Industrial Risk v. Garlock Equipment
576 So. 2d 652 (1991)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A waiver of subrogation clause in a construction contract, which requires the owner to procure a builder's risk policy covering all parties to the work, is enforceable and prevents the owner's insurer from suing a negligent subcontractor for property damage covered by the policy. However, this waiver does not extend to third-party manufacturers who are not parties to the construction contract.
Facts:
- Jim Wilson & Associates, Inc. (JWA), the owner of the Galleria Mall project, contracted with Harbert International to serve as the general contractor.
- The general contract required JWA to purchase a "builder's risk" insurance policy covering the interests of the owner, contractor, and subcontractors, and included a clause waiving subrogation rights among these parties for damages covered by that insurance.
- Harbert International subcontracted with McDevitt & Street, who in turn subcontracted with Seyforth Roofing Company (Seyforth) to construct the roof of an office tower.
- Seyforth's subcontract incorporated the general contract's terms, including the waiver of subrogation.
- In performing its work, Seyforth used a tar kettle manufactured by Garlock Equipment Company (Garlock).
- On June 5, 1985, a fire occurred on the roof of the office tower, causing extensive damage.
- Industrial Risk Insurers (IRI), JWA's insurer under the builder's risk policy, paid JWA $417,000 for the fire damage.
Procedural Posture:
- Industrial Risk Insurers (IRI) sued Seyforth Roofing Company and Garlock Equipment Company in an Alabama trial court.
- The trial court denied Seyforth's motion to dismiss and its subsequent motion for summary judgment.
- At the close of all evidence at trial, the court granted a directed verdict in favor of Seyforth.
- The trial court denied Garlock's motion for a directed verdict, and the claims against Garlock were submitted to the jury.
- The jury returned a verdict in favor of Garlock.
- IRI appealed the judgment for Seyforth and the judgment for Garlock to the Supreme Court of Alabama.
- Garlock cross-appealed the denial of its motion for a directed verdict.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a waiver of subrogation clause in a general construction contract, incorporated by reference into a subcontract, prevent an owner's insurer from bringing a subrogation claim against a subcontractor whose alleged negligence caused a fire, and does this waiver also protect a third-party equipment manufacturer?
Opinions:
Majority - Maddox, J.
No, as to the subcontractor; the waiver does not protect the manufacturer. A waiver of subrogation clause in a construction contract bars an insurer's subrogation claim against a subcontractor covered by the policy, but it does not bar a claim against a third-party manufacturer who is not a party to the contract. The purpose of the waiver clause is to allocate the risk of property loss to a single insurer for all parties involved in the construction, thereby preventing disputes and litigation among them. Seyforth, as a subcontractor, was an intended beneficiary of the insurance policy purchased by the owner and was explicitly protected by the waiver clause incorporated into its subcontract. Garlock, as an equipment manufacturer, was not a party to the construction contracts and was not listed among the parties protected by the waiver clause; therefore, the waiver did not apply to it. The jury's verdict in favor of Garlock is affirmed, as any potential error in jury instructions was harmless.
Analysis:
This decision reinforces the majority rule regarding the enforceability and broad application of waiver of subrogation clauses in standard construction contracts. It clarifies that such clauses effectively make the project's builder's risk insurer the primary source of recovery for property damage, precluding claims against negligent contractors and subcontractors who are parties to the project. The ruling also draws a clear line, establishing that the waiver's protection does not extend to outside parties like equipment manufacturers, preserving traditional tort and product liability claims against them. This provides contractual certainty for construction project participants but reminds third-party suppliers that they remain exposed to liability.
