2700 Bohn Motor, LLC v. F.H. Myers Construction Corp., 338 So.3d 500 (La. Ct. App. 2022).
This case involved the restoration of an old building in New Orleans. Fire broke out, resulting in a loss that was paid by the owner’s builder’s risk insurance. The builder’s risk carriers — subrogated to the rights of the owner — then sued the prime contractor, its subcontractor, and sub-subcontractor for negligence.
The contractor and subcontractors moved for summary judgment, asserting that the carriers’ claims were barred by the mutual waiver of subrogation contained in the prime contract. That contract, consisting of an A101-2007 and A201-2007, contained the following broad-form waiver of subrogation (which is the base language from Section 11.3.7 of the A201-2007 form):
The Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other, and (2) the Architect, Architect’s consultants, separate contractors described in Article 6, if any, and any of their subcontractors, sub-subcontractors, agents and employees, for damages caused by fire or other causes of loss to the extent covered by property insurance obtained pursuant to this Section 11.3 or other property insurance applicable to the Work, except such rights they have to proceeds of such insurance held by the Owner as fiduciary. The Owner or Contractor, as appropriate, shall require of the Architect, Architect’s consultants, separate contractors described by Article 6, if any, and the subcontractors, sub-subcontractors, agents and employees of any of them, by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated herein. The policies shall provide such waivers of subrogation by endorsement or otherwise. A waiver of subrogation shall be effective as to a person or entity even though that person would otherwise have a duty of indemnification, contractual or otherwise, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged.
The trial court agreed that the waiver of subrogation barred the carriers’ claims and granted the motion for summary judgment. The carriers appealed and asserted that the waiver of subrogation was invalid pursuant to Louisiana’s anti-indemnity statute (La. R.S. 9:2780.1), pursuant to Louisiana’s prohibition on exculpatory provisions for gross fault (La. C.C. art. 2004), and because the subcontractor and sub-subcontractor were not parties to the prime contract and were therefore not in privity. The appellate court rejected each of these arguments.
The trial and appellate courts rejected the anti-indemnity statute argument because waivers of subrogation are separate and distinct from the indemnity provisions addressed by the statute. The appellate court explained that while subrogation provisions supplement indemnity provisions by shifting liability for the indemnified obligations, in the absence of an indemnity provision, the waiver of subrogation has nothing to supplement. As a result, the waiver of subrogation — standing alone — does not violate the anti-indemnity statute.
In rejecting the exculpatory provision argument, the appellate court pointed to its prior analysis in the context of the anti-indemnity statute to hold that, in a similar fashion, the waiver of subrogation alone does not act to limit liability for intentional or gross fault in violation of the statute.
Finally, in rejecting the privity argument, the appellate court considered whether the subcontractor and sub-subcontractor were third-party beneficiaries who could enforce the waiver of subrogation. Louisiana courts conduct a three-prong test that examines whether contracting parties have a manifest stipulation for a third party, whether there is a certain benefit for the third party, and whether the benefit is merely incidental. Examining the plain language of the waiver of subrogation (which expressly named the subcontractor and sub-subcontractor) and the waiver’s meaning, the appellate court concluded that the subcontractor and sub-subcontractor were third-party beneficiaries.
The appellate court enforced the waiver of subrogation to bar recovery.
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