Waivers of Subrogation do not Limit Third-party Contribution Claims in Maryland
In a case of first impression, Maryland’s intermediate appellate court recently held that a subrogation waiver in an owner’s prime contractor contract does not bar a subcontractor claim for contribution against the prime contractor. See Gables Constr., Inc. v. Red Coats, Inc., No. 907, SEPT.TERM, 2017, 2019 WL 2067348 (Md. Ct. Spec. App. May 10, 2019).
Upper Rock, Inc. (Owner) filed a $22 million claim against Red Coats, Inc., a "security and fire watch company" (Subcontractor), for fire damage to a building under construction. Red Coats filed a third-party claim against the prime contractor, Gables Construction, Inc. (Contractor), for contribution under Maryland’s Uniform Contribution Among Joint Tort-Feasors Act (UCATA). The prime contract between Owner and Contractor contained a waiver of subrogation limiting Owner’s damages to insurance proceeds. Contractor argued that the waiver barred third-party claims for contribution.
The Court of Special Appeals held that the subrogation waiver governs only the parties to the prime contract. Otherwise, it "could create a chilling effect on business relationships if the new normal is to insulate business entities from liability and contribution claims. It is well-settled that a contractual agreement between a plaintiff and a co-defendant cannot serve to define the liability of another co-defendant not a party to the agreement." Id. (citations and internal quotations marks omitted). Because Red Coats was a subcontractor that was not a party to the prime contract, the subrogation waiver did not apply to it.
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