In many subrogation cases, the recovery specialist is confronted with one or more “writings,” including a lease, rental agreement or other type of contract, containing various provisions which may affect the recovery rights of a subrogating insurer. Below are a few issues to be aware of.
Who are the parties to the agreement? Although an agreement between the insured and a third party may contain provisions which might limit or prohibit recovery, it may be that one or more of the parties responsible for causing the loss are not parties to the agreement. This could arise where a tenant has subleased the property or permitted a third party to temporarily occupy or utilize a portion of the property. Similarly, an agreement between an insured and a contactor may contain provisions limiting or waiving liability against the contractor. However, if subcontractors were involved in the work which caused the loss, the subcontractors or other third parties’ responsibility may be unaffected by limiting provisions between the insured and the contractor.
Who is required to be named as an additional insured? An agreement may require one of the parties to name other parties as additional insureds under their insurance policy. If the agreement requires another party to name your insured as an additional insured, there may be successful avenues of recovery/contribution from the third parties’ insurer. Alternatively, if your insured is required to name a potential defendant as an additional insured, the anti-subrogation rule may prevent recovery against that party.
Is there a waiver of subrogation clause? In many agreements, some type of “waiver of subrogation” clause is included. While, under many circumstances, the waiver clause may prevent subrogation against the parties to the agreement, there may be circumstances where the waiver may not apply. The specific language of the waiver should be carefully examined to determine whether the provisions apply to the circumstances of the loss, and whether there are any conditions the parties were required to perform as a prerequisite to the implementation of the waiver provisions.
Is there a waiver of liability clause? Many agreements contain general waiver of liability provisions wherein one party releases the other from liability, which may prevent recovery by the insurer against the party relieved from liability. However, this will not always be the case. In some jurisdictions, if the actions of the responsible party constitute active or affirmative negligence, and the limiting language is not explicit, the waiver may be unenforceable. Likewise, if the provisions affect the “public interest,” the waiver may not be enforced. Finally, the specific provisions of the waiver must be closely examined to determine whether the specific circumstances of the loss fall within the parameters of the waiver.
Is there an indemnity clause? A properly drafted indemnity provision may create a recovery opportunity for the subrogating insurer. The indemnity provisions must be examined carefully to determine the precise obligations created.
Is there a requirement to carry insurance? Agreements should be carefully examined to determine if a party is required to carry liability or casualty coverage. The responsibilities for insurance may create a recovery opportunity.
Who is responsible for repairs? Many rental/lease agreements contain provisions requiring a party to make repairs to the property. Depending on the language and the fact situation, the language could be helpful to recovery. Provisions requiring a tenant to pay for damages caused by its negligence may be persuasive in overcoming an “implied co-insured” defense sometimes raised in a landlord tenant situation.
Is there an attorney’s fees clause? An attorney’s fees cause may permit the prevailing party in a legal action to recover its attorney’s fees from the unsuccessful party. In evaluating a recovery when an attorney’s fees clause exists, the insurer should consider the potential of recovering its incurred attorney’s fees in a successful action, and being required to pay the other party attorney’s fees should the action be unsuccessful.
How were the damages caused? The circumstances of how a loss occurred may affect the enforcement of the agreement’s provisions. Intentional acts, violations of law, or acts constituting gross negligence may avoid the limiting provisions. Likewise, under certain indemnity provisions may provide an opportunity to pursue recovery and avoid responsibility.
A careful examination of the provisions of any agreement should be made when deciding whether a viable recovery opportunity exists.
Kevin D. Bush, managing partner, San Diego office of Cozen O’Connor, represents subrogating insurers in losses ranging from multimillion dollar wildfire losses to single family residence losses.