Waiver-of-Subrogation Clause Not Waived By Not Being Asserted as Affirmative Defense

COMMERCIAL PROPERTY – WAIVER-OF-SUBROGATION CLAUSE – AFFIRMATIVE DEFENSES
State Farm Ins. Co. v. J.P. Spano Constr., Inc.
(2nd Dept., decided 10/21/2008)

A waiver-of-subrogation clause is placed in a contract to minimize lawsuits and claims among the contracting parties. The result is that the risk of loss is agreed among the parties to lie with their insurers, and the cost of the insurance coverage is contractually allocated among the parties as they may agree. The risk, once allocated to the insurers by the parties, is intended to stop there, without allowing the insurer to seek redress via subrogation claims in the event of a loss from the "at fault" party. See, Kaf-Kaf, Inc. v. Rodless Decorations, Inc., 90 NY2d 654 (1997). Most insurance policies allow an insured to waive its insurer's subrogation rights provided the waiver was executed before a loss.

A typical waiver-of-subrogation clause provides:

The owner and Contractor waive all rights against (1) each other and any of the subcontractors, sub-subcontractors, agent and employees, each of the other, and (2) the architect, architect's consultants, . . . for damage caused by fire or other perils to the extent covered by property insurance obtained pursuant to this contract.

In a landlord-tenant context, a typical waiver-of-subrogation clause reads:

Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery of loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Landlord and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise.

Although the courts routinely uphold waiver-of-subrogation clauses to dismiss subrogation actions, for subrogating insurers there do exist a few ways around such clauses. State Farm must have thought it had such an argument in this case and brought a subrogation action against what the decision implies was the general contractor of State Farm's insureds.

Unfortunately for State Farm, the insureds had signed a contract with the defendant contractor in which they had waived subrogation for all claims "for damages caused by fire or other causes of loss to the extent covered by property insurance obtained". State Farm argued, though, that the defendants had failed to assert the waiver-of-subrogation clause as an affirmative defense in their answer. In rejecting this argument and upholding the lower court's award of summary judgment to the defendants based on the clause, the Second Department held:

Contrary to the plaintiff's contention, the defendants were not required to plead the waiver-of-subrogation clause as an affirmative defense. The plaintiff's complaint was based, in part, on the very contract in which the waiver-of-subrogation clause appeared; the plaintiff cannot claim to be surprised that the defendants would use it as a defense (see CPLR 3018[b]; Bello v Transit Auth. of N.Y. City, 12 AD3d 58, 61; Carlson v Travelers Ins. Co., 35 AD2d 351, 353-354).

For more waiver of subrogation cases, click here or the waiver of subrogation label below.