Plant Christensen & Kanell recently defeated a subrogation claim of over $500,000, demonstrating the value and necessity of properly drafted subrogation waivers in construction contracts.
Plant Christensen and Kanell (PCK) recently represented a contractor whose contract became a pivotal element of a lawsuit against the contractor. The contractor was hired by homeowners to remodel their home. The contractor and the owners entered into a contract that detailed the owner's and the contractor's responsibilities. One of the owners' responsibilities was to provide property insurance for the work at the site. The contract also contained a subrogation waiver, waving each of the parties' rights against the other to the extent the damages were covered by insurance. The contractor then began the remodeling.
Then the house burned down.
The owners made a claim to their pre-existing homeowners insurer, who paid policy limits for the damages caused by the fire. The owners' insurer then brought a subrogation action action against the contractor, claiming the contractor caused the fire. The owners' insurer brought a subrogation action for the money the insurer paid on the homeowners' insurance claim. "Subrogation" is "a doctrine conceived in equity that allows a person or entity that pays the loss or satisfied the claim of another under a legally cognizable obligation or interest to step into the shoes of the other person and assert that person's rights." Bakowski v. Mountain States Steel, Inc., 2002 UT 62, ¶ 22, 52 P.3d 1179, 1185 (internal quotation marks omitted) (citations omitted). Although, subrogation rights are based in equity, they may be modified by contract. See Wasatch Bank of Pleasant Grove v. Sur. Ins. Co. of California, 703 P.2d 298, 300 (Utah 1985). "Accordingly, an insured can generally waive an insurer's subrogation rights against a particular third party through a pre-loss agreement with that third party in which the insured agrees to exculpate the third party from any liability for which the insurer may seek subrogation." 52 P.3d at 1186. Which is what occurred here when the homeowner and the contractor entered into their contract.
The contractor's liability insurer hired Plant Christensen & Kanell to defend the contractor against the homeowners' insurer's subrogation action. PCK immediately sought to have the subrogation claim dismissed based on the subrogation waiver in the contract. PCK argued to the court that the insurer had no right to bring a claim in the first place because the owners had waived any subrogation rights.
By arguing that the subrogation waiver was broad enough to include the owner's insurer, PCK persuaded the court to rule in favor of the contractor, and was awarded summary judgment against the owner's insurer. This successful defense saved the contractor from potential damages of over $500,000. This illustrates the immense importance of subrogation waivers in construction contracts. While PCK was eventually able to obtain summary judgment, the case was made more difficult by ambiguities in the subrogation waiver.
At Plant Christensen & Kanell, the firm's attorneys are experienced in litigating subrogation waivers and know many of the pit-falls that can occur by using many of the do-it-yourself contracts, or even well-respected form contracts. Contractors should have their contracts drafted and reviewed by experience attorneys, like those at PCK. PCK can provide a review of contractors' contracts to ensure that the subrogation waivers are drafted broadly enough to avoid litigation. Before your next project, contact PCK for a review of your contract so you can be protected and the project can be completed with minimal interruption.