The Subrogation Strategist

Subrogation professionals have always been looking for ways to defeat onerous waiver of subrogation provisions in contracts signed by insureds. However, even when contracts are unsigned, if there is intent when the contract is made – usually long before a loss occurs - a waiver of subrogation can doom what otherwise may have been a strong case. The Superior Court of Delaware considered such a scenario to determine whether a waiver of subrogation provision applied to a multimillion-dollar subrogation case.

In State of Delaware Insurance Coverage Office and Factory Mutual Insurance Co., both as subrogee of the University of Delaware v. DiSabatino Construction Co., Schlosser & Associates Mechanical Contractors, Inc. and V.E. Guerrazzi, Inc., C.A. No. N19C-08-080, 2022 Del. Super. LEXIS 108 (March 17, 2022), the court granted the defendants’ motions for summary judgment, holding that the plaintiffs’ claims were barred by a waiver of subrogation provision in the underlying contract. Thus, the court held that the plaintiffs could not pursue the defendants in their suit to recover damages as a result of a fire. The court specifically denied the plaintiffs’ argument that since the contract was not signed and another “short form” version was later used the waiver of subrogation provision should not apply.

This case arises from work that DiSabatino Construction Co. (DiSabatino), Schlosser & Associates Mechanical Contractors, Inc. (SAMC) and V.E. Guerrazzi, Inc. (VEG) conducted at McKinly Hall, a building owned by the plaintiffs’ insured, the University of Delaware (University), in 2017. As part of its work, DiSabatino, the general contractor, retained subcontractor SAMC, who sub-subcontracted work to VEG. On August 9, 2017, while the defendants were still working on the project, a fire occurred in McKinly Hall.

The plaintiffs filed suit on August 8, 2019. After discovery took place, the defendants filed motions for summary judgment. The motions for summary judgement focused on the application of the waiver of subrogation provision.

Discovery established that the “specifications” sent out for bidding by the University included the use of the AIA A101 and A201 (2007) as the applicable contract (AIA Contract). Although the University previously used a short form contract, it had transitioned to using the AIA Contract as its typical practice. While DiSabatino did not sign the AIA Contract before beginning its work, it submitted a signed short-form contract which referenced the AIA documents. The University never provided a signed version of the AIA Contract, but agreed that the original terms would remain in place.

The University terminated DiSabatino from the project in November of 2017. When they did so, they executed a new Conclusion of Services Agreement (COSA). DiSabatino signed the COSA, which had a “Non-Waiver and Reservation of Right by Owner” provision in it. The plaintiffs argued that the COSA modified the AIA Contract to remove the waiver of subrogation. They also argued that if the waiver applied, it should be limited to certain parts of McKinly Hall and should not apply to the subcontractors.

The court held that the University and DiSabatino “objectively manifested assent” to use the AIA Contract. Despite DiSabatino’s mistake in using the short form and there being no actual signatures, its actions supported finding an intent for this contract to govern the project. Furthermore, as the COSA only reserved rights and did not expand or restore them, the court denied the plaintiffs’ modification argument and held that the COSA had no bearing on the waiver of subrogation provision in the AIA Contract. Lastly, the court held that the plaintiffs’ arguments that the waiver should not apply to: a) the area of McKinly that DiSabatino did not work on; and b) the subcontractors, to be without merit based on the language of the contract and the applicable case law.

This case serves as a good reminder of the basics of contract law. Although waivers of subrogation can often be fertile grounds for debate, trying to defeat one by relying on procedural defects is no easy task. Despite not having all signatures, misuse of another form and an arguably vague subsequent agreement, the court still looked to the all-important meeting of the minds in granting the defendants’ motions for summary judgment.