] The forerunner of the "implied co-insured" doctrine in North Dakota was the case of Agra-By-Products, Inc., v. Agway, Inc., 347 N.W.2d 142 (N.D. 1984). The case involved the lease of a warehouse. The lease provided that the lessee (Agway) would reimburse the lessor (Agra-By-Products) for property insurance premiums paid by the lessor during the lease. A fire occurred which damaged the warehouse. The Court concluded that the fire insurance policy had been purchased for the mutual benefit of both the lessor and the lessee. The Court further concluded that the subrogated claim of the fire insurer was barred against the lessee, even though the fire was allegedly caused by the negligence of the lessee. The Court stated that, "Clearly the parties intended to shift at least a portion of their risk of loss to an insurance company in return for premium payments, irrespective of negligence." Id., p. 150.

[¶47] The North Dakota Supreme Court specifically adopted the "implied co-insured" doctrine in Community Credit Union of New Rockford v. Homelvig, 487 N.W.2d 602 (N.D. 1992). Homelvig involved a fire that destroyed the kitchen and caused smoke damage in a house owned by the Community Credit Union of New Rockford ("the Credit Union") and leased by the Homelvigs. Id. at 602. No written lease was ever entered into. Id. The Credit Union was insured by Cumis Insurance Society ("Cumis"), which paid the Credit Union for damages caused by the fire. Id. Cumis then brought a subrogation action in the Credit Union's name, alleging the Homelvigs negligently caused the fire. Id. The Homelvigs moved for summary judgment asserting they were implied co-insureds under the Cumis policy and that, therefore, subrogation was barred as a matter of law. Id. The trial court agreed, granting the summary judgment, which Cumis appealed. It should be noted that the Court's opinion specifically states that the Homelvigs had liability insurance. The existence of liability insurance is irrelevant when the defendant is an implied co-insured.

[¶48] In Homelvig, the North Dakota Supreme Court noted that "[t]he great majority of courts which have addressed this issue have held that, absent an express agreement to the contrary, a tenant is an implied co-insured under the landlord's fire insurance policy and subrogation is barred." Id. at 603. It quoted the following language from Keeton & Widiss, Insurance Law, § 4.4 (b) at 340-341 (1981)(footnote omitted):

The possibility that a lessor's insurer may proceed against a lessee almost certainly is not within the expectations of most landlords and tenants unless they have been forewarned by expert counseling. When lease provisions are either silent or ambiguous in this regard -- and especially when a lessor's insurance policy is also silent or ambiguous -- courts should adopt a rule against allowing the lessor's insurer to proceed against the tenant. [emphasis added]

Homelvig, 487 N.W.2d at 604. The Court based its decision on "[b]asic issues of fairness and fundamental justice. . . ." Id. (quoting Sutton v. Jondahl, 532 P.2d 478, 482 (Okl. Ct. App.1975). The Homelvig rule was reaffirmed by the Court in Uren v. Dakota Dust-Tex, 2002 ND 81, 643 N.W.2d 678, which involved a commercial lease.

[¶49] Recently, in American National Fire Ins. Co. v. Hughes, 2003 ND 43, 658 N.W.2d 330, the Court expanded the application of the implied co-insured rule beyond the landlord-tenant arena. American National involved a property insurer's subrogation action against an employee and officer of the named insured corporation. United Crane was a closely held corporation engaged in various construction activities. Gary Hughes' parents owned all the stock of the company and he was an employee and officer of the company. United Crane was the named insured on a property policy issued by American National. On a Saturday, Hughes was using United Crane tools to work on his personal snowmobile. Hughes was using a shop vac to remove gasoline from the tank of the snowmobile when a spark ignited the gasoline, causing a fire. The fire damaged vehicles and equipment insured by American National, which paid more than $250,000 to United Crane for damaged property covered by the policy. American National then started a subrogation action against Hughes, alleging his negligence caused the fire. The trial court granted Hughes' motion for summary judgment on the basis that Hughes was an implied additional insured under the American National policy. American National appealed.

[¶50] On appeal, American National argued, among other things, that the trial court erred in concluding Hughes was an implied additional insured under the United Crane policy, because Hughes was not acting within the scope of his employment when the fire occurred. Id. at 333. Likewise, it argued that the Homelvig rule did not apply to bar subrogation. Id. The Court disagreed, noting:

An entity not named as an insured in an insurance policy is considered an additional insured when, under the circumstances, the insurer is attempting to recover from the insured on the risk the insurer had agreed to take upon payment of the premiums.

American National, 2003 ND 43, ¶ 8, 658 N.W.2d 330 (citing Continental Ins. Co. v. Bottomly, 817 P.2d 1162, 1164 (Mont. 1991); Reeder v. Reeder, 348 N.W.2d 832, 836 (Neb. 1984); Fireman's Ins. Co. v. Wheeler, 566 N.Y.S.2d 692, 693 (N.Y. App. Div. 1991); Uren, 2002 ND at ¶ 6; Homelvig, 487 N.W.2d at 603). In upholding the trial court's imposition of summary judgment, the Court stated:

Under these circumstances and in the absence of a claim of fraud or a provision specifically excluding coverage for acts by officers or employees outside the scope of their employment, the relationship between United Crane and Hughes is such that allowing subrogation against Hughes for his alleged negligence would permit American National to sue its insured for the very risk that American National insured and for which it received premiums. We conclude that result would be inequitable.

American National, 658 N.W.2d at 336. The Court also determined that North Dakota's public policy of averting potential conflicts of interest demanded the same result, stating:

The policy required United Crane to do everything necessary to secure American National's rights and precluded United Crane from doing anything to impair those rights. . . .Hughes was placed in the dilemma of furnishing necessary information and fully cooperating with American National's efforts to recover the loss from him personally, or forfeit United Crane's right to coverage for the loss. Wheeler, 566 N.Y.S.2d at 695. We agree with the public policy rationale in Wheeler that it would compromise the integrity of American National's relationship with United Crane and create a potential conflict of interest to allow American National's subrogation claim against Hughes.

Id. at 337. American National had taken a statement from Hughes after the fire to establish his conduct was the cause of the fire. Accordingly, the Court affirmed the trial court's imposition of summary judgment against American National. It should be noted that the Court assumed, for purposes of its opinion, that Hughes was not in the scope of his employment and that his negligence caused the loss.

[¶51] Application of the implied co-insured rule is both necessary and equitable in the present case to prevent Tri-State from suing to recover for risks it collected a premium to insure from Lawson for whose benefit the insurance was purchased.

G. Application of the implied co-insured doctrine to the facts of this case.

[¶52] Since both the builder and the owner of a construction project have an insurable interest, either the builder or the owner of the project can obtain the builder's risk insurance coverage for the project. The subject of which party will purchase the builder's risk coverage and pay the premium for it is a subject of negotiation in every major construction project. In this particular case, the contract signed by the owner (Lake Metigoshe Properties, Inc.) required the owner to purchase the builder's risk insurance for the project. This was simply a matter of negotiation. If the builder, such as Lawson, would have agreed to provide the builder's risk insurance coverage for the project, Lawson would have merely added the cost of that insurance into his bid on the project, thereby billing the insurance back to the owner. Affidavit of Dennis Lawson, Ex. No. 6.

[¶53] It was understood by everyone, however, that the owner would purchase builder's risk insurance on the project, which would cover an event such as a wind/rainstorm which might damage the property during the construction. Therefore, it became unnecessary for Lawson to purchase that coverage. Instead, Lawson had a right to rely on the fact that the owner had purchased that coverage for Lawson's benefit as the builder of the project under the "builder's risk" property coverage for the project. This situation is similar to the landlord-tenant situation in which the tenant has the right to assume that the landlord will purchase property coverage on the building, unless the lease specifically provides to the contrary. Lawson relied on that fact and did not purchase builder's risk coverage for this project, since the owner had already purchased that coverage. Affidavit of Dennis Lawson, App. 306.

[¶54] Lake Metigoshe Properties had a contract with Commercial Group West in which Lake Metigoshe Properties promised to purchase the builder's risk coverage for the project. App. 64. App. 107. There was no mention in any of the construction contracts that Lawson could be sued by the builder's risk insurer for any amounts paid out under the builder's risk policy. Tri-State's builder's risk insurance policy does not contain any statements which indicate that the builder could be expected to be sued by Tri-State for any payments made under the builder's risk policy. To the contrary, the builder was intended to be named in the policy as an additional insured. The policy even contained a provision that if the loss was caused by a covered peril, e.g., wind/rain, the loss would be covered under the builder's risk policy, even if there was ". . . an act, defect, error, or omission (negligent or not) relating to (1) design, specifications, construction, or workmanship. . . ." App. 228. Lawson had the right to rely on the fact that Lawson was protected under the builder's risk policy issued by Tri-State and could not be sued by its own insurer, especially in the absence of any provision in any of the contracts or the insurance policy which would allow the insurer to do so. Therefore, the same rationale which the North Dakota Supreme Court used in Homelvig, Uren, and American National Fire Ins. Co. applies to the facts of this case. In this case, Tri-State ". . . is attempting to recover from the insured on the risk the insurer had agreed to take upon payment of the premiums." American National Fire Ins. Co. v. Hughes, 2003 ND 43, ¶ 8, 658 N.W.2d 330.

H. Tri-State's subrogation claim against Lawson is barred as a matter of public policy.

[¶55] The classic statement of the policy reasons behind the application of the anti-subrogation in these cases was made by the Montana Supreme Court:

To permit the insurer to sue its own insured for a liability covered by the insurance policy would violate these basic equity principles, as well as violate sound public policy. Such action, if permitted, would (1) allow the insurer to expend premiums collected from its insured to secure a judgment against the same insured on a risk insured against; (2) give judicial sanction to the breach of the insurance policy by the insured; (3) permit the insurer to secure information from its insured under the guise of policy provisions available for later use in the insurer's subrogation action against its own insured; (4) allow the insurer to take advantage of its conduct and conflict of interest with its insured; and (5) constitute judicial approval of a breach of the insurer's relationship with its own insured.

Home Insurance Company v. Pinski Brothers, Inc., 500 P.2d 945, 949 (Mont. 1972).

[¶56] In the American National case, supra, the North Dakota Supreme Court also discussed similar reasons for applying the anti-subrogation rule. In that case, the insurance company (American National Fire) interviewed Mr. Hughes and relied upon him for information in regard to how the fire had occurred. The North Dakota Supreme Court ruled that the actions by the insurance company created a conflict of interest in later suing Mr. Hughes, since he was the person they relied upon at the time of the adjustment of the property damage claim.

[¶57] In the present case, after the rainstorm occurred and the claim under the builder's risk policy was made to Tri-State Insurance, Tri-State hired a local adjuster, Don Johannes, to investigate and adjust the claim. According to all of the witnesses, the information for the adjustment and settlement of the claim came from Lawson. Mr. Johannes testified that he relied heavily on Dennis Lawson to inspect the motel after the loss, determine the extent of the damage, and determine the cost of repair. App. 207. In addition, Mr. Johannes took a lengthy recorded statement from Mr. Lawson concerning how the loss had occurred. App. 234-248. Mr. Lawson communicated directly with Mr. Johannes for payment of labor and materials Lawson had purchased for the repair of the motel. App. 109. Ultimately, Mr. Johannes used the estimates prepared by Lawson to recommend payment of the claim by Tri-State. App. 206. It was understood by all of the parties that the repairs would be made by Lawson and that Lawson would be paid through the use of the insurance proceeds from the builder's risk policy paid by Tri-State. App. 206.

[¶58] In summary, Tri-State and its adjuster relied upon Lawson to determine how the loss had occurred, the extent of the damage, and the cost and manner of repair. Tri-State relied upon Lawson to provide estimates for the cost of repair which were eventually accepted and paid by Tri-State under the builder's risk coverage.

[¶59] Tri-State has now sued Lawson for the amounts paid under the builder's risk coverage, essentially claiming it wants the money back from Lawson. Tri-State now takes the position that Lawson cannot dispute the amount of the damages, since those damages were based on estimates supplied by Lawson to Tri-State at Tri-State's request prior to the beginning of any lawsuit against Lawson. This is demonstrated by the examination by Tri-State's counsel of the Lawson project superintendent, Rick Tohm, during Mr. Tohm's deposition:

Q. The insurance company came up and looked at the project several days, even maybe a couple weeks later.

A. Mm-hmm.

Q. Were you there when that happened?

A. Yes.

Q. And did you talk to the people from the insurance company?

A. I did not, no. Dennis handled all that.

Q. Did you participate at all in the bid to repair the boxes?

A. Some of that I did, yes, mm-hmm. Figuring man-hours to take stuff down and replace it.
Q. And I presume that you're comfortable that the work that was done on this project was necessary to repair the damage?

A. Yes.

Tohm Depo., App. 251. By conducting the adjustment of the claim under the builder's risk policy in this manner, Tri-State created a conflict of interest similar to the one discussed by the North Dakota Supreme Court in American National Fire Ins. Co. v. Hughes, 2003 ND 43, 658 N.W.2d 330. Essentially, Tri-State now takes the position that since the contractor, Lawson, cooperated with Tri-State for purposes of adjusting the claim under the builder's risk policy, Lawson is now foreclosed from contesting Tri-State's claimed damages in the present lawsuit. During the investigation and adjustment of the insurance claim, Tri-State never claimed Lawson was at fault for the damage. In fact, Tri-State did not even include Lawson as a defendant in the original Complaint. However, since Tri-State has now amended its Complaint and brought a claim against Lawson, the District Court properly dismissed that claim as a matter of law.

V. Conclusion

[¶60] Tri-State issued a "builder's risk" insurance policy in this case with the intent of insuring both the owner and the builder of the project. Tri-State's brief admits that, "When Lawson was hired to complete The Quilt Inn motel, it was unnecessary to form CSW [Commercial Structures West]." Br., p. 4. In spite of that fact, Tri-State continues to assert the position that it insured a nonexistent entity which could never have submitted a claim under the policy. It is rather ironic that Tri-State relies on equity for its subrogation claim, but is not willing to concede that equity under the facts of this case runs in favor of Lawson as an implied additional insured. If this Court agrees with the District Court that under the facts of this case, Lawson should be classified as an implied additional insured under the Tri-State policy, the broader issue of whether contractors should be considered implied co-insureds under a builder's risk policy need not be determined in this case. Lawson submits, however, that the weight of authority establishes that a contractor should be considered an implied co-insured, as a matter of law, under a builder's risk policy which contains the coverages set forth in the Tri-State policy. Lawson respectfully requests that the judgment of the District Court be affirmed.

Dated this 10th day of March, 2005.

STORSLEE LAW FIRM, P.C.
Attorneys for defendant/appellant Lawson, Inc.,
1802 Allison Drive
P.O. Box 4007
Bismarck, ND 58502-4007
Ph: 701.222.1315
BY: /s/ Steven A. Storslee
Steven A. Storslee, ND ID# 03346

Tri-State Insurance Company of Minnesota,

		Plaintiff and Appellant
	vs.
			Supreme Court No. 2005007
Commercial Group West, LLC, a North
Dakota Limited Liability Company; and
Lawson, Inc., a North Dakota corporation,
d/b/a DL Enterprise Construction,

		Defendant and Appellee,

	-AND-

Commercial Group West, LLC,

		Third-Party Plaintiff,
	vs.

Dennis Lawson; Virginia Lawson; and
Lawson, Inc., a North Dakota corporation,
d/b/a DL Enterprise Construction,

		Third-Party Defendants.

							Steven A. Storslee (03346)
							STORSLEE LAW FIRM, P.C.
							Attorneys for Appellee/Defendant
							Lawson, Inc.
							P.O. Box 4007
							Bismarck, ND 58502-4007
							Ph: 701.222.1315

I.	Statement of the Issue			¶ 1

II.	Procedural Statement of the Case	¶ 2

III.	Statement of Facts	¶ 8

IV.	Law and Argument	¶ 20

	A.	"Builders Risk" insurance is property coverage
		designed to cover property during construction	¶ 22

	B.	The parties intended that Lawson was to be an
		additional insured under the builder's risk policy	¶ 28

	C.	The builder's risk policy insured property of Lawson	¶ 33

	D.	The District Court's Opinion that Lawson was not
		an "express" insured	¶ 37

	E.	Cases from other jurisdictions	¶ 39

	F.	The implied co-insured cases in North Dakota	¶ 46

	G.	Application of the implied co-insured doctrine
		to the facts of this case	¶ 52

	H.	Tri-State's subrogation claim against Lawson is
		barred as a matter of public policy	¶ 55

V.	Conclusion	¶ 60

Agra-By-Products, Inc., v. Agway, Inc.
	347 N.W.2d 142 (N.D. 1984)	¶ 46

American National Fire Ins. Co. v. Hughes
	2003 ND 43, 658 N.W.2d 330	¶¶ 27, 49, 50, 54, 56, 59

Baugh-Belarde Construction Co. v. College Utilities Corp.
	561 P.2d 1211 (Alas. 1977)	¶ 40

Board of Education of the Jordan School Dist. v. Hales
	566 P.2d 1246 (Utah 1977)	¶ 40

Community Credit Union of New Rockford v. Homelvig
	487 N.W.2d 602 (N.D. 1992)	¶¶ 47, 48, 50, 54

Fireman's Ins. Co. v. Wheeler
	566 N.Y.S.2d 692 (N.Y. App. Div. 1991)	¶ 50

General Insurance Co. of America v. Stoddard Wendle Ford Motors
	410 P.2d 904 (Wash. 1966)	¶ 39

Glens Falls Ins. Co. v. Globe Indemnity
	38 So.2d 139 (1948)	¶ 40

Home Insurance Company v. Pinski Brothers, Inc.
	500 P.2d 945 (Mont. 1972)	¶ 55

Housing Development Corp. of Florida v. Carris
	389 So.2d 689 (Fla. Ct. App. 1980)	¶ 43

Indiana Ins. Co. v. Carnegie Construction Co.
	661 N.E.2d 776 (Ohio Ct. App. 1995)	¶ 43

Louisiana Fire Ins. Co., v. Royal Indemnity Co.
	38 So.2d 807 (La. App. 1949)	¶ 40

McBroome-Bennett Plumbing, Inc., v. Villa France, Inc.
	515 S.W.2d 32 (Tex. App. 1974)	¶ 44

Midwest Lumber Co. v. Dwight E. Nelson Const. Co.
	196 N.W.2d 377 (Neb. 1972)	¶¶ 42, 43

Morsches Lumber, Inc. v. Probst
	388 N.E.2d 284 (Ind. Ct. App. 1979)	¶ 43

Reeder v. Reeder
	348 N.W.2d 832 (Neb. 1984)	¶ 50

Transamerica Insurance Co., v. Gage Plumbing & Heating Co., Inc.
	433 F.2d 1051 (10th Cir. 1970)	¶ 40

Tuxedo Plumbing & Heating Co., Inc. v. Lie-Nielson
	262 S.E.2d 794 (Ga. 1980)	¶ 43

United States Fire Insurance Company v. Beach
	275 So.2d 473 (La. Ct. App. 1973)	¶ 40

Uren v. Dakota Dust-Tex
	2002 ND 81, 643 N.W.2d 678	¶¶ 48, 50, 54

John M. Zitter, Annotation, Insurance: Subrogation of
Insurer Compensating Owner or Contractor for Loss
Under "Builder's Risk" Policy Against Allegedly
Negligent Contractor or Subcontractor
	22 A.L.R. 4th 701	¶ 39

Keeton & Widiss, Insurance Law
	§ 4.4 (b) at 340-341 (1981)	¶ 48

						STORSLEE LAW FIRM, P.C.
						Attorneys for defendant/appellant Lawson, Inc.,
						1802 Allison Drive
						P.O. Box 4007
						Bismarck, ND 58502-4007
						Ph: 701.222.1315



						BY: /s/ Steven A. Storslee
							Steven A. Storslee, ND ID# 03346