After an insurer pays for a covered loss by an owner under a property policy the insurer generally has the right, whether under the common law, statute or the policy itself, to seek recovery of the payment from the responsible party. This is known as the right of subrogation, or if based on the common-law right, equitable subrogation. Under the doctrine of subrogation, the insurer “stands in the shoes” of the insured owner and exercises its right to subrogation by enforcing the owner’s rights against the responsible party. However, the insurer is not only limited to enforcing whatever rights the owner may have, but is also subject to any applicable defenses against the owner.
Nevertheless, construction contracts, and in particular those that incorporate the AIA form A201 General Conditions, often include so-called “waiver of subrogation” provisions, which operate to bar claims by the owner or its insurer for property damage caused by the contractor (and often the subcontractors, suppliers, and architect), to the extent that the property damage was covered by the owner’s property insurance. Such insurance is often a builder’s risk policy that the owner was contractually required to purchase, which typically covers damage to the contractor’s “work,” i.e., the actual construction performed by the contractor under the contract, and does not extend to cover other areas of the owner’s property, i.e., the “non-work” property. Under these circumstances the contractor’s general liability policy is expected to provide coverage for accidental damage to the “non-work” property. This allocation of liability is intended to place the responsibility to pay for accidental damage to the owner’s property during construction on the insurers, rather than the parties themselves, and avoid disputes and disruptions on the project over who is responsible.
Article 11 of the more recent versions of the AIA A201 General Conditions (1987, 1997 and 2007) allows the owner the option of relying on an existing property policy that covers the contractor’s “work,” rather than purchasing a builder’s risk policy. Such property policies typically cover damage caused by the contractor to both “work” and “non-work” property, and are likely to apply when the project involves improvement, renovation or expansion of the owner’s existing property. When the project involves new construction, the owner will more likely purchase a builder’s risk policy for the duration of the construction, and the entire project is usually considered to be the contractor’s “work.”
Considerable litigation has arisen as to whether the waiver of subrogation provision applies to bar an insurer’s subrogation claim against a contractor to the extent the insurer covered damage to the owner’s “non-work” property under the owner’s existing property policy. The majority of jurisdictions have held that the waiver of subrogation provision in the construction contract applies to bar subrogation claims where the owner’s property policy covers the damage to “non-work” property. This is the rule in Massachusetts. See Haemonetics Corp. v. Brophy & Phillips Co., 23 Mass. App. Ct. 254, 501 N.E.2d 524 (1986). However, the New York Court of Appeals sides with the minority view that a waiver of subrogation provision only applies to covered damage to the contractor’s work itself. See S.S.D.W. Co. v. Brisk Water Proofing Co., 76 N.Y.2d 228, 229, 556 N.E.2d 1097, 557 N.Y.S.2d 290 (N.Y. 1990).
No appellate-level court has yet ruled on this issue in Connecticut. However, a recent decision by the Connecticut Superior Court, Conn. Interlocal Risk Mgmt. Agency v. Silktown Roofing, Inc., 2016 Conn. Super. LEXIS 593 (March 22, 2016) (hereinafter, “CIRMA”), agrees with the majority rule. In CIRMA, the plaintiff insurer had paid under the owner’s existing property policy to cover damage caused when fireproofing material became dislodged and fell during a high school roofing project. The insurer then sought to recoup that payment by way of a subrogation action against the roofing contractor. The contractor moved for summary judgment based on the waiver of subrogation provision in its contract with the owner. The insurer argued that the waiver of subrogation provision applied only to the contractor’s “work,” which did not include the fireproofing material or interior areas where it fell. The court disagreed, adopting the majority view that a waiver of subrogation provision of the type contained in the AIA A201 General Conditions applies to bar a subrogation claim where the owner’s property policy covered both “work” and “non-work” property. Based on this reasoning, the court granted the contractor’s motion for summary judgment, and this result was not appealed.