Ferguson, Schetelich & Ballew is seeking review from the Supreme Court of Maryland on an open issue impacting the construction industry throughout the State. This question of first impression concerns the contractual waiver of subrogation in construction contracts.
Construction contracts are a unique subset of general contract law, and they govern the complex relationship between the property owner, the general contractor, the subcontractors, and the suppliers – and the insurance companies that write the policies that protect each one. Those contracts often contain clauses waiving subrogation, meaning that they restrict whether an insurance company that pays a loss can seek reimbursement from other parties on the same construction project. Waiver of subrogation provisions are vital to the construction project because they prevent excess lawsuits among the companies working on it and effectively define where the risk of loss will fall. This allows construction project participants to anticipate risks in advance of their occurrence and allocate the risk of loss to insurance carriers, thereby saving project costs, promoting jobsite efficiency, and avoiding costly and duplicative litigation.
But there remain some open and unresolved questions in Maryland’s law governing these wavier of subrogation clauses. The case of Lithko Contracting, LLC v. XL Insurance America, Inc. turns on just such a question. There, XL Insurance America, Inc. (“XL”), the insurer of Amazon, brought suit to recoup insurance payments it made to repair Amazon’s Baltimore City Fulfillment Center after it was damaged by a tornado in 2018. The Fulfillment Center was built pursuant to a Development Agreement in which the developer (an Amazon subsidiary) hired Duke Baltimore, LLC (“Duke”) as general contractor. The Development Agreement required Duke to include a waiver of subrogation in all its subcontracts that provided that “no party” shall be liable to “another party” or to “any insurance company” for damages covered by insurance. The question presented was whether this requirement amounted to a waiver by the developer and its insurance company of claims against all of the companies working on the project (including the subcontractors) or only against the general contractor.
The precise question has never been addressed by a reported decision from a Maryland appellate court – and courts in other jurisdictions have answered the question posed by the case in different ways. The Circuit Court for Baltimore City read the waiver clauses broadly; the Maryland Appellate Court read the waiver clauses narrowly.
Ferguson, Schetelich & Ballew has now filed a Petition for a Writ of Certiorari asking the Supreme Court of Maryland to resolve the question in this case, and more broadly for construction contracts on projects throughout the State. Our Petition seeks to give waiver of subrogation its intended effect, specifically where a developer requires its general contractor to include waivers of subrogation in all of its subcontracts. Courts in other jurisdictions addressing the issue have adopted the broad reading that our Petition is advancing, holding that the developer creates a project-wide wavier of subrogation, protecting all project participants, in a chain stretching from the owner, to the general contractor, to the subcontractors, and beyond.
As of this writing, the Petition for Writ of Certiorari is before the Supreme Court of Maryland, and if it decides to grant the Petition, and full briefing schedule will be set.
Ferguson, Schetelich & Ballew maintains an active construction law practice, representing owners, developers, contractors, sub-contractors, and insurers. For more information about this case or construction law generally, contact Robert L. Ferguson, Jr. and Timothy J. Dygert, Jr.