In some cases an insurance carrier may choose to resolve a claim on behalf of their insured general contractor and seek reimbursement from a subcontractor and/or their insurance carrier. The claim now becomes a subrogation claim which is treated significantly different than a typical indemnity claim. It becomes necessary to analyze all available construction and insurance documents to determine what subrogation rights exist and/or may have been waived.

On many projects, subrogation is often limited as construction contracts usually contain provisions requiring the parties to waive their right to claim damages against one another up to the amount of insurance coverage available for their losses. These “waiver of subrogation” provisions are intended to reduce the litigation that might otherwise arise due to the existence of an insured loss. The insurer only has rights against the contractor to the extent that the owner has rights. If the owner has contractually waived subrogation as to the contractor, the owner’s  insurer  generally cannot use subrogation to recover its payment for a loss from the contractor.

In most states the elements of an effective waiver of subrogation are two-fold:

  1. A contract in writing between the parties wherein the insured agrees to obtain a waiver of subrogation in its insurance policy and
  2. The insurance policy by its terms or endorsement must expressly provide for the waiver of subrogation. Failure to obtain both agreements can prove to allow subrogation. Insurers are ordinarily prohibited from subrogating against additional insureds and named insureds.

The courts in interpreting subrogation clauses typically consider not only the contract between the parties but also subsidiary agreements, the relationship of the parties, the subject matter of the contract, the facts and circumstances surrounding the execution of the contract, the practical construction the parties have placed on the contract by their acts and deeds, and other external circumstances that cast light on the intent of the parties.

It therefore is necessary to review all the relevant contract documents available in addition to general conditions and any insurance policies for a project in order to determine the relevant rights, liabilities and exposure of the parties and their carriers to determine if subrogation rights are available for an insurance carrier to seek reimbursement once they have paid a claim.

Fredrickson, Mazeika & Grant, LLP, is a full service law firm with offices in San Diego, Las Vegas, San Francisco and Los Angeles. The firm’s specialty areas include construction law & construction defect, products liability, personal injury & property damage, business & real property transactions, business litigation, transportation litigation, pharmacy law, environmental/toxic tort claims, insurance law, real estate & land use litigation, equine law, and general civil litigation.

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