“I Didn’t Sign That!” – Applicability of Waivers of Subrogation to Non-Signatory Third Parties

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In Gables Construction v. Red Coats, 2019 Md. App. LEXIS 419, Maryland’s Court of Special Appeals considered whether a contractual waiver of subrogation in the prime contract for a construction project barred a third party – a fire watch vendor hired to guard the worksite – from pursuing a contribution claim against the general contractor. The court concluded that the general contractor could not rely on the waiver of subrogation clause to defeat the contribution claim of the vendor, who was not a party to the prime contract. As noted by the court, holding that a waiver of subrogation clause bars the contribution claims of an entity that was not a party to the contract would violate the intent of the Maryland Uniform Contribution Among Tortfeasors Act (UCATA).

When dealing with claims involving construction projects, there may exist multiple contracts between various parties that contain waivers of subrogation. The enforceability of such waivers can be limited by several factors, including the jurisdiction of the loss, the language of the waiver and the parties to the contract.

In Gables Construction, Upper Rock, Inc. (Upper Rock), the owner, contracted with a general contractor, Gables Construction (GCI) (hereinafter referred to as the “prime contract”), to construct an apartment complex. After someone stole a bobcat tractor from the jobsite, Gables Residential Services Incorporated (GRSI), GCI’s parent company, signed a vendor services agreement (VSA) with Red Coats to provide a fire watch and other security services for the project.

Within the prime contract, there was a waiver of subrogation clause. The waiver of subrogation clause barred subrogation claims between Upper Rock, GCI and their subcontractors with respect to insurance applicable to the work. Within the VSA, there was also a waiver of subrogation clause. This waiver of subrogation clause barred subrogation claims between GRSI (as well as its affiliates, including GCI) and Red Coats.

Approximately one month prior to completion of the project, a fire occurred within Building G of the project causing significant damage to the property. Subsequent to the fire, Upper Rock sued Red Coats and its security guard, Tamika Shelton. After settling with Upper Rock for $14 million (Red Coats paid $4 million of the settlement directly with the other $10 million being paid by insurance), Red Coats sued GCI for contribution. GCI, relying on the waivers of subrogation clause in the prime contract, filed a motion for summary judgment seeking dismissal of Red Coat’s contribution claim. The trial court denied GCI’s the motion, and after a trial, the jury awarded Red Coats $7 million in damages, GCI’s pro rata share of the settlement amount.

GCI appealed the lower court’s decision on its motion for summary judgment. Discussing the waiver of subrogation clause in the prime contract, the Maryland Court of Special Appeals held that, because Red Coats was not a party to the contract and could not enforce its terms, the waiver of subrogation did not extinguish Red Coats’ right of contribution. With respect to the waiver of subrogation clause in the VSA, the court held that it applied to Red Coats’ claims against GCI and barred Red Coats’ insurer from recovering the $10 million it contributed to the settlement. Accordingly, the court reduced the verdict to $2 million, which constituted half of Red Coats’ out-of-pocket expense.

Based upon the court’s reading of the contract in conjunction with the UCATA, it is arguable that the court has left an opening for pursuing subrogation claims against parties not specifically named within a prime contract. If that was not the court’s intent, then in the alternative, it is implicit in the court’s holding that Red Coats was not a subcontractor within the meaning of the waiver of subrogation clause in the prime contract. Presumably, this was because Red Coats was hired after the fact by GRSI and not to perform any of the construction work related to the project.

This case serves as a good reminder that contribution claims may be governed not only by a different subset of laws within respective jurisdictions but also by the terms of any applicable contracts. As such, practitioners should be aware that the mere presence of a waiver of subrogation clause may not preclude pursuit of a contribution claim.

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