Anti-Subrogation Rule Bars Recovery As To One Additional Insured And Not The Other, And Waiver Of Subrogation Provision Held Not To Apply To Subcontractors
October, 2010
by Robert A. Stern and Virginia M. Markovich
In St. Paul Fire and Marine Insurance Company v. FD Sprinkler Inc. et al., 2010 WL 3782106 (1st Dep't 2010), the Appellate Division held that: (1) anti-subrogation rule barred insurer's recovery of money it paid on claim that was attributable to work performed by drywall subcontractor; but (2) anti-subrogation rule did not apply as to insurer's claim against sprinkler subcontractor; and (3) subcontractors could not avail themselves of waiver-of-subrogation clause contained in main contract between building owner and general contractor.
Plaintiff was the insurer for Chelsea 27th Street Apartment. Plaintiff brought a subrogation action against FD Sprinkler and Woodworks, the sprinkler and drywall subcontractors, seeking to recover monies paid on a claim filed by its named insured on a builder's risk insurance policy, for property damage caused by the unintended discharge of a sprinkler in a building under construction.
FD Sprinkler and Woodworks filed a motion for summary judgment dismissing the Complaint on the ground that Plaintiff's claims were barred by the anti-subrogation rule since they were additional insureds under the builders risk insurance policy. The anti-subrogation rule provides that an insurer has "no right of subrogation against its own insured for a claim arising from the very risk which the insured was covered." Id. at 1. The lower court granted the Motion and Plaintiff appealed.
The Appellate Court initially concluded that FD Sprinkler and Woodworks were additional insureds on the policy pursuant to a Special Provision Endorsement which stated that "All subcontractor's [sic] as Additional Insureds, as their interests may appear". Id. at 1. However, the Appellate Court stated that the subcontractors were only afforded coverage under the Policy to the extent of their property interest in the building under construction, to wit, the tools, labor and material furnished or owned by the subcontractors. Id. The Appellate Court reasoned that the Policy did not provide the subcontractors with coverage for any damage they may have caused to property in which they had no interest. Therefore, the Appellate Court held that the anti-subrogation rule prohibited recovery against Woodworks because part of the damages sought were attributable to Woodwords' work. Id. at 2. However, the Appellate Court also held that the anti-subrogation rule did not apply to subcontractor FD Sprinkler, because Plaintiff did not make any payment in connection with FD Sprinkler's work.
Finally, the Appellate Court noted that the subcontractors were neither signatories nor parties to the main construction contract between the Owner and the General Contractor. As such, the Appellate Court held that the subcontractors were not entitled to rely upon the waiver of subrogation provision in the main construction contract.
Learning Point
It is imperative to always carefully read the language of a Builders Risk Policy when it serves as the basis for a subrogation claim. The parties must identify who is an insured and to what extent they are protected as an insured under the Policy. Further, it is important to identify the nature of the damages as they relate to a subrogation claim against a subcontractor. Also, a subrogation target that is neither a signatory nor party to a contract, cannot automatically rely upon the terms and conditions of that contract.
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