3 N.E.3d 556
Ind. Ct. App.2014Background
- Jefferson County contracted with Teton (AIA form contract) to renovate the Madison courthouse roof; Teton subcontracted Innovative Roofing, which sub‑subcontracted Gutapfel Roofing.
- The AIA contract required the Owner to “purchase and maintain” all‑risk property insurance for the Work, and contained a mutual waiver of subrogation for losses covered by property insurance obtained under the contract or other property insurance applicable to the Work (§§11.3.1, 11.3.5, 11.3.7).
- Jefferson County did not buy a separate builder’s‑risk policy; it relied on an existing blanket property/casualty policy with St. Paul and did not notify Teton that it would not purchase the required separate insurance.
- During renovation a fire caused >$6 million damage; the County’s insurer paid the County.
- County sued the contractors for negligence and contract claims; contractors moved for summary judgment arguing the County waived subrogation under the AIA waiver clause. County argued the waiver covers only damage to the defined “Work” and not to non‑Work property.
- Trial court granted summary judgment for contractors; the Court of Appeals affirmed, adopting the “majority approach” that the waiver bars subrogation for all damages covered by the owner’s property insurance obtained pursuant to the contract or other property insurance applicable to the Work.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether County waived subrogation for damages to non‑Work property under the AIA waiver clause | Waiver limited to damage to the defined “Work”; non‑Work damages remain recoverable (Midwestern line) | Waiver applies to any loss paid by the owner’s property insurance obtained for the Project or other property insurance applicable to the Work; coverage source—not the identity of damaged property—controls | Court holds waiver bars subrogation for any loss covered by the owner’s property insurance obtained pursuant to the contract or other property insurance applicable to the Work (adopts majority approach) |
| Whether County’s failure to notify contractor that it would rely on existing insurance affects waiver analysis | County argued contractor remained responsible for non‑Work risks and liability insurance would cover non‑Work damages | Contractors argued County breached §11.3.1.2 by not notifying contractor, and the contract still bars subrogation for insured losses | Court concluded County breached notice obligation (preventing contractor from procuring alternative coverage) and that breach does not avoid the contractual waiver; waiver still applies to insured losses |
| Whether gross negligence/willful misconduct preserves subrogation despite waiver | County asserted evidence of gross negligence could preserve subrogation rights | Contractors argued no such exception applied; designated evidence did not show gross negligence | Court held County failed to designate evidence raising genuine issue of gross negligence or willful/wanton conduct; no exception applied |
Key Cases Cited
- Midwestern Indem. Co. v. Systems Builders, 801 N.E.2d 661 (Ind. Ct. App. 2004) (AIA waiver interpreted to limit recovery for contents in that panel’s view)
- Lexington Ins. Co. v. Entrex Comm’n Servs., Inc., 749 N.W.2d 124 (Neb. 2008) (waiver applies to all damages paid by owner’s policy; source of proceeds controls)
- Lloyd’s Underwriters v. Craig & Rush, Inc., 32 Cal.Rptr.2d 144 (Cal. Ct. App. 1994) (AIA waiver defined by source of insurance proceeds, not by whether damage was to Work)
- Haemonetics Corp. v. Brophy & Phillips Co., 501 N.E.2d 524 (Mass. App. Ct. 1986) (owner’s reliance on existing policy constituted the insurance contemplated by AIA waiver)
- Westfield Ins. Group v. Affinia Dev., 982 N.E.2d 132 (Ohio Ct. App. 2012) (adopts majority approach; waiver applies to losses covered by owner’s property insurance)
- American Zurich Ins. Co. v. Barker Roofing, L.P., 387 S.W.3d 54 (Tex. Ct. App. 2012) (waiver of subrogation substitutes insurance protection for litigation and is not limited by Work/non‑Work distinctions)