Opinion ID: 2380071
Heading Depth: 2
Heading Rank: 2

Heading: Whether the Waiver of Subrogation Is Void As Against Public Policy

Text: [¶ 13] A waiver of subrogation is a provision by which parties to a contract relieve each other of liability to the extent each is covered by insurance, thereby shifting the risk of loss to an insurer. See Acadia Ins. Co. v. Buck Constr. Co., 2000 ME 154, ¶ 16, 756 A.2d 515, 519; Emery Waterhouse Co. v. Lea, 467 A.2d 986, 994-95 (Me.1983). We have held that waivers of subrogation are encouraged by the law and serve important social goals: encouraging parties to anticipate risks and to procure insurance covering those risks, thereby avoiding future litigation, and facilitating and preserving economic relations and activity. Acadia Ins. Co., 2000 ME 154, ¶ 18, 756 A.2d at 520. Reliance attempts to carve out a public policy exception to the general rule that waivers of subrogation are enforceable. Specifically, Reliance contends that public policy precludes the enforcement of the waiver of subrogation in this case based on Knowles's willful and wanton misconduct or its violation of a positive statutory duty, or because enforcement will be harmful to the interests of society.
[¶ 14] Reliance argues that the waiver of subrogation is unenforceable because of Knowles's willful and wanton misconduct. [3] Reliance observes, [I]t is well settled that an exculpatory clause is unenforceable in the face of claims of gross negligence or willful and wanton misconduct. Reliance asserts that adopting a similar approach with respect to waivers of subrogation would comport with our precedent because we have recognized that public policy concerns are heightened when there are allegations of wanton misconduct and have tailored our holdings accordingly. [¶ 15] Gross negligence or willful and wanton misconduct generally renders exculpatory provisions void. Lloyd v. Sugarloaf Mountain Corp., 2003 ME 117, ¶ 21, 833 A.2d 1, 7; RESTATEMENT (SECOND) OF CONTRACTS § 195(1) (1981); 8 SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 19:23 (4th ed.1998); 15 GRACE MCLANE GIESEL, CORBIN ON CONTRACTS § 85.18 (Joseph M. Perillo ed., Matthew Bender & Co., Inc., rev. ed.2003) (1962). Nonetheless, that principle is inapposite to waivers of subrogation. The rule exists for exculpatory clauses to ensure that a party injured by another's gross negligence will be able to recover its losses. St. Paul Fire & Marine Ins. Co. v. Universal Builders Supply, 317 F.Supp.2d 336, 341 (S.D.N.Y.2004). In cases involving waivers of subrogation, however, there is no risk that an injured party will be left uncompensated, and it is irrelevant to the injured party whether it is compensated by the grossly negligent party or an insurer. Id. Thus, in Acadia Insurance Co. we distinguished between a party indemnifying another for its own negligence and parties allocating risk to insurers. 2000 ME 154, ¶ 18, 756 A.2d at 520. [¶ 16] Other courts that have specifically addressed Reliance's arguments in the context of waivers of subrogation are split as to whether parties can bar subrogated claims for gross negligence. Compare St. Paul Fire & Marine Ins. Co., 317 F.Supp.2d at 342, and Behr v. Hook, 173 Vt. 122, 787 A.2d 499, 504 (Vt.2001), with Am. Motorist Ins. Co. v. Morris Goldman Real Estate Corp., 277 F.Supp.2d 304, 308 (S.D.N.Y.2003), Charter Oak Fire Ins. Co. v. Trio Realty Co., No. 99 Civ. 10827(LAP), 2002 WL 123506, at , 2002 U.S. Dist. LEXIS 1442, at  (S.D.N.Y. Jan. 31, 2002), Travelers Indem. Co. of Conn. v. Losco Group, Inc., 136 F.Supp.2d 253, 256 (S.D.N.Y.2001), and Colonial Props. Realty Ltd. P'ship v. Lowder Constr. Co., 256 Ga.App. 106, 567 S.E.2d 389, 394 (2002). [¶ 17] Adopting the approach advocated by Reliance would require us to distinguish between varying degrees of negligence. We have rejected the concept of gradations of negligence, Cratty v. Samuel Aceto & Co., 151 Me. 126, 131, 116 A.2d 623, 627 (1955) (stating that [t]here are no degrees of care), and we decline to change our approach with respect to waivers of subrogation for two reasons. [¶ 18] First, waivers of subrogation deter litigation among parties to complicated construction contracts. See St. Paul Fire & Marine Ins. Co., 317 F.Supp.2d at 341. Significantly, as counsel for Knowles observed during oral argument, the real injured party in this case  the Church  is not a party to this appeal because the waiver of subrogation did what it was intended to do: it allowed the Church to resolve its claims quickly. The Church was made whole to the limits of its insurance and it was not divested of a remedy. Were we to hold that parties cannot bar subrogated claims for gross negligence or willful and wanton misconduct, these benefits will evaporate, as the parties will have the incentive to litigate the question of whether a heightened standard of negligence applies. [¶ 19] Second, waivers of subrogation have a beneficial economic effect that furthers the public interest. They help parties avoid the higher costs that result from having multiple insurance polices and overlapping coverage. Behr, 787 A.2d at 504. In addition, because insurers can account for such waivers when setting premiums, Acadia Ins. Co., 2000 ME 154, ¶ 14, 756 A.2d at 518, there is still an economic incentive for parties to refrain from committing gross negligence or willful and wanton misconduct. [¶ 20] Thus, contrary to Reliance's argument, we conclude that public policy favors enforcement of waivers of subrogation even in the face of claims of gross negligence or willful and wanton misconduct.
[¶ 21] Reliance also argues that the waiver of subrogation is void as against public policy because it involves a violation of a positive statutory duty or because it is harmful to the interests of society, i.e., it undermines the strong public interest in protecting and preserving historic properties. We reject the violation of a positive statutory duty argument in light of the distinction between waivers of subrogation and exculpatory clauses discussed above. See Penn Ave. Place Assocs. v. Century Steel Erectors, Inc., 798 A.2d 256, 259 (Pa.Super.2002) (distinguishing between waivers of subrogation and exculpatory clauses and finding that a violation of a fire ordinance did not render a waiver of subrogation unenforceable because the tortfeasor satisfied his debt to the injured party by obtaining insurance). We reject the second argument in light of the fact that, as noted above, insurers can account for waivers of subrogation when setting premiums. Thus, there is still an economic incentive for parties to refrain from negligent activity, however described. Hence, the waiver of subrogation in the contract between the Church and Knowles is not void as against public policy, and the court did not err as a matter of law in enforcing it.