Recent Entries

Indiana Supreme Court adopts “any insurance” approach to subrogation-waiver clauses in construction contracts

Tom KendallBy Tom Kendall, Attorney

Construction contracts commonly include language by which the property owner, architect, and contractors waive subrogation rights among themselves. The intent of such a clause is to shift the risk of a loss during construction to insurance, and to reduce the likelihood of lawsuits between owners and contractors. Widely used standard construction contract forms require the property owner to obtain insurance to cover fire and other losses during the construction period.

Courts in the various states have differed on the extent of the effect of these clauses. Some have held that the right is waived only to the extent the loss impacts the area under construction (“work property”), and not to related damage to other parts of the property (“non-work property”). By contrast, others have held that subrogation is waived to the full extent of losses covered under any applicable insurance policy. These approaches are termed “work versus non-work” and “any insurance”, respectively.

In May 2009, the Jefferson County courthouse was largely destroyed by fire. The fire was allegedly ignited by a contractor who had been soldering copper downspouts near the wood frame of the building. The work was governed by an American Institute of Architects construction contract.

To satisfy its obligation under the contract to obtain insurance, the County relied upon an existing “all-risk” property insurance policy. The contractor had a separate liability insurance policy. The industry standard AIA contract also contained a subrogation-waiver clause, which read as follows:

“11.3.7 Waivers of Subrogation. The Owner and Contractor waive all rights…for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 11.3 or other property insurance applicable to the Work…”

After the fire, the County sued the contractor in an effort to force the contractor’s liability carrier to pay for the damage to the building which was outside the scope of the work. In prior cases, the state’s appeals court had variously employed the work versus non-work and any insurance approaches, thus fueling the litigation. The case culminated in the Indiana Supreme Court’s May 2015 decision in Board of Commissioners of Jefferson County v. Teton Corp.

The Court held that the inclusion of the word “covered” in the waiver clause defines the scope of the waiver in terms of the extent of insurance coverage. The County, as owner, relied upon its “all-risk” insurance policy, and that policy covered losses to work and non-work parts of the courthouse. Therefore, the Court held the County had waived subrogation as to both work and non-work property.

The Court held that the contractor’s liability insurance was not implicated, because the extent of the waiver depends only upon the extent of property insurance coverage, not liability insurance. And because the County’s existing policy covered all of the damages to the courthouse, the right to subrogation was waived as to all damages. This decision places Indiana among a growing number of jurisdictions which adhere to the “any insurance” interpretation of standard construction contract subrogation-waiver clauses.

Insurance subrogation benefits personal injury lawyers, not most Ohioans

Read this Letter to the Editor by Ted Traut to understand more about how insurance subrogation benefits personal injury lawyers, not most Ohioans. Click here to read the article.

Ohio Anti-Subrogation Law Passed As Part of Budget Approved by Governor Kasich

TMTBy Ted Traut, Attorney

Governor Kasich approved an amendment as part of the state budget which will affect an insurer or health plan’s ability to recover medical expenses that it has paid out on behalf of its insured as a result of an injury.  This amendment was introduced just days before the budget was set to be approved and was approved without an opportunity for public debate.  Go here to read a copy of the proposed statute including the items which were vetoed via line item.

While the Governor did exercise his line item veto to strike some language out of the amendment[1], the statute adopts the “Made Whole” rule in Ohio, overruling a long history of case law where Courts refused to re-write insurance policies. In his veto message, the Governor states:

This item contains significant changes to the long-established procedures for distributing recoveries in tort actions involving subrogation. Subrogation is a complex issue that affects multiple stakeholders in numerous ways. These changes could very well be merited and that can be best determined after a thorough public debate. While respecting the intent of the General Assembly, the impact of this item should be minimized until that public debate can occur. Therefore, this veto is in the public interest.

Despite the sentiments expressed in the veto message, this major change to the law is set to go into effect as O.R.C. Section 2323.44 on September 28, 2015.

The statute provides that an insurer’s claim will be diminished in the same proportion that the injured party’s claim is diminished if the injured party is unable to collect full value “resulting from limited liability insurance or any other cause.”  In the case of a dispute over the full value of a claim, either party can file a declaratory judgment action.  It is anticipated that this change could lead to increased litigation as agreeing to the value of a claim can be very difficult, particularly where noneconomic damages are involved.

Weltman, Weinberg & Reis will continue to monitor this situation as the statute is set to take effect and will work in conjunction with the National Association of Subrogation Professionals (NASP) to make sure that the industry is heard. Go here to view a copy of NASP’s communication on the matter.
[1] Most notably, the Governor used the line item veto to strike out the adoption of the “Common Fund” rule which would have required insurers to foot the bill for a portion of the fees, expenses, and court costs incurred by the injured party and his attorney.

A Day to Celebrate You

Jennifer DortonBy Jennifer Dorton, Attorney

Did you know that Wednesday, July 8, 2015 is the third annual National Subrogation Professionals Day? Subrogation professionals contribute much to the insurance industry- keeping the market fair and avoiding injustice. Their expertise helps insurers recover the costs of a loss. July 8th is a day to recognize the talents and skills of the subrogation professionals. Subrogation is a key component of the claims management process and a way for insurers to mitigate their losses. Weltman, Weinberg and Reis Co., LPA’s (WWR) Subrogation Practice Group does its part by maximizing recoveries for its clients. This aids insurers, policyholders, and society as a whole by keeping premiums low and holding persons and entities responsible for their behavior. WWR will join NASP and the rest of the subrogation industry by celebrating this special day. If you are already a member of NASP, check out their website for some exciting National Subrogation Professionals Day events and activities. Not yet a member? NASP is offering a “test drive” membership if you sign up on July 8th. Click here for details.

WWR Subrogation Attorney Booked for Speaking Engagements

On May 7th, Ted Traut will be speaking at the NASP Ohio Chapter Meeting. He will provide an update on relevant case law affecting subrogation in Ohio. Specifically, he will be reviewing the Paul v. State Farm case where the insurance industry received a favorable ruling from the Sixth Circuit Court of Appeals. Mr. Traut co-authored the Amicus Brief filed on behalf of NASP in the Paul case. If you are interested in hearing more about the updates to Ohio’s Subrogation Law, make sure you join the discussion by attending the NASP Ohio Chapter Meeting.

Additionally, Attorney Traut is presenting a free webinar to all those who want to learn more about Pursuing Subrogation Claims against the Uninsured on May 19th. Perhaps the most critical decision a file handler can make is the decision of whether to refer the file out to counsel or to shut it down. What factors should be considered when making that decision? What types of claims should I refer out? When can I expect to see results? This presentation will address those issues from the perspective of an attorney who has spent his entire career pursuing these types of claims. Additionally, the presentation will discuss why you need to think like a collector and not an insurance professional! If you are interested in attending, you can register here .