New Jersey Court Declines To Extend Waiver Of Subrogation Provision To Insured's Deductible
November, 2009
In Carlson Restaurants Worldwide, Inc. v. Designline Construction Services, Inc. et. al., 2009 WL 2833259 (2009), Plaintiff appealed the trial court's decision which granted Defendants' motions for summary judgment due to a waiver of subrogation provision contained within a construction contract. On appeal, Plaintiff did not contest the enforceability of the waiver provision, but instead argued that the trial court erred in dismissing the insured's claim for its sizable deductible. After consideration of New York and Connecticut case law, the New Jersey Appellate Division partially reversed the trial court and held that the waiver provision did not extend to the insured's deductible.
The lawsuit arose from a kitchen fire at a TGI Fridays restaurant, owned by Plaintiff Carlson Restaurants Worldwide, Inc. ("Carlson"), which caused extensive property damage. The restaurant was constructed by Designline Construction Services, Inc. ("Designline") and its subcontractors. Carlson alleged that the fire was caused by a broiler table, which was either defectively manufactured or negligently installed. Plaintiff sued Designline; the installers of the broiler table, JMS Services ("JMS"); the plumber, C.J. Schmidt & Sons, Inc. ("Schmidt"); and the manufacturer, Restaurant Services International, Inc. ("Restaurant Services").
The waiver of subrogation provision stated that the owner and contractor waive all rights of recovery against each other, their Subcontractors, Sub-subcontractors, the Architect, the Architect's consultants, and separate contractors for damage caused by fire or other perils to the extent covered by property insurance. Id. at *1. Moreover, the contract required plaintiff Carlson to carry property damage insurance with only a $25,000.00 deductible during the project. The contract further required Carlson to maintain property insurance for the premises after completion of the work and that subsequent policies must also waive subrogation rights. Id.
Relying on the New York decision of Gap, Inc. v. Red Apple Cos., Inc., 282 A.D.2d 119 (2d Dep't 2001) and the Connecticut decision of Stop & Shop Supermarket Co. v. ABCO Refrigeration & Supply Corp., 842 A.2d 1194 (Conn. Super. Ct. 2003), the New Jersey Appellate Division partially reversed the trial court's decision and held that Plaintiff may still pursue recovery to the extent of its deductible. Id. at *3 and *4. Specifically, the Court stated: "Here Carlson acted as a self insurer for the first $500,000 of their losses resulting from the kitchen fire at the TGI Fridays restaurant. This $500,000 was not covered by Carlson's insurance policy.... It was also not expressly included in the waiver of subrogation provision, which sought to bar Carlson from recovering insured losses against defendants. To the contrary, the waiver of subrogation provision is limited ‘to the extent covered by property insurance'." Id. at *4.
Defendants argued that the waiver provision encompassed the deductible, and in the alternative, that Plaintiff breached its contract by procuring property insurance with a deductible higher than $25,000.00. Id. at 5. The Appellate Division reasoned that while the contract documents required a waiver of subrogation and a specified maximum deductible while the project was ongoing, the insurance requirements imposed upon Plaintiff after final payment only required a waiver of subrogation provision be included in the property policy and was silent as to the amount of the deductible. Id. at 6. Applying basic rules of contract interpretation, the Court found that the insurance requirements imposed upon Plaintiff during the project were not the same as those after the project, and rejected Defendants' argument that Plaintiff's claim should be limited to $25,000.00.
Learning Point: The mere existence of a waiver of subrogation provision should not end with an analysis of whether the waiver provision is enforceable in a specific jurisdiction. Subrogation attorneys must extend their analysis to determine whether provable deductible losses can be recovered. In those situations, an insurer can then determine whether it wishes to offer assistance to the insured with recovery efforts, by way of investigation or recommended counsel, to better serve those insureds with recoverable deductibles.
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