Opinion ID: 1917581
Heading Depth: 1
Heading Rank: 14

Heading: Entrex Urges the Second Approach

Text: Entrex urges us to adopt the second approach described by the Trinity Universal Ins. Co. court. Entrex contends that we should follow those courts that have decided the waiver applies to all damages insured by the owner's property insurance policy, regardless of whether they represent damages to the Work or non-Work property. The courts adopting this approach represent the majority. [30] The California Court of Appeal adopted this approach in Lloyd's Underwriters v. Craig and Rush. [31] Like Hearst, the owner in Lloyd's Underwriters elected not to purchase a separate builder's risk policy with coverage limited to the construction work. Instead, the owner chose to rely on its existing all-risk property insurance to satisfy its obligations under the contract to provide property insurance for the Work. Non-Work property was damaged while the contractor was repairing the roof of the owner's facility. The owner's insurers argued that these damages, although insured, fell outside the waiver of subrogation. The Lloyd's Underwriters court read the waiver's language to mean that so long as a policy of insurance `applicable to the Work' pays for the damage, the waiver applies. [32] The court observed that the owner's insurers [did] not dispute that their policies (1) were `applicable to the Work' and (2) `covered' or paid for the loss. [33] The court reasoned that satisfaction of these two criteria allowed the court to conclude the waiver applied. Stated another way, the Lloyd's Underwriters court essentially concluded that if a policy covering the Work paid for the losses, the parties waived subrogation for those losses, regardless of whether they were damages to the Work or non-Work property. Another case often cited for the majority approach is Haemonetics Corp. v. Brophy & Phillips Co. [34] There, the owner also relied on an existing property insurance policy to meet its obligation to provide property insurance covering the Work. During construction, a fire damaged non-Work property, and the owner received insurance proceeds to cover the damage. The owner later argued that the parties' contract required only that it maintain property insurance on the Work, so the waiver applied only to damages to the Work property. The court disagreed, reasoning: The preexisting insurance policy . . . was the insurance the owner chose to provide to comply with § 11.3 [here subparagraph 11.4.1] even though that policy may have been more extensive than what was required. By the terms of [the waiver of subrogation provision], the waiver of rights extends to the proceeds of any insurance provided under § 11.3. [35] The Haemonetics Corp. and Lloyd's Underwriters courts reached the same conclusion, but with different rationales. Again, for clarification, the waiver applies to the extent losses are covered by (1) insurance obtained to meet the owner's obligation to acquire property insurance covering the Project or (2) other property insurance applicable to the Work. The Haemonetics Corp. court reasoned that the owner's preexisting policy fell within the first alternative as the policy the owner chose to provide to comply with the contract. In contrast, the Lloyd's Underwriters court reasoned that the owner's preexisting policy came within the second alternative as other property insurance applicable to the Work. Despite their different classifications of the policies, both courts decided the owner's preexisting policy fell within the waiver of subrogation clause. The courts concluded that the scope of the waiver clause was not defined by the property damaged, but, rather, by the extent the damages were covered by those policies described in the clause: All losses covered by those policies were subject to the waiver, whether those losses related to the Work or non-Work property.