Court Rules on “Anti-Subrogation” Rule and “Waiver of Subrogation” Clause

St. Paul insured Chelsea 27th Street Apartments (“Chelsea”), who owned a building on Sixth Avenue in Manhattan.  While the building was under construction, a sprinkler accidentally discharged, causing property damage to the apartments.  St. Paul paid a total of $714,438 to repair the premises and filed suit in subrogation against two of the subcontractors:  FD Sprinkler (the sprinkler company subcontractor) and Woodworks (the drywall subcontractor).

Both of the subcontractors were named as additional insureds under St. Paul’s policy.  That policy had been amended to include “All subcontractors as Additional Insureds, ATIMA (as their interests may appear)” [1]   Relying on this language, the trial judge granted the subcontractor’s summary judgment and dismissed the complaint against them, per the anti-subrogation rule.

The appellate court re-instated the complaint. [2]   This court noted that, generally speaking, the antisubrogation rule bars an insurer from subrogating against its own insured for a claim arising from the very risk for which the insured was covered.  However, in this instance, the St. Paul policy amendment did not provide the subcontractors with liability coverage for damage caused to property in which they had no interest.  The appellate court concluded that the above-cited amendment to the policy only insured the subcontractors to the extent of their own property interest in the building under construction (i.e., their own tools, labor and material).  The court noted that $52,323 (of the $714,438 paid by St. Paul) was attributable to drywall work done by Woodworks, and thus was barred from recovery by the anti-subrogation rule.  However, the majority of St. Paul’s ($662,115) damages (which related to the restoration of property in which the subcontractors had no property interest) was not barred by the anti-subrogation rule.

The court also ruled that the suit against the subcontractors was not barred by waiver of subrogation language in the main construction contract with the GC, since the subcontractors were “neither signatories nor parties” to that contract.

Bottom Line:  As always, careful attention must be given to the actual wording contained in the policy and the construction contract, as this affects the applicability of both the anti-subrogation rule and waivers of subrogation.

 [1] The Court did not explain who or what “ATIMA” is.
 [2] St. Paul aso Chelsea 27th Street Apartments v. FD Sprinkler et al., 76 AD3d 931 (First Dept 9/30/10)