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  • The audio portion of the conference may be accessed via the telephone or by using your computer's

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    Presenting a live 90-minute webinar with interactive Q&A

    Construction Contract Waivers of

    Subrogation, Indemnity and Contribution Navigating the Complexities and Pitfalls of Waiver Provisions for Contractors, Owners and Insurers

    Todays faculty features:

    1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

    THURSDAY, JULY 6, 2017

    William E. Kelley, Jr., Partner, Drewry Simmons Vornehm, Carmel, Ind.

    Peter Martin, Partner, Martin & Martin Law, Dallas

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  • WAIVERS OF

    SUBROGATION Presented by: William E. Kelly and Peter Martin

    Prepared by: Stephen Palley

    Palley Law, PLLC

  • Waivers of Subrogation

    Basic principles:

    Common feature in commercial contracts.

    Often ignored until after all a claim arises.

    Scope can be broader than anyone realizes.

    They are WAIVERS (of subrogation)

    State law varies widely

    Different rules may apply where litigated between

    insurers, as opposed to insured v. insured.

    6

  • Boilerplate

    Language varies widely, but some common features issues can be identified.

    Heres an example from the AIA A201 general conditions (emphasis added): 11.3.1 Unless otherwise provided the Owner shall purchase and maintain, in

    a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located, property insurance written on a builders risk all-risk or equivalent policy form in the amount of the initial Contract Sum, plus value of subsequent Contract Modifications and cost of materials supplied or installed by others, comprising total value for the entire Project at the site on a replacement cost basis without optional deductibles. Such property insurance shall be maintained, unless otherwise provided in the Contract Documents or otherwise agreed in writing by all persons and entities who are beneficiaries of such insurance, until final payment has been made as provided in Section 9.10 or until no person or entity other than the Owner has an insurable interest in the property required by this Section 11.3 to be covered, whichever is later. This insurance shall include interests of the Owner, the Contractor, Subcontractors and Sub-subcontractors in the Project.

    7

  • What Is Being Waived?

    The right of the parties to sue to the extent of available

    insurance coverage?

    A third party insurance companys rights?

    Is a waiver of a third partys rights really enforceable?

    Why is it called a waiver of subrogation

    8

  • When Is The Waiver Triggered?

    Upon execution of the contract, before a claim even

    arises?

    When a claim arises but before it is paid?

    After insurance is procured?

    After a claim arises and an insurance company has paid?

    9

  • Is Insurer Consent Required?

    Policies may permit pre-loss waiver

    On a blanket-basis (where required by written contract)

    Or on a scheduled basis?

    A best practice to coordinate between contract requirements and

    policy contents?

    What if the policy doesnt include a waiver?

    Generally, insurer stands in insureds shoes and the waiver is

    enforceable.

    See e.g., North American Specialty Insurance Company vs. Payton

    Construction Corp., 80 Mass. App. Ct. 367 (2011)

    Does the insurer have a claim back against their own insured?

    10

    http://masscases.com/cases/app/80/80massappct367.htmlhttp://masscases.com/cases/app/80/80massappct367.htmlhttp://masscases.com/cases/app/80/80massappct367.html

  • In Insurer Consent Required? (cont. . .)

    If youre an insured, does it matter?

    Impact of anti-subrogation rules

    See e.g., Allstate Ins. Co. v. Palumbo, 994 A.2d 174 (Conn. 2010).

    An agreement to provide insurance company may be

    deemed an implied waiver.

    See e.g., Walker v. Vanderpool, 225 Va. 266, 271 (1983) (Va. 1983)

    11

  • Third party beneficiaries?

    If youre not named in a contract that contains a a waiver

    of subrogation, can it still protect you?

    Best practice is to get the waiver if you can, of course, but

    see cases like:

    Gulf Ins. Co. v. Quality Bldg. Contractor, Inc., 58 A.D.3d 595 (N.Y.

    App. Div. 2009) (subcontractor protected by waiver of subrogation

    in prime contract where subcontract incorporated prime contract)

    Best Friends Pet Care. Inc. v. Design Learned, Inc., 823 A.2d 329

    (Conn. App. Ct. 2003) (subcontractor covered by waiver of

    subrogation in prime contract even where subcontract did not

    contain a waiver of subrogation provision).

    12

  • How Much Is Waived?

    Construction project:

    Claims arising from ongoing operations?

    Completed operations?

    Does the waiver apply to over/under liability?

    Does the waiver apply to claims between insurers

    (equitable contribution, for example).

    13

  • How Much Is Waived (cont)

    Work v. non-work?

    On the one hand . . . see, Copper Mountain. Inc. v. Industrial

    Systems, Inc., 208 P.3d 692, 696 (Colo. 2009).

    On the other hand . . . See, Lexington Insurance Co. v. Entrex

    Communication Services, Inc., 749 N.W.2d 124 (Neb. 2008)

    14

  • Are All Waivers Enforceable?

    Waiver that extends to claims arising from sole

    negligence

    On the one hand . . . See Lexington Ins. Co. v. Entrex Commcn

    Servs., Inc., 749 N.W.2d 124, 130 (Neb. 2008).

    On the other hand . . . See St. Paul Fire & Marine Ins. Co. v. Turner

    Constr. Co., No. 082292, 2009 WL 738768, at *1 (3d Cir. 2009)

    Workers compensation claims?

    15

  • State Law Nuances

    As always with insurance, there are many state law nuances.

    Heres an example from Kansas:

    K.S.A. 16-1803. . . .

    (b) The following provisions in a contract for private construction

    shall be against public policy and shall be void and unenforceable:

    . . .

    (3) a provision that purports to waive, release or extinguish rights of

    subrogation for losses or claims covered or paid by liability or workers

    compensation insurance except that a contract may require waiver of

    subrogation for losses or claims paid by a consolidated or wrap-up

    insurance program, owners and contractors protective liability insurance,

    or project management protective liability insurance, unless otherwise

    prohibited under subsection (b)(5) of K.S.A. 2012 Supp. 40-5403, and

    amendments thereto.

    16

  • Take-aways

    If you are drafting a waiver of subrogation clause, think of

    it as a WAIVER.

    Focus on scope of waiver:

    Time

    Property

    Claims

    Excess/under liability

    The same holds true in litigation.

    17

  • Construction Contract Waivers of Subrogation, Indemnity and Contribution

    WILLIAM E. KELLEY, JR. DREWRY SIMMONS VORNEHM, LLP

    C A R M E L / I N D I A N A P O L I S / C R O W N P O I N T , I N D I A N A

    E - M A I L : W K E L L E Y @ D S V L A W . C O M

    T W I T T E R : @ W I L L K E L L E Y J R

    J U L Y 6 , 2 0 1 7

  • WAIVER OF SUBROGATION CLAUSE

    VS.

    OTHER CONTRACTUAL RISK TRANSFER PROVISIONS

    19

  • Risk Transfer Strategies

    Goals:

    Shift the risk to:

    the responsible partie