Waivers of Subrogation: Are you Really Protected?

It’s common for a construction contract to contain a “waiver of subrogation” provision under “insurance requirements.” Unfortunately, these provisions are widely misunderstood. Although they’re designed to shield owners, contractors and subcontractors against lawsuits by insurers covering project-related claims, the protection offered may not be as extensive as you might think.

Understanding the Concept

Subrogation is a legal concept under which an insurance company that covers a loss gains the right to “step into the shoes” of the insured. The insurer becomes “subrogated to” the rights of the insured, allowing it to sue any third party or parties allegedly responsible for the loss.

Suppose, for example, that an owner hires a contractor to build an office building. During construction, an electrical subcontractor causes a fire that does $3 million in damage to the building. If the owner’s property insurance or builder’s risk policy pays for the loss, the insurance company becomes subrogated to the owner’s rights and may sue the subcontractor for the damage it caused to the building.

Waiving the Provision

The rationale behind waiver of subrogation is that the parties to a construction contract pay substantial premiums to buy insurance to protect themselves against certain risks. If an insurer pays a claim, the argument goes, it should bear the loss and not be permitted to pass it on to another party. Otherwise, insurance companies would rarely pay for anything. Another benefit of waiver of subrogation is that it avoids costly litigation that can result if an insurer goes after one or more parties to the contract.

For these reasons, most standard construction contracts, including the American Institute of Architects form documents, contain waiver of subrogation provisions. Typically, under these provisions, parties waive all rights against each other for damages caused by fire or other perils to the extent such damages are covered by builder’s risk or other property insurance.

Assessing your Protection

Just because your contract contains a waiver of subrogation clause doesn’t necessarily mean that you’re fully protected. The breadth of protection depends on the terms of the parties’ insurance policies and the applicable law in the relevant jurisdiction or jurisdictions.

First, for an insured party’s waiver of subrogation to be effective, its policy must permit the insured to waive the insurer’s subrogation rights.

Many standard property insurance policies authorize waiver of subrogation, but some require an endorsement.

Second, the treatment of subrogation waivers varies from court to court. Some courts, albeit a minority, make a distinction between work and nonwork damages. In other words, the waiver extends only to property that’s part of a contractor’s “work,” as defined in the contract. It doesn’t prohibit subrogated claims related to nonwork property.

So, in our previous example, the waiver of subrogation would apply only to the subcontractor’s electrical work; it wouldn’t prevent the insurance company from bringing a claim for damages to other parts of the building. (The “majority rule,” however, holds that a subrogation waiver bars claims by the insurer for both work and nonwork property.)

Getting the Full Picture

Before signing a construction contract that contains a waiver of subrogation, consult a subrogation lawyer like Stephen Barker today to get a full picture of its level of protection and potential impact on profitability. Call Stephen Barker Law today at 561-910-4340 +15619104340.

Medical Liens in a Personal Injury Case

Many people are surprised to learn that in certain situations, the state and federal government, health insurance companies and hospitals can assert a claim against your personal injury settlement. When you have been the victim of an accident and have filed a personal injury lawsuit to recover the cost of medical bills, the people who paid for these medical costs may be able to file a medical lien against your settlement proceeds. A lien is a demand for repayment that may be placed against your personal injury case.

Your health insurance provider may also issue a lien to recover any money it spends on your personal injury accident treatment. You may be required to pay back these medical expenses. This is a process known as subrogation, whereby insurance providers can seek repayment from your settlement. The extent and strength of the subrogation claim depends upon the language used in the policy. Some states strictly prohibit an insurance company from placing a subrogation clause into a health insurance policy, so you should check the laws in your state.

Medical Provider and Hospital Liens

In certain states, hospitals are entitled to file a lien for repayment of any monies spent on treating or caring for someone injured in an accident. Some medical providers may ask you to sign a lien letter, stating that you submit to a lien against your settlement to pay for services. Medical provider liens must follow a strict protocol in order to be valid. The hospital must follow the requirements of the Hospital lien statutes. Some of those requirements include:

  • The lien must be filed in the recorder’s office of the county where the hospital is located within 180 days after you are released from the hospital.
  • The lien must have your proper name, your proper address, the name an address of the hospital, and the dates of service.

If the hospital does not comply with the statutes, their lien is not enforceable. This does not mean you are not responsible for the bill. It only means that the hospital does not have a lien against your settlement. If the hospital has an opportunity to bill your health insurance, then it must do so and it cannot file a lien for the balance of the bill.

Worker’s Compensation Liens for Work Related Accidents

If you are injured in a work-related accident, a worker’s compensation lien may be issued if your medical bills or lost wages have been paid through your state’s workers’ comp fund. This lien amount is typically whatever worker’s compensation has paid for your case. Worker’s compensation laws vary significantly between states; therefore it’s important to check if the carrier can assert a workers comp lien on your personal injury settlement.

Government Liens for Unpaid Medicare and Medicaid

The general rule is that if the government paid for any portion of your medical care, they have a right to get paid back if you later recover money for your injuries from another party. Depending on the specific type of government program, some government agencies, (Medicare and Medicaid Liens, Veteran’s Administration) have different rights when it comes to placing a lien against your settlement. Some have the right to recover a portion of the proceeds from your personal injury lawsuit.

Negotiating and Releasing a Lien

It’s entirely possible to get the lien holder to accept less than the amount they paid. Your attorney may be able to get the claim reduced from the medical providers who hold a lien against your case. Under the “fund doctrine”, attorneys who create a “fund” for the benefit of a third-party are entitled for reimbursement from the fund in the form of attorney’s fees.

Worker’s compensation carriers are aware that a lien may be so large that is creates a disincentive to litigate. If the lien exceeds the total amount a plaintiff is likely to receive from a lawsuit, the plaintiff may choose not to sue. The plaintiff’s attorney can negotiate with the carrier in order to resolve the lien for substantially less that the face value of their claim.

Notify Your Lawyer

If an entity requests reimbursement, it’s important to ascertain what language in the insurance policy or public statute gives them the right to demand this. Lien law is extremely complicated and an experienced attorney may find ways to reduce or even eliminate the lien.

Subrogation Tactics Involving Heavy Equipment Fires

Heavy equipment fires occur frequently and can lead to substantial losses. The loss of the equipment itself is often compounded by the insured’s loss of use of the equipment.  For businesses that rely extensively on heavy equipment (e.g., agricultural and construction businesses), the loss of use/business interruption claim arising from such a fire can be staggering.

Heavy equipment is often used in undeveloped areas not readily accessible to fire departments. As a result, the equipment is often badly damaged by the fire, creating challenges to identifying the point of origin. Subrogation recovery for such fire will hinge on proper investigation immediately after the loss occurs. The following are some tips to guide a subrogating carrier’s investigation in heavy equipment fires.

In analyzing a heavy equipment fire case, it is important to gather data and evaluate the maintenance history of the equipment. Lack of maintenance of hoses carrying hydraulic fluid can be problematic, as these rubber hoses become brittle and prone to cracking over time, creating the potential for the failed hose to discharge pressurized, flammable hydraulic fluid onto hot parts of the equipment’s motor or exhaust system, resulting in a fire. Thus, one of the first steps in evaluating the recovery potential of a heavy equipment fire claim is to determine whether the equipment was properly maintained. A diligent insured will keep log books recording each instance of maintenance to the equipment. The carrier should request such maintenance records from the insured at the outset of such a claim, as those records can substantially inform the subsequent investigation.

Additionally, some heavy equipment fires may occur at job sites where there is already a fire in progress. In a land clearing project, for instance, there is usually a pile of cleared wood and vegetation being burned. This creates a significant potential for the equipment operator to move the equipment too close to the burn pile, causing combustible components of the equipment to ignite. On many pieces of equipment, the cold air intake is located at the rear of the machine, behind the operator. We have investigated several fires wherein the operator, looking forward, did not realize that the rear of the machine was perilously close to a burning debris pile, and a smoldering ember is sucked into the machine’s cold air intake, causing a fire in the engine compartment. This potential fire cause makes it crucial that the subrogating carrier establish the pre-fire location and movements of the equipment as soon as possible following a loss. The carrier should make every effort to obtain this information directly from the operator of the equipment and other individuals who were actually present when the fire occurred; obtaining the information from a foreman or company representative who was not present at the time of the loss is not a substitute for first-hand statements.
Finally, the carrier should be aware that not all fire investigators and engineers are created equal for purposes of investigating a heavy equipment fire. If possible, the subrogating carrier should retain a fire investigator familiar with heavy equipment fires and a mechanical or electrical engineer who specializes in heavy equipment, as non-specialist fire investigators and engineers may not be able to quickly and accurately identify all potential ignition sources on the relevant equipment.

Having learned the ropes of subrogation in terms of heavy equipment fires, it is best to work with a lawyer that specializes in subrogation like Stephen Barker. His expertise and knowledge of assisting clients through subrogation claims will help you get what you deserve from insurance companies and insure that you are not left in the ashes from fires.