An insurance company cannot seek reimbursement from two contractors on a claim it paid on behalf of its insured because the insured’s contract with the contractors contained a subrogation waiver that bars the insurer’s negligence claim, the Indiana Court of Appeals ruled Tuesday.
In April 2009, Southwest Dubois County Schools executed a contract with The Skillman Corporation to serve as the construction manager for a renovation project at Southridge High School. Under the contract, the school district and construction manager waived all subrogation against each other and all contractors for any damage that occurred during the project that was covered by property insurance.
The school district then contracted with Performance Services, Inc. to install an HVAC replacement system, and PSI, in turn, subcontracted with Huntingburg Machine Works, Inc. to complete work on the HVAC installation. The contract with PSI did not include a subrogation waiver, but the subcontract with Huntingburg did contain a clause that waived subrogation against PSI or the district.
At one point during the construction project, water escaped from an uncapped pipe and caused damage to the high school’s computer, phone and intercom processing equipment. The school district reported the damage to its insurer, Hanover Insurance Company, who settled the insurance claim for the full amount of $696,661.71.
Then, two years later, Hanover, as the district’s subrogee, filed suit against PSI and Huntingburg for negligence and sought to be reimbursed for the insurance claim. The contractor and subcontractor moved for summary judgment, arguing Hanover’s claims were barred by the waiver subrogation in the construction manager contract. Hanover filed a cross-motion for summary judgment, but the Dubois Circuit Court denied both motions.
PSI and Huntingburg then filed an interlocutory appeal arguing the trial court erred in denying their joint motion for summary judgment, and the Indiana Court of Appeals agreed Tuesday. Specifically, Judge Elaine Brown wrote that PSI and Huntingburg are considered “contractors” under the subrogation waiver in the construction manager contract. Thus, “(t)he language of the Construction Manager Contract supports the conclusion that the intent of the parties was to waive all subrogation claims against contractors and subcontractors,” Brown wrote.
“The absence of waiver-of-subrogation language and the inclusion of an integration clause in the PSI Contract do not convince us otherwise,” the judge wrote. “The waiver-of-subrogation clause in the Construction Manager Contract waived any rights of Hanover to seek compensation from PSI and Huntingburg.”
Thus, the appellate panel reversed the denial of summary judgment to PSI and Huntingburg and remanded the case for summary judgment to be entered in their favor. The case is Performance Services, Inc. and Indiana Corporation and Huntingburg Machine Works, Inc., an Indiana Corporation v. Hanover Insurance Company, as Subrogee of the Southwest Dubois County Schools, 19A01-1607-CT-1743.