KB Home Tucson, Inc. v. Charter Oak Fire Insurance

IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

KB HOME TUCSON, INC., an Arizona corporation, Appellant,

v.

THE CHARTER OAK FIRE INSURANCE COMPANY; TRAVELERS

PROPERTY CASUALTY INSURANCE COMPANY; DRACHMAN LEED

INSURANCE INC., an Arizona corporation; AMERICAN E&S

INSURANCE BROKERS OF CALIFORNIA, INC., a foreign corporation,

Appellees.

No. 1 CA-CV 12-0681

FILED 11-25-2014

Appeal from the Superior Court in Maricopa County

No. CV2007-007842 and CV2008-017049

(Consolidated)

The Honorable Mark H. Brain, Judge

AFFIRMED IN PART, REVERSED IN PART AND REMANDED

COUNSEL

Dioguardi Flynn, LLP, Scottsdale

By John P. Flynn and Peter J. Moolenaar

Counsel for Appellant

Morales Fierro & Reeves, Phoenix

By William C. Reeves

Counsel for Appellees Charter Oak and Travelers

The Hassett Law Firm, PLC, Phoenix

By Myles P. Hassett and Julie K. Moen

Counsel for Appellee Drachman Leed

Pak & Moring, PLC, Scottsdale

By S. Gregory Jones

Counsel for Appellee American E&S

DeCiancio Robbins, PLC, Tempe

By Christopher Robbins

Counsel for Amicus Curiae IIABAZ

Lorber Greenfield & Polito, LLP, Tempe

By Holly P. Davies

Counsel for Amicus Curiae Leading Builders of America

Newmeyer & Dillion, LLP, Newport Beach, CA

By Alan H. Packer, Bonnie T. Roadarmel, Clayton T. Tanaka

and Susannah M. Eichele

Co-Counsel for Amicus Curiae Leading Builders of America

OPINION

Judge Kent E. Cattani delivered the opinion of the Court, in which

Presiding Judge Maurice Portley and Judge John C. Gemmill joined.

C A T T A N I, Judge:

¶1 KB Home Tucson, Inc. (“KB”) appeals from the entry of

summary judgment in favor of The Charter Oak Fire Insurance Company

and Travelers Property Casual Insurance Company (collectively, “Charter

Oak”) on KB’s claims for declaratory relief, breach of contract, and breach

of the covenant of good faith and fair dealing. KB also appeals from the

entry of summary judgment in favor of Drachman Leed Insurance, Inc.

(“Drachman Leed”) and American E&S Insurance Brokers of California,

Inc. (“American E&S”) on KB’s claims for negligence, negligent

misrepresentation, and fraud. All of the claims relate to whether KB was

entitled to coverage as an “additional insured” under insurance policies

issued to a subcontractor hired by KB. For reasons that follow, we reverse

the entry of judgment in favor of Charter Oak, but affirm the entry of

judgment in favor of Drachman Leed and American E&S.

2

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

FACTS AND PROCEDURAL BACKGROUND

¶2 KB hired GRG Construction Co., Inc. (“GRG”) in May 1999 to

perform work at a residential subdivision in Tucson. The contractual

relationship continued for approximately four years. Charter Oak

provided liability coverage for GRG, including “additional insured”

coverage for any person or entity GRG was obligated to cover by virtue of

a written contract or agreement. Drachman Leed and American E&S were

GRG’s insurance agents/brokers who—at GRG’s direction—issued

Certificates of Insurance requested by KB relating to GRG’s policy with

Charter Oak and with another insurer, Evanston Insurance Company

(“Evanston”).

¶3 Charter Oak issued two annual general liability policies to

GRG during the relevant time periods. The policies included a blanket

additional insured endorsement, which provided as follows:

WHO IS AN INSURED – (Section II) is amended to include

any person or organization you are required to include as an

additional insured on this policy by a written contract or

written agreement in effect during this policy period and

executed prior to the occurrence of any loss.

¶4 GRG’s written contracts with KB provided, in pertinent part:

7. All work and materials must be acceptable to and

comply with all rules, regulations and requirements of [KB].

7.1 [GRG] shall protect and indemnify [KB] from any

claims, liability, or losses suffered by anyone wholly or

partially through the negligence of [GRG] or any of his agents

or employees. [KB] shall retain a reasonable portion of all

payments due [GRG] until such claims are settled or suitable

indemnity arrangements acceptable to [KB] are provided by

[GRG].

8. [GRG] shall purchase and pay for all employer’s

liability and workman’s compensation insurance required by

the State in which this work is performed and shall also

purchase and pay for public liability, property damage,

products liability, and product performance insurance [in

specified amounts]. Certificates of coverage or copies of such

1 The 1999 agreement contained two paragraphs numbered “7.”

3

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

policies shall be furnished to [KB] prior to the commencement

of work.

¶5 After the parties signed the contract, KB sent annual letters to

GRG describing its insurance requirements. These letters detailed the

minimum coverage mandated by KB and stated that KB “must be named

as an Additional Insured on the General Liability Policy.” In response,

GRG directed Drachman Leed to provide KB a copy of Charter Oak’s

above-described blanket additional insured endorsements, together with

certificates of liability insurance listing KB as an additional insured for

COMMERCIAL GENERAL LIABILITY and AUTOMOBILE insurance.

¶6 Evanston also issued two annual policies insuring GRG for

the relevant time periods. Drachman Leed provided KB with certificates of

liability insurance for GRG’s Evanston policies, obtained through

producer/broker American E&S. These informational certificates showed

KB as an additional insured “As per written contract,” and named KB as

“certificate holder,” stating, “Any and all jobs. Certificate Holder is an

Additional Insured as per written contract, General Liability Coverage, as

respect work performed by the named insured.”

¶7 The Evanston policies similarly contained blanket additional-

insured endorsements, which referenced the “Name of Person or

Organization: AS PER WRITTEN CONTRACT,” and provided:

WHO IS AN INSURED (Section II) is amended to include as

an insured the person or organization shown in the Schedule,

but only with respect to liability arising out of “your Work”

for that insured by or for you.

¶8 In May 2001, the City of Tucson asserted a claim against KB

alleging deficiencies in streets and sidewalks within KB’s residential

subdivision project. KB sued GRG and other subcontractors for

reimbursement for repair costs and attorney’s fees incurred in defending

against the City’s claims. In February 2005, several homeowners in the

project sued KB for damage to their homes allegedly resulting from

construction defects. KB tendered its defense to Charter Oak on all of the

claims and to Evanston on the homeowners’ claims.

¶9 Charter Oak disclaimed coverage, stating that KB did not

qualify as an additional insured under the blanket additional-insured

endorsement because there was no written contract or agreement requiring

that GRG add KB as an additional insured. Similarly, Evanston disclaimed

coverage for the homeowners’ suit because the underwriting file and

4

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

policies did not contain an additional-insured endorsement, and because

any such endorsement would not have conveyed additional-insured

coverage in the absence of a written contract requiring that KB Home be

made an additional insured.

¶10 KB filed a complaint against Evanston for declaratory relief,

breach of contract, and breach of the implied covenant of good faith and

fair dealing. KB subsequently amended its complaint to include claims

against Drachman Leed and American E&S for negligence, negligent

misrepresentation, and fraud.2 KB also filed a separate action against

Charter Oak for declaratory relief, breach of contract, and breach of the

implied covenant of good faith and fair dealing. In January 2010, KB settled

its claims against Evanston, and the superior court subsequently

consolidated the Charter Oak, Drachman Leed, and American E&S actions.

¶11 Charter Oak, Drachman Leed, and American E&S filed

separate motions for summary judgment on all of KB’s claims. Among

other arguments, Charter Oak asserted that KB did not qualify as an

additional insured under the policies issued to GRG. Drachman Leed

argued primarily that (1) the firm did not owe a duty of care to KB because

KB was not a client; and (2) the firm provided accurate insurance

information to KB and, therefore, did not misrepresent coverage or commit

fraud. American E&S argued that KB had not shown: (1) a

misrepresentation of coverage; (2) that American E&S was aware of the

falsity of any alleged misrepresentation; or (3) KB’s right to rely on the

alleged misrepresentations. American E&S also joined Drachman Leed’s

motion for summary judgment. After briefing and oral argument, the

superior court ruled in favor of Charter Oak, Drachman Leed, and

American E&S, and directed entry of final judgment in favor of all three

defendants.

¶12 KB timely appealed. We have jurisdiction under Article 6,

Section 9, of the Arizona Constitution and Arizona Revised Statutes

(“A.R.S.”) sections 12-120.21(A)(1) and -2101(A)(1).3

2 The claims against Drachman Leed and American E&S related only

to the Evanston policies.

3 Absent material revisions after the relevant date, we cite a statute’s

current version.

5

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

DISCUSSION

¶13 KB challenges the grant of summary judgment in favor of

each named defendant.4 Summary judgment is appropriate only if there

are no genuine issues as to any material fact and the moving party is

entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a); Orme Sch. v.

Reeves, 166 Ariz. 301, 305, 802 P.2d 1000, 1004 (1990).

¶14 We review de novo the superior court’s grant of summary

judgment, viewing the facts in the light most favorable to the party against

whom judgment is entered. United Bank of Arizona v. Allyn, 167 Ariz. 191,

193, 195, 805 P.2d 1012, 1014, 1016 (App. 1990). We will affirm summary

judgment if it is correct for any reason supported by the record, even if not

explicitly considered by the superior court. See Mutschler v. City of Phx., 212

Ariz. 160, 162, ¶ 8, 129 P.3d 71, 73 (App. 2006).

I. Charter Oak.

¶15 Charter Oak’s obligation to provide additional-insured

general liability coverage to KB turns on whether GRG was required under

a written contract or agreement to include KB as an additional insured. KB

argues the superior court erred by finding that there was no such contract

or agreement. KB asserts in particular that its written instructions to GRG

regarding additional-insured coverage, coupled with GRG’s conduct in

conformity with those instructions, is evidence from which a reasonable

fact-finder could find the existence of an “executed” “written agreement”

between KB and GRG. KB further asserts that a reasonable fact-finder could

conclude that GRG’s contract with GRG obligated GRG to comply with

KB’s “rules, regulations and requirements,” which, as evidenced by other

writings, included an agreed-upon requirement that KB be named as an

additional insured under GRG’s insurance policies. In contrast, Charter

Oak argues that coverage was not contemplated under GRG’s contract with

KB, and further asserts that during the life of the contract, KB “concocted a

plan of surreptitiously attempting to supplement its admittedly (and

strategically) deficient contract” in an effort to “unilaterally modify the

subcontract.”

¶16 We conclude that a reasonable fact-finder could find that KB

had an “executed” written agreement with GRG requiring GRG to provide

4 Independent Insurance Agents and Brokers of Arizona and Leading

Builders of America submitted amicus curiae briefs, which this court has

considered.

6

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

additional-insured coverage. Although there is not a specific document

signed by both parties, written documents prepared by or at the direction

of KB and GRG establish such an agreement. KB’s correspondence makes

clear the requirement that GRG add KB as an additional insured on its

general liability policies, and GRG carried out and completed the

agreement by directing its agents to provide certificates of insurance listing

KB as an additional insured. See Black’s Law Dictionary (9th ed. 2009)

(defining “execute” as “To perform or complete (a contract or duty)” or as

“To make (a legal document) valid by signing; to bring (a legal document)

into its final, legally enforceable form”).

¶17 Moreover, even assuming the above-described

correspondence did not establish the existence of a written agreement,

GRG’s signed contract with KB specifically required that GRG comply with

KB’s “rules and requirements.” In light of the subsequently executed

written documents evidencing an additional-insured requirement, we

conclude that there is evidence from which a reasonable juror could find

that the subsequently-discussed rules and requirements were incorporated

into the contract.

¶18 We note that under GRG’s insurance policies with Charter

Oak, GRG was not required to obtain Charter Oak’s permission before

obligating Charter Oak to provide additional-insured coverage to

contractors for which GRG was providing services. The policies instead

contemplated that Charter Oak would make an after-the-fact assessment

(through evidence of a written contract or agreement) of whether GRG was

obligated to provide additional-insured coverage to such contractors.

¶19 GRG has never disputed that it was required, per the written

subcontract and KB’s insurance requirements, to add KB as an additional

insured on GRG’s general liability insurance policies. A GRG

representative in fact testified that GRG understood that it needed to

comply with KB’s insurance requirements as a condition to payment under

its contract with KB and as a condition to continuing to work with KB. But

even without such testimony, the subcontract at issue mandated

compliance with KB’s rules and requirements. And the written

correspondence between KB and GRG, coupled with GRG’s conduct in

response to that correspondence, clearly evidenced an understanding and

agreement that one of those requirements was that KB be named as an

additional insured on GRG’s Charter Oak policies.

¶20 KB did not “unilaterally modify” its contract with GRG by

clarifying the additional-insured requirement. The contract specifically

7

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

noted a duty to comply with other “rules and requirements,” and nothing

about GRG’s response to KB’s correspondence detailing the additional-

insured requirement suggests that GRG was surprised in any way or

believed that an additional-insured requirement was beyond the scope of

their contractual agreement. Moreover, GRG’s contract with Charter Oak

specifically contemplated that additional-insured coverage would be

provided in connection with GRG’s work for any number of contractors.

Thus, the additional-insured requirement did not unilaterally change the

responsibilities of KB or GRG or otherwise modify their subcontract.

¶21 Nor did KB’s exercise of the “rules, regulations, and

requirements” provision of the contract alter the nature of Charter Oak’s

relationship with and responsibilities to GRG. As noted previously,

Charter Oak did not require pre-approval to add additional insureds to its

policy with GRG. Charter Oak thus understood that GRG would be adding

as additional insureds individuals or entities that hired GRG to perform

work on their behalf. And the additional-insured language specified that

Charter Oak was only providing coverage “as respect work performed by

the named insured [GRG].” Thus, the “requirements” referenced in GRG’s

contract with KB and spelled out in KB’s correspondence with GRG did not

unfairly deprive Charter Oak of any anticipated right under its insurance

policies with GRG or expand its obligations to provide coverage based on

GRG’s alleged negligence.

¶22 Charter Oak nevertheless asserts that the superior court

correctly applied Lennar Corp. v. Auto-Owners Ins. Co., 214 Ariz. 255, 151

P.3d 538 (App. 2007), in finding that KB was not entitled to coverage. In

Lennar, this court held that “the requirement that [a contractor] indemnify

[a developer] is not an agreement that [the contractor] obtain insurance that

could provide a defense for [the developer].” Id. at 267, ¶ 45, 151 P.3d at

550. But the contract at issue in Lennar did not contain a provision

specifying additional obligations; nor were there writings and conduct

evidencing an agreement to add the contracting developer as an additional

insured on the contractor’s insurance policies. Thus, Lennar’s holding is not

controlling here.5

5 In Lennar, this court noted that this type of dispute can be avoided if

a contract between a contractor and subcontractor includes more specific

language delineating additional-insured status. 214 Ariz. at 268 n.15, 151

P.3d at 551 n.15. But the KB–GRG contract predated the Lennar decision by

several years.

8

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

¶23 Although Arizona appellate courts have not addressed the

issue before us, case law from other jurisdictions supports the conclusion

that KB was entitled to coverage in this case. For example, in Mid-Am

Builders, Inc. v. Federated Mutual Ins. Co., a subcontractor’s insurance

company conditioned additional-insured endorsements to the

subcontractor’s policy on the existence of a “written contract” requiring the

subcontractor to name the other party as an additional insured. 194 F.

Supp. 2d 822, 824 (C.D. Ill. 2002). The contract between the subcontractor

and the contractor did not contain such a requirement, but a

contemporaneous transmittal letter asked the subcontractor to issue a

certificate of insurance naming the general contractor as an additional

insured. Id. at 823–24. The subcontractor thereafter called its insurance

agent to request that the general contractor be added as an additional

insured, and the subcontractor provided the general contractor with the

requested certificate of insurance. Id. at 824. The district court found that

notwithstanding the “written contract” requirement in the endorsement,

the general contractor was entitled on summary judgment to additional-

insured status because the transmittal letter, together with the subcontract,

provided sufficient evidence of mutual assent to allow for additional-

insured status. See id. at 827 (noting that under Illinois law, when

instruments are executed together as part of one transaction or agreement,

they are to be construed as a single instrument).

¶24 Here, additional-insured status was conditioned on the

existence of a written contract or a written agreement, which as detailed

above could be established without a specific document signed by both

parties. Moreover, although KB’s correspondence regarding rules and

requirements was not contemporaneous with the contract, the contract

referenced such rules and requirements. Thus, even assuming the written

documents do not establish the existence of a separate written agreement,

under Mid-Am Builders, the subsequent correspondence would be relevant

to establish that the “rules and requirements” provision in KB’s contract

with GRG included an additional-insured requirement. See also Mt. Hawley

Ins. Co. v. Robinette Demolition, Inc., 994 N.E.2d 973, 983, ¶ 50 (Ill. App. Ct.

2013) (stating that certificates of insurance provide additional support for

finding a written agreement that the parties intended to name other entities

as additional insureds).6

6 Other courts have rejected claims to additional-insured status under

arguably similar circumstances. See, e.g., Certain Underwriters at Lloyd’s of

London v. Am. Safety Ins. Servs., Inc., 702 F. Supp. 2d 1169 (C.D. Cal. 2010).

9

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

¶25 In sum, because there was written evidence from which a fact-

finder could conclude either that (1) there was a written agreement between

KB and GRG requiring GRG to include KB as an additional insured on

GRG’s general liability policies with Charter Oak, or (2) the “rules and

requirements” provision in GRG’s written contract with KB contemplated

the type of requirement subsequently evidenced by written correspondence

and completed conduct of the parties. Accordingly, we reverse the

summary judgment granted in favor of Charter Oak.

II. Drachman Leed and American E&S.

¶26 KB argues that the superior court erred by granting summary

judgment on KB’s negligence, negligent misrepresentation, and fraud

claims against Drachman Leed and American E&S. For reasons that follow,

we affirm the superior court’s rulings on those claims.

A. Negligence.

¶27 To establish negligence, a plaintiff must prove four elements:

(1) the defendant owed a duty of care to the plaintiff; (2) the defendant

breached that duty; (3) the breach proximately caused the plaintiff’s injury;

and (4) resulting damages. Gipson v. Kasey, 214 Ariz. 141, 143, ¶ 9, 150 P.3d

228, 230 (2007). An action for negligence cannot be maintained in absence

of a duty owed by a defendant to a plaintiff. Id. at ¶ 11.

¶28 Here, KB could not establish a claim for negligence against

Drachman Leed and American E&S because they did not owe a duty of care

to KB. Absent special circumstances in which a foreseeable and specific

third party is injured, insurance producers/agents owe no duty of care to

third-party non-clients. Napier v. Bertram, 191 Ariz. 238, 242, ¶ 15, 954 P.2d

1389, 1393 (1998). Although such special circumstances may include an

enhanced relationship between the insurance producer/agent and the non-

client, the record here does not reflect such a relationship. Instead,

Drachman Leed simply provided insurance information regarding GRG’s

policies in a normal business transaction through certificates and

additional-insured endorsements to KB. See Ferguson v. Cash, Sullivan &

Cross Ins. Agency, Inc., 171 Ariz. 381, 385, 831 P.2d 380, 384 (App. 1991). See

But those cases, like Lennar, do not involve the type of contractual provision

at issue here referencing additional rules and requirements, and they do not

address correspondence from or at the direction of both parties evidencing

an agreement to add a contractor as an additional insured on the

subcontractor’s insurance policy.

10

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

also Gipson, 214 Ariz. at 145, ¶ 19, 150 P.3d at 232; Ferguson, 171 Ariz. at 385,

831 P.2d at 384 (noting that the mere existence or discussion of third parties

with the insured does not create a special relationship with the agent).

¶29 Moreover, even assuming Drachman Leed and/or American

E&S owed some type of duty to KB as a third-party non-client, KB has not

established a breach of duty, because Drachman Leed and American E&S

simply provided certificates of insurance requested by their insured, but

with the following proviso:

THIS CERTIFICATE IS ISSUED AS A MATTER OF

INFORMATION ONLY AND CONFERS NO RIGHTS UPON

THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES

NOT AMEND, EXTEND OR ALTER THE COVERAGE

AFFORDED BY THE POLICIES BELOW.

KB was provided a copy of the relevant insurance policies, and KB has not

established that the defendants provided inaccurate information. Thus, the

superior court properly granted summary judgment in favor of Drachman

Leed and American E&S on KB’s negligence claim.

B. Negligent Misrepresentation.

¶30 “A claim for relief for negligent misrepresentation is one

governed by the principles of the law of negligence. Thus, there must be ‘a

duty owed and a breach of that duty before one may be charged with the

negligent violation of that duty.’” Van Buren v. Pima Cmty. Coll. Dist. Bd.,

113 Ariz. 85, 87, 546 P.2d 821, 823 (1976) (citation omitted).7 Here, as

described above, neither Drachman Leed nor American E&S owed a duty

to KB, a third-party non-client, and KB did not establish a

misrepresentation. See supra ¶¶ 24–27. Under these circumstances, the

superior court appropriately granted summary judgment against KB on

this claim.

7 The elements of negligent misrepresentation are: (1) the defendant

provided false information in a business transaction; (2) the defendant

intended for the plaintiff to rely on the incorrect information or knew that

it reasonably would rely; (3) the defendant failed to exercise reasonable care

in obtaining or communicating the information; (4) the plaintiff justifiably

relied on the incorrect information; and (5) resulting damage. Mur-Ray

Mgmt. Corp. v. Founders Title Co., 169 Ariz. 417, 422–24, 819 P.2d 1003, 1008–

09 (App. 1991).

11

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

C. Fraud.

¶31 To prove fraud, a plaintiff must establish: “(1) [a]

representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge

of its falsity or ignorance of its truth; (5) [the speaker’s] intent that it should

be acted upon by the person and in the manner reasonably contemplated;

(6) the hearer’s ignorance of its falsity; (7) [the hearer’s] reliance on its truth;

(8) [the hearer’s] right to rely thereon; and (9) [the hearer’s] consequent and

proximate injury.” Nielson v. Flashberg, 101 Ariz. 335, 338–39, 419 P.2d 514,

517–18 (1966).

¶32 We agree with the superior court that the certificates and

endorsements delivered by Drachman Leed and American E&S truthfully

indicated that KB was an additional insured if it had a written contract as

required by the relevant insurance policies. Thus, KB’s fraud claim fails for

lack of a false statement.

¶33 KB argues that it established the requisite false statement

because the certificate issued by Drachman Leed that referenced the

additional-insured endorsement was not authorized by Evanston and was

not in Evanston’s underwriting file. But Evanston’s denial of coverage was

not based on those facts. Evanston’s denial letter stated that the

endorsement could not have conveyed additional-insured coverage

because the KB–GRG subcontract “does not set forth any requirement that

KB Home be made an additional insured, or be named as an additional

insured, under the liability policy GRG was to procure.” Accordingly, the

superior court correctly entered summary judgment in Drachman Leed’s

favor on the fraud claim. Because the judgment was correct on this basis,

we do not address KB’s arguments regarding reliance and damages.

¶34 As to the judgment in favor of American E&S, KB

acknowledged being unaware of any involvement by American E&S in

GRG’s policies with Evanston. As such, KB cannot now successfully claim

that American E&S made any representations to KB, much less false

representations on which KB relied. See St. Joseph’s Hosp. & Med. Ctr., 154

Ariz. 307, 312, 742 P.2d 808, 813. Thus, the superior court did not err by

granting summary judgment in favor of American E&S.

III. Attorney’s Fees & Costs.

¶35 KB has requested its attorney’s fees on appeal pursuant to

A.R.S. § 12-341.01(A) and ARCAP 21(c). In our discretion, we award KB its

reasonable attorney’s fees relating to its arguments against Charter Oak

upon compliance with ARCAP 21. American E&S also requests attorney’s

12

KB HOME v. CHARTER OAK, et al.

Opinion of the Court

fees on appeal pursuant to A.R.S. § 12-341.01(A). Because KB’s tort claims

against American E&S did not arise out of contract, we deny American

E&S’s fee request. See Barmat v. John & Jane Doe Partners A-D, 155 Ariz. 519,

524, 747 P.2d 1218, 1223 (1987). As the successful parties on appeal, KB is

entitled to its costs relating to its claims against Charter Oak, and Drachman

Leed and American E&S are entitled to their costs upon compliance with

ARCAP 21.

CONCLUSION

¶36 For the foregoing reasons, we reverse the superior court’s

grant of summary judgment in favor of Charter Oak; vacate the court’s

award of costs, fees, and Rule 68 sanctions to Charter Oak; and remand for

further proceedings consistent with this decision. We affirm the court’s

grant of summary judgment in favor of Drachman Leed and American E&S.

:gsh

13