“Subrogation” is the right and power of an insurer to legally go after third parties that caused the insured a loss. This is so the insurance company can recover what they paid to the insured. When writing or reviewing a new contract for a construction project, you may hear about something known as “waivers of subrogation” clauses. If you haven’t worked with these in the past, it may sound intimidating or even confusing. These clauses essentially make it clear that the parties involved in the contract waive the rights that their insurers have to file any type of subrogation claim after a loss has already been paid out.
This is intended to help allow the parties to maintain a positive working relationship, even when there is some type of event such as a fire or flood. Whenever the property owner’s primary insurance policy pays out to cover damages, it prevents that insurance company from suing the insurance company of the contractor or construction company. Of course, this is not an ironclad option, and if it can be proven that the construction company caused the fire or other event, the insurance company may still have a claim. Reducing this risk, however, can have a positive impact on the long term working relationship.
During the Construction Project Phase
Waivers of subrogation are most commonly put into effect to cover the timeframe where the construction project is actually being performed. Due to the fact that construction companies and contractors are actively working on the project, there is an elevated risk that something could go wrong through nobody’s direct fault. While people typically work hard to ensure everything is done correctly and safely, it is impossible to eliminate every risk. Should something go wrong during this phase, the waiver of subrogation will typically prevent a subrogation suit.
There are some cases where the courts will rule that the construction company or contractor is responsible for an event even after the project has been completed. A court’s determination will vary on a case by case basis. If an apartment building has been built and then an electrical issue causes a fire for example, the property owner’s insurance company may want to seek damages from the insurance company of the construction company.
These types of cases require that the clause is written clearly and precisely to avoid any ambiguity. Courts tend to honor the waivers and dismiss these types of cases, but that certainly doesn’t happen 100% of the time. Having an experienced construction law attorney write or review a waiver of subrogation clause is the best way to ensure you are protected in as many situations as possible.
Experienced Legal Help
If you are entering into a contract for a larger job, having a waiver of subrogation in place can mitigate the risk of conflict. Contact FCLG to discuss your situation and see if this might be something worth adding to your agreements. We can write up the contract, modify an existing one, or simply review something before you sign. Whatever you need, we’ll put our experience to work for you.