Second Circuit Again Holds That Subrogation Waiver Clause Bars Gross Negligence Claim
August, 2007
In April, 2005, I wrote an article for the CM Report, which discussed the Second Circuit’s decision in St. Paul Fire & Marine Ins. Co. v. Universal Builders Supply, 409 F.3d 73 (2d. Cir.2005) (holding that a waiver of subrogation clause bars a claim of gross negligence under New York law). At that time, the introduction to my article read as follows:
Clausen Miller P.C. has been very successful in recent years convincing various courts, arbitrators, mediators and adversaries that a waiver of subrogation provision does not apply to breach of contract and/or gross negligence claims. In fact, as previously reported in the New York Clausen Miller Report Volume 1 & 2, 2004, we obtained a written decision from the U.S. District Court for the Southern District of New York specifically holding that a waiver of subrogation provision will not apply to a gross negligence claim. See American Motorist Ins. Co. v. Morris Goldman Real Estate Corp., 277 F.Supp.2d 304 (S.D.N.Y. 2003). Unfortunately for the subrogation bar, not all law firms have been as successful as Clausen Miller. In St. Paul Fire & Marine Ins. Co. v. Universal Builders Supply, 2005 WL 1220473 (2d Cir. 5|24|05), the Second Circuit, applying New York law, held that a waiver of subrogation provision applies to a gross negligence claim.
Since that article, Clausen Miller P.C. has continued to be successful in various venues with its argument that a waiver of subrogation provision does not apply to gross negligence (some of these successes have been reported in the interim CM Reports).
Unfortunately for the subrogation bar, not all law firms have been as successful as Clausen Miller. In Industrial Risk Insurers v. Port Authority of NY and NJ, 2007 WL 2007669 (2d Cir. 7/12/07), the Second Circuit has once again re-affirmed its holding that a waiver of subrogation provision applies to a gross negligence claim.
IRI provided property insurance to Silverstein Properties, Inc. for 7 WTC, and in the wake of the damage (collapse of 7 WTC), paid in excess of $400 million in property loss to Silverstein. IRI filed a claim of gross negligence against various parties, including Citigroup, Silverstein’s largest tenant in 7 WTC. Specificially, IRI alleged that Citigroup “chose to design, construct, and install a diesel-fuel-powered generator system in 7 WTC, which pumped fuel through the entire building at all times.” IRI claimed “that this generator system was unreasonably dangerous, and that, while Citigroup’s alleged gross negligence did not cause the initial combustion in 7 WTC, it directly led to an aggravation of fire damage and the ultimate collapse of the building.”
Citigroup moved to dismiss the Complaint. The motion to dismiss was granted. IRI appealed that decision and argued: “(1) that the district court improperly concluded, as a matter of law, that Citigroup’s conduct was not gross negligence; (2) that the district court erred in holding that New York’s “subrogation waiver” doctrine precluded IRI from asserting a claim sounding in gross negligence; and (3) that the district court erred in applying the doctrine of assumption of risk to bar IRI’s gross negligence claim.”
The Second Circuit, in two quick sentences, stated: “given St. Paul-which requires us to affirm the judgment of the district court-it is unnecessary, and hence would be improper, for us to consider the alternative grounds relied on by the district court.” “Having carefully considered the parties’ arguments, we now affirm the judgment of the district court, doing so solely on the basis of its ‘subrogation waiver’ holding, and turn to whether IRI’s motion for partial vacatur should be granted.”
Thus, without providing any background, argument and/or analysis relative to the “subrogation waiver” doctrine, and/or discussing whether IRI even addressed some of the issues to get around the “subrogation waiver” provision, the Second Circuit merely reiterated its St. Paul decision, and affirmed the District Court’s holding dismissing the Complaint on the basis of “New York’s ‘subrogation waiver’ doctrine.”
The Second Circuit remanded the case back to the District Court for the sole purpose of considering:
IRI’s motion for partial vacatur. In doing so, we underscore that, if the district court, on remand, construes its ruling on assumption of risk in such a way that IRI cannot in other cases be collaterally estopped by it, then the need to grant the motion to vacate would be significantly reduced. Similarly, the reverse is true: if the assumption of risk ruling is such that collateral estoppel might well apply, that fact would likely suffice as an extraordinary reason justifying the granting of a vacatur motion. But we leave these issues for the district court.
Learning Point:
Although IRI re-affirmed the Second Circuit’s holding that a waiver of subrogation provision will apply to gross negligence claims under New York law, thus continuing to make it much harder for certain subrogation actions that were going to rely upon a gross negligence claim to get around a waiver of subrogation provision under New York law, there are still some loop holes which may apply to your case. It is important to discuss your case with a competent and qualified subrogation attorney to determine whether there is subrogation potential, do not merely close the file because there is a waiver of subrogation provision.
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