Opinion
C.A. No. 02-7597.
June 10, 2004
MEMORANDUM OPINION AND ORDER
The plaintiff brought this action, as subrogee of Temple Ohev Shalom ("the Temple"), to recover from the defendant the amount it paid to the Temple as a result of a fire that caused extensive damage to the Temple's buildings and personal property. Presently before the Court is the motion of the defendant to dismiss the Complaint and the motion of the plaintiff for partial summary judgment. For the reasons which follow, the motion of the defendant is granted and the motion of the plaintiff is denied.
For purposes of deciding a 12(b)(6) motion to dismiss, we must accept all the allegations in the Complaint as true. On July 10, 2000, defendant entered into a standard American Institute of Architects ("AIA") construction contract ("the Contract") with the Temple to demolish a residential building on the Temple's premises and to construct additions and renovations to two other of the Temple's buildings. On October 9, 2000, a fire occurred at the Temple that caused extensive damage to an existing structure as well as to the work under construction by the defendant pursuant to the Contract. A police investigation revealed that the cause of the fire was arson.
At the time of the fire, the Temple was insured by plaintiff under a policy ("the Policy") which provided Building and Personal Coverage that covered direct physical loss of or damage to buildings on the premises as well as personal property located in, on or near those buildings. The Policy also provided Builder's Risk Coverage.
Pursuant to the Policy, the plaintiff has paid to the Temple an amount in excess of $1,400,000.00 for the Temple's losses arising out of the fire. These losses included destruction of the addition under construction as well as damage to existing buildings and personalty.
In this action, plaintiff seeks reimbursement from the defendant of the amount it paid to the Temple, claiming that defendant was negligent in failing to provide adequate security for the construction site and that defendant breached Article 16.1 of the Contract which the plaintiff maintains required the defendant to provide reasonable protection for the safety of the Temple's property.
Subrogation is the right of an insurer to be put in the position of its insured so that it may pursue recovery from any third parties who are legally responsible to the insured for a loss paid by the insurer. The subrogated insurer stands in the same position as the subrogor insured; the insurer cannot have greater rights than those of the insured. Subrogation is intended to allow the insurer to affix responsibility for a loss on the party who caused it.
The defendant claims, however, that plaintiff's subrogation action is barred by Article 17.6 of the Contract. That provision provides:
The Owner and Contractor waive all rights against each other and the Architect, Architect's consultants, separate contractors described in Article 12, if any, and any of their subcontractors, sub-subcontractors, agents and employees, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Article 17 or any other property insurance applicable to the Work, except such rights as they may have to the proceeds of such insurance held by the Owner as fiduciary. . . . . .See, Contract attached to Plaintiff's Cross-Motion for Partial Summary Judgment as Exhibit B.
In addition, Article 17.3 of the Contract provided that the owner must procure property insurance for the site which covers the interests of the owner, the contractor and the subcontractors as follows:
Unless otherwise provided, the Owner shall purchase and maintain. . . . . property insurance on the entire Work at the site to the full insurable value thereof. This insurance shall be on an all-risk policy form and shall include interests of the Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work and shall insure against the perils of fire and extended coverage and physical loss or damage, including, without duplication of coverage, theft, vandalism and malicious mischief.Id.
Our Court of Appeals, this Court and the Superior Court of Pennsylvania have all concluded that nearly identical clauses to the ones contained in Articles 17.6 and 17.3 of the Contract abrogate the property owner's insurer's subrogation rights derivative from its insured. See Commerical Union Ins. v. Bituminous Cas.Corp., 851 F.2d 98 (3d Cir. 1988); Mission Nat. Ins. Co. v. Hartford Fire Ins. Co., 702 F. Supp. 543 (E.D.Pa. 1989); Penn Avenue Place v. Century Steel Erectors, 798 A.2d 256 (Pa.Super. 2002). Other jurisdictions have reached the same conclusion. See Tokio Marine Fire Ins. v. Employers Ins. of Wausau, 786 F.2d 101-104-05 (2d Cir. 1986); Industrial Risk v. Garlock Equipment, 576 So.2d 652, 657 (Alabama 1991); United States Fidelity Guar. v. Farrar's Plumbing, 158 Ariz. 354, 355-56 (Ct.App. 1988); Haemonetics Corp. v. Brophy Phillips Co., 23 Mass.App.Ct. 254 (1986); Brodsky v. Princemont Constr. Co., 30 Md. App. 569 (Ct.Spec.App. 1976).
Considering the nature of the right of subrogation under New Jersey law and construing the AIA agreement before it, our Court of Appeals in Commercial Union Ins. reasoned that the contract "operates to shift to the owner the ultimate risk of loss which is then transferred to the insurer for valuable consideration, leaving the insurer no right to proceed by subrogation against a subcontractor with respect to property loss." 851 F.2d at 101. InMission Nat. Ins. Co., this Court used the same reasoning in applying Ohio law to hold that the owner's insurer could not bring a subrogation action against the insurer of a contractor. In Penn Avenue, the Superior Court of Pennsylvania applied Pennsylvania law to hold that the owner's insurer could not bring a subrogation action against either the general or subcontractor based on the negligence of the subcontractor.
Likewise, in the case sub judice, Article 17.3 of the Contract operated to shift to the Temple the ultimate risk of loss due to fire which was then transferred to the Temple's insurer, the plaintiff in this case, for valuable consideration. As a result, based on the above authority, the Temple's insurer has no right to proceed against the defendant contractor for property loss even if the loss is alleged to be caused by the contractor's negligence.
An appropriate Order follows.
ORDER
The motion of the defendant to dismiss (Doc. #13) is GRANTED.The motion of the plaintiff for partial summary judgment (Doc. #16) is DENIED.
The motion of the plaintiff to compel (Doc. #12) is DENIED as moot.
The Complaint is DISMISSED with prejudice.
IT IS SO ORDERED.