Pennsylvania Appellate Court Holds Waiver Of Subrogation Cause
December, 2002
Pennsylvania Appellate Court Holds Waiver Of
Subrogation Clause Enforceable Despite
Violation Of Public Safety Code
by Nelson E. Canter
ncanter@clausen.com
The Superior Court of Pennsylvania holds that a contractual waiver of subrogation clause did not violate public policy and thus was enforceable even where the misconduct alleged violated public safety ordinances and regulations. Penn Avenue Place Assocs. L.P. v. Century Steel Erectors, Inc., 798 A.2d 256 (Pa. Super. 2002)
Facts
A fire occurred at a building owned by plaintiff Penn Avenue Place Associates, L.P. (“Penn Avenue”). Penn Avenue was insured by Arkwright Mutual Insurance Company (now Factory Mutual) who was the real party in interest. Penn Avenue had entered into a contract with a general contractor for the renovation of its building. The general contractor then entered into a sub-contract with defendant Century Steel Erectors, Inc. (“Century Steel”) for the demolition necessary for the renovation. Both contracts contained waiver of subrogation clauses.
Sparks, embers and debris from the welding and cutting operation performed by Century Steel allegedly dropped to the roof of the building and ignited flammable materials located in the area where the welding and cutting occurred. The fire damaged a large area of the roof surface and surrounding areas. In the subrogation action, Penn Avenue alleged gross negligence, negligence and breach of contract against the general contractor and the sub-contractor, Century Steel. Defendants filed a preliminary objection on the grounds that the waiver of subrogation clauses in the contract between Penn Avenue and the general contractor and in the sub-contract between the general contractor and Century Steel barred plaintiff’s action. The trial court agreed with defendants’ preliminary objections and dismissed the complaint with prejudice.
Penn Avenue appealed on the grounds that defendants’ negligent conduct constituted a violation of ordinances and regulations enacted to protect public safety. Specifically, Penn Avenue alleged that the defendants violated the City of Pittsburgh’s fire prevention ordinances establishing fire safety requirements for welding and cutting operations and that Century Steel failed to maintain the required fire watch after completing its work. Penn Avenue further argued that since defendants’ acts and/or omissions violated public safety ordinances and regulations, defendants were not entitled to the benefit of the waiver of subrogation clause under Pennsylvania law as such clause would violate public policy, citing Warren City Lines, Inc. v. United Refining Co., 220 Pa. Super. 308 (Pa. Super 1971) (“waiver of subrogation provision in a contract cannot be raised as a bar to liability when the conduct giving rise to liability constitutes a violation of a statute, ordinance or regulation enacted to protect public safety.”).
The appellate court disagreed, stating that the waiver of subrogation clause “does not invoke public policy concerns because it does not attempt to transfer liability for negligence away from the tortfeasor. Rather, the tortfeasor who obtains insurance coverage to pay claims for which he is liable does not, ipso facto, transfer liability away from himself to the other party to the clause in question. He satisfies his debt to that party.” The court further observed that “the public policy concerns for ones own negligence are therefore not an issue” as waivers of subrogation clauses are a matter of contract. The court accordingly held that the subrogation clause was enforceable as it simply effected a reallocation of risk than an exculpation from liability.
Learning Point: Given that waiver of subrogation clauses will be upheld and enforced even if there are clear violations of public safety codes, underwriters should review such contracts with an eye towards potential subrogation, and to the extent possible, negotiate to remove such waiver of subrogation clauses from the contracts into which their insureds enter. If such contractual limitations of liability are removed from the underlying contracts prior to any loss, the viability of recovery against such responsible parties or entities will be greatly enhanced. ?
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