Rush, C.J.
Indiana courts have a long history of safeguarding the freedom to contract. With this freedom, contracting parties have the opportunity to forecast whether and to what extent they can recover loss. But when a non-contracting party suffers a loss, we must look elsewhere, such as statutes or common law, to ascertain whether recovery is available. The central question before us today is whether commercial tenants—one connected by contract and the others not so connected—can recover for their respective property damages.
Here, after a contractor performed work on a sprinkler system, the system malfunctioned and a flood ensued. The company that had the system installed and other commercial tenants in the building sustained property damage. While the contractor and the company were connected by contract, the other commercial tenants did not share any contractual relationship with the company. The company’s insurer subsequently sued the contractor for subrogation recovery. And the other commercial tenants sued the contractor to recover their property damages. Seeking summary judgment, the contractor contended that all parties were barred from recovery as a matter of law—but the trial court disagreed.
We hold that the contractor is entitled to summary judgment against the insurer and the other commercial tenants. Under the contract’s broad subrogation waiver and agreement to insure, the company waived its insurer’s right to recover through subrogation. And under our common law, the absence of contractual privity between the contractor and the other commercial tenants precludes them from recovery because the contractor’s allegedly negligent work posed a risk to only property and the commercial tenants suffered only property damage. We therefore reverse and remand for the trial court to enter summary judgment in favor of the contractor.
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We first address whether the Inspection Agreement precludes Travelers from pursuing its subrogation action against Automatic Sprinkler. Generally, when an insurer provides coverage for their insured’s loss, the insurer may seek recovery against the responsible party through subrogation. See State Farm Mut. Auto. Ins. v. Cox, 873 N.E.2d 124, 128 (Ind. Ct. App. 2007). But here, Automatic Sprinkler contends that Surgery Center waived Travelers’s subrogation rights under the Inspection Agreement. Travelers, however, contends that the Inspection Agreement does not apply because Surgery Center’s damages stem from work completed outside the scope of the agreement.
We agree with Automatic Sprinkler and hold that Travelers is 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.
We next address whether Automatic Sprinkler owed a duty to the No-nContract Tenants. Resolving this issue turns on our common-law rules for determining when a contractor can be liable for a third party’s property damages. When a contractor negligently performed work, but this work was accepted by the owner, the “acceptance rule” traditionally shielded contractors from liability if their work personally harmed a third party. See, e.g., Daugherty v. Herzog, 145 Ind. 255, 44 N.E. 457, 457–58 (1896). The Non-Contract Tenants contend that, in Peters v. Forster, 804 N.E.2d 736 (Ind. 2004), we abandoned the acceptance rule and adopted the “foreseeability doctrine” to assess a contractor’s liability when their negligent work endangers either a third party or their property. Automatic Sprinkler disagrees, arguing that this doctrine is limited to third-party allegations of personal injury.
We again agree with Automatic Sprinkler and, in clarifying Peters, hold that the foreseeability doctrine does not apply in these circumstances Automatic Sprinkler shares no contractual relationship with the Non-Contract Tenants. As such, and because Automatic Sprinkler’s allegedly negligent work posed a risk to only property and the Non-Contract Tenants suffered only property damage, the Non-Contract Tenants’ negligence claim fails as a matter of law.
A. Travelers’s subrogation action is barred by the Inspection Agreement’s plain and unambiguous terms.
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1. Contracts that include an agreement to insure or a subrogation waiver evince the parties’ intent to recover loss through insurance.
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2. The Inspection Agreement’s broad, unambiguous agreement to insure and subrogation waiver evince the parties’ intent to shift all risk of loss to insurance.
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II. Automatic Sprinkler is entitled to summary judgment against the Non-Contract Tenants.
As a result of Automatic Sprinkler’s allegedly negligent work, the Non-Contract Tenants suffered property damages. In reviewing their negligence claim, we address a threshold issue: whether Automatic Sprinkler owed a duty to the Non-Contract Tenants. See Yost v. Wabash College, 3 N.E.3d 509, 515 (Ind. 2014). Here, neither statute nor contract supply a basis for imposing a duty on Automatic Sprinkler, so we turn to our common law. Cf. In re Adoption of M.M.G.C., 785 N.E.2d 267, 270 (Ind. Ct. App. 2003).
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In applying these principles here, it is undisputed that Automatic Sprinkler’s alleged negligence did not pose a risk of personal injury to the Non-Contract Tenants, but only endangered their property. As such, Citizens Gas controls, and the lack of privity bars the Non-Contract Tenants from recovering their property damages from Automatic Sprinkler. Yet, the Non-Contract Tenants contend that there is no meaningful distinction between personal injury and property damage, and thus, they assert the privity requirement should not bar recovery under these circumstances. We disagree.
It’s true that disruptions and devastations often arise when a party suffers property loss through no fault of its own. But, unlike in matters of personal injury, commercial tenants can—and routinely do—exercise control over their risk of loss by procuring insurance. See Eaves Brooks Costume Co. v. Y.B.H. Realty Corp., 76 N.Y.2d 220, 557 N.Y.S. 2d 286, 556 N.E.2d 1093, 1096 (1990). Commercial tenants are also in a superior position to assess the value of their properties and possessions and, as such, “negotiate the cost of the[ir] lease and limitations on liability accordingly.” Id. Here, the Non-Contract Tenants availed themselves of these opportunities. They were connected by a network of contracts with Surgery Center and the Landlord, controlled their risk of loss by procuring insurance for their respective properties and possessions, and received coverage for their damages as a result.
Under these circumstances, 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.” Id. 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. [Footnote omitted.] We therefore hold that Automatic Sprinkler, as a matter of law, owed no duty to the Non-Contract Tenants.
Conclusion
We reverse the trial court’s denial of Automatic Sprinkler’s motions for summary judgment against both Travelers and the Non-Contract Tenants. And we remand for the trial court to enter summary judgment in favor of Automatic Sprinkler.
Massa, Slaughter, and Molter, JJ., concur.
Goff, J., concurs in part and dissents in part with separate opinion.
Goff, J., concurring in part and dissenting in part.
I write separately to explain why the acceptance rule should be abrogated in all property damage cases as well as personal injury cases.
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The Court today avoids this conclusion on two grounds. First, the Court reasons, “humanitarian principles” do not support exposing contractors to liability for property damage, unlike for personal injury. Ante, at 14 (quoting Citizens Gas, 486 N.E.2d at 1000). The meaning of this phrase is unclear. If it means that personal injury deserves compensation more than property damage, then I cannot agree. The family whose apartment is wrecked or the small business whose machinery is destroyed by a contractor’s negligence deserve to be made whole. Second, the Court reasons that “commercial tenants” are in a better position to assess and insure their property than a contractor, who may not know what property is at risk. Id. at 16. Of course, not all third parties in contractor cases will be commercial tenants. Some may be residents who cannot afford insurance. But, in any case, it is unclear why the Court assumes contractors cannot already insure themselves for third-party property damage. Contractors are liable under existing law for property damage when their accepted work poses an imminent danger to public safety. Id. at 14, 15; Holland Furnace, 105 Ind. App. at 586, 14 N.E.2d at 345 (upholding damages for property destruction where a badly installed furnace was “imminently dangerous” to its users). And the acceptance rule offers contractors no protection before their work is accepted, meaning they may be liable for property damage caused during negligent work. Insurance is presumably available in such situations.
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. 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. Peters, 804 N.E.2d at 743. And contractors will not be liable for the entire loss unless they were the sole party at fault. Blake, 674 N.E.2d at 173. Operating under generally applicable negligence law, contractors could consult their insurers and arrange coverage suitable for their line of business, as they already do today.
For these reasons, I would affirm denial of summary judgment as to the Non-Contract Tenants. Thus, while I concur in Part I, I respectfully dissent from Part II of the opinion of the Court.