Indiana Rejects Subrogation Waiver Argument Where Contractor Performed Work At The Request Of Another | Butler Weihmuller Katz Craig LLP

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In U.S. Automatic Sprinkler Corp. v. Erie Insurance Exchange, 21A-CT-580, 2022 WL 906142 (Ind. Ct. App. Mar. 29, 2022), the Indiana Court of Appeals held that a subrogation waiver in an insured’s maintenance contract did not bar recovery by the plaintiff insurer for a water loss at a leased space because the defendant contractor’s work was not performed under the contract with the insured. The water loss incident arose from work that the contractor had performed at the request of the leased space’s owner/landlord, albeit on the insured’s fire sprinkler system. 

At the center of the case was an automatic fire sprinkler that U.S. Automatic Sprinkler Corporation (“USA Sprinkler”) installed for the benefit of Sycamore Springs Surgery Center, L.L.C. (“Surgery Center”) to protect the space it leased from the owner/landlord. Surgery Center was responsible for the maintenance of the system and entered into a maintenance contract with USA Sprinkler that contained a subrogation waiver as between Surgery Center and USA Sprinkler. 

A maintenance worker for the owner/landlord discovered a leak in the system. Even though Surgery Center was responsible for maintaining the sprinkler system, the owner/landlord’s maintenance worker contacted USA Sprinkler directly. An employee of USA Sprinkler serviced the system and made adjustments. There was no evidence that Surgery Center was consulted about the leak or authorized USA Sprinkler’s work.  

Within days, multiple pipes froze and burst causing damage to Surgery Center’s leased space and property, as well as other tenants’ property. Surgery Center made a claim against its property insurance policy held by Travelers Indemnity Company of Connecticut (“Travelers”). Travelers paid the claim to Surgery Center and filed suit against USA Sprinkler as subrogee of Surgery Center.  

USA Sprinkler moved for summary judgment arguing that the subrogation waiver contained in its contract with Surgery Center barred the lawsuit filed by Travelers. Travelers argued that the subrogation waiver did not apply to the work that USA Sprinkler performed on the sprinkler system leading to the water loss because the work was requested by the owner/landlord’s maintenance worker and Surgery Center was neither consulted about nor authorized the work. USA Sprinkler did not dispute that the work was performed at the request of the owner/landlord’s maintenance worker.  

The Indiana Court of Appeals agreed with Travelers and denied USA Sprinkler’s motion for summary judgment. The court reasoned that, because USA Sprinkler did the work at the request of the owner/landlord, and not under the contract with Surgery Center, the subrogation waiver in the contract did not apply to bar subrogation recovery by Surgery Center’s insurer, Travelers. 

This case illustrates that in Indiana, as in any jurisdiction, it is important to gather all of the relevant facts during a subrogation investigation. Recognizing for whom the work was performed (i.e., at the request of the owner/landlord) allowed Travelers to avoid the subrogation waiver that could have barred its recovery if the work had been performed instead at the request of the insured Surgery Center under its contract with its sprinkler maintenance contractor.

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