The law firm of Cornell Grace, P.C. often represents owners, developers and prime/general contractors on large construction projects. Such projects are increasingly covered by comprehensive, project specific insurance programs, known as Contractor or Owner Controlled Insurance Programs (“CCIPs” and “OCIPS”). The point of these programs is to consolidate risk and ensure that most if not all incidents at the project are fully covered, regardless of which subcontractor is involved.
Certain subcontractors (e.g. electricians) tend to “opt out” of such programs for various reasons, meaning they decline the CCIP/OCIP coverage and agree to get their own insurance. In such cases, the non-enrolled subcontractor is normally required to add the upstream parties (Owner/Prime Contractor/GC) as additional insureds, and to provide contractual liability coverage to these upstream parties as indemnitees.
In recent years, insurance carriers for non-enrolled contractors have developed a tactic whereby they agree to “take over” the defense of the upstream party as an additional insured or contractual indemnitee, but then, implead other CCIP/OCIP enrolled subcontractors as the purported subrogee of the upstream GC or Owner. The obvious, improper purpose of this tactic is for the carrier to come back against CCIP/OCIP proceeds, thereby sidestepping its own coverage obligations. This is directly against the interest of the Owner/GC, which generally has a large Self Insured Retention/Deductible that it funds in its coverage of all enrolled subcontractors.
Cornell Grace has recently won the dismissal of two such improper subrogation actions against its clients. The Courts in both cases found that the carriers for the non-enrolled subs did not have subrogation rights. The carriers had not paid losses on behalf of the supposed subrogors, and the Courts also noted that subrogation is improper where it is in conflict with the interests of the putative subrogor.
In sum, the Courts in both cases refused to allow the subs’ insurance carriers to misapply the law of subrogation in order to misuse rights of the prime contractor/developer against their own financial interests. The decisions can be found here:
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