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An apartment building under construction caught fire and burned down, causing $22 million in damages. The fire was apparently caused by an open flame heater that was left burning at the end of a workday by the general contractor. A separate company that was under contract to the project owner to perform security and fire watch apparently failed to walk inside the buildings on the night in question and didn’t detect the open flame burner or eventual fire. The owner sued and recovered damages from the security company, which then brought a contribution action against the contractor.   The question on appeal was whether a claim for contribution may arise under the UCATA when two wrongdoers are culpable for the wrong inflicted on the injured party, but only one wrongdoer is legally responsible to the injured party because of a defense arising from a contractual waiver of subrogation. Court held that the contractor owed no contribution because it wasn’t legally a joint tortfeasor. A joint tortfeasor must be liable in tort to the injured party. “Liable in tort” requires legal responsibility and common liability, not mere culpability to the injured party for a wrong. There is no right of contribution where the injured person has no right of action against the third-party defendant. The statutory right to contribution is not an independent cause of action, but is a derivative right arising out of common liability to the injured party. Gables Construction, Inc. v. Red Coats, Inc., 468 Md. 632 (2020).

Prior to construction, the general contractor (GCI, Inc.) entered into a prime contract with the project owner (Upper Rock II, LLC) to construction the apartment building. The form of contract was the AIA A201 (modified). Included in the terms of the AIA contract were the basic insurance requirements with attendant waiver of subrogation of the parties against each other for fire-related claims where there was insurance. As a result of the waiver of subrogation clause, the owner couldn’t hold the contractor liability for any damages from the fire.

Section 11.3.7 provided, in pertinent part:

“The Owner [Upper Rock] and Contractor [GCI] waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other, and (2) any of their subcontractors, sub-subcontractors 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[.]”

Read together, the court stated that the waiver of subrogation and property insurance provisions transferred the entire risk of loss by fire to the builder’s risk insurer, rather than Upper Rock and GCI, and waived all fire-related claims between Upper Rock and GCI.

GCI moved for summary judgment at the trial court but lost that motion. The matter then went to a jury, which found that the fire was a direct result and foreseeable consequence of GCI’s negligence and that GCI was liable as a joint tortfeasor for contribution in the amount of $7 million. This decision which was affirmed by the intermediate level Special Court of Appeals, was reversed by the Court of Appeals, which did an extensive analysis of the legal theory of joint tortfeasor liability and why CGI could not be deemed a joint tortfeasor. As explained by the court:

The Right to Contribution Among Joint Tortfeasors Under The UCATA

“Under the UCATA, “[t]he right of contribution exists among joint tort[ ]feasors.” CJ § 3-1402(a). The statute defines joint tortfeasors as “two or more persons jointly or severally liable in tort for the same injury to person or property, whether or not judgment has been recovered against all or some of them.” CJ § 3-1401(c). The right to contribution under the UCATA is predicated on a third-party’s direct liability to the plaintiff. See Valk, 317 Md. at 199, 562 A.2d 1246. “A joint tortfeasor must be legally responsible to the plaintiff for his or her injuries.” Id. at 200, 562 A.2d 1246. This right is also inchoate, until one joint tortfeasor has by payment discharged the common liability or has paid more than a pro rata share of the common liability. CJ § 3-1402(b); Valk, 317 Md. at 191, 562 A.2d 1246.”

Waiver of Subrogation Defense—Recognition of the General Public Policy in Maryland Jurisprudence

“This Court has recognized that the right to a claim of subrogation may be waived through a contractual waiver of subrogation. See, e.g., John L. Mattingly Constr. Co. v. Hartford Underwriters Ins. Co., 415 Md. 313, 319, 999 A.2d 1066 (2010). We have previously noted that waivers of subrogation are “prevalent in construction contracts.” Id. at 319, 999 A.2d 1066. The waiver acts as “ ‘a risk-shifting provision premised upon the recognition *750 that it is economically inefficient for parties to a contract to insure against the same risk.’” (citation omitted.)

Contractual Waiver of Subrogation Between Upper Rock and GCI

“As noted supra, the parties to the Prime Contract retained the language in the AIA standard form contract relating to the purchase of property insurance, and they retained the fundamental concepts contained in a related waiver of subrogation, as those provisions had been drafted by the AIA. Under the terms of the Prime Contract, Upper Rock contractually agreed to purchase and maintain “all-risk” property insurance, which included “insurance against the perils of fire,” Prime Contract, § 11.3.1.1, “in the amount of the … total value for the entire Project … on a replacement cost basis,” id. § 11.3.1, and to pay the cost of any required policy deductibles as a “Cost of the Work.” Id. § 11.3.1.3. Additionally, pursuant to § 11.3.7 of the Prime Contract, titled “WAIVERS OF SUBROGATION,” Upper Rock waived all of its rights against GCI and other participants in the project for “damages caused by fire or other causes of loss to the extent covered by property insurance ….” Id. at § 11.3.7. Those provisions placed the responsibility on Upper Rock, as the owner, to purchase and maintain a policy of property insurance on the work being performed. The waiver of subrogation provision provided that Upper Rock (and any subrogated property insurer) waive all rights against GCI, and other project participants such as subcontractors, for damages cause by fire or other causes of loss to the extent covered by property insurance.

Because of the contractual waiver, neither Upper Rock, nor its insurer, had a claim against GCI for fire-related damages. The contractual defense of waiver precluded Upper Rock’s claims against GCI from arising in the first instance. Turning to Red Coats, as set forth below, because Red Coats’ statutory claim for *751 contribution is not an independent right, but is a derivative right flowing from Upper Rock, under our established case law, Red Coats has no right of contribution because GCI was not “liable in tort” to the injured party.”

The UCATA Requires Legal Responsibility to an Injured Party, not Mere Culpability, for a Contribution Claim

“To summarize our holdings, in Maryland, any defense arising from the moment of the wrongdoing,18 which precludes legal responsibility to the injured party, also precludes liability for contribution under the UCATA. See id. at 199, 562 A.2d 1246 (explaining that, “ ‘[i]f there was never any liability [to the plaintiff], as where the contribution defendant has the defense of family immunity, assumption of the risk, or the application of an automobile guest statute, or the substitution of workers’ compensation for common law liability, then there is no liability for contribution’ ”) (quoting Prosser and Keeton § 50 at 339–40).

Just like the above-described defenses arising from immunity and contributory negligence, the defense of contractual waiver also acts as a complete bar to recovery by Upper Rock. Upper Rock contractually waived its rights against GCI for damages by fire to the extent covered by property insurance. GCI cannot be held liable to Upper Rock. Because GCI does not have common liability with Red Coats to Upper Rock, it does not fall within the definition of “joint tortfeasor” under the statute, and Red Coats has no right of contribution against GCI.”

For the foregoing reasons, the Court of Appeals reversed the lower court decisions and held, “For a statutory claim of contribution under the UCATA, parties must be joint tortfeasors. Under our decades of jurisprudence interpreting UCATA, a joint tortfeasor must be liable in tort to the injured party. ‘Liable in tort’ requires legal responsibility and common liability, not mere culpability to the injured party for a wrong. We have repeatedly held in other cases that there is no right of contribution where the injured person has no right of action against the third-party defendant. The statutory right to contribution is not an independent cause of action, but is a derivative right arising out of common liability to the injured party. We decline to carve out an exception from the plain language of the UCATA by treating the contractual defense of waiver of subrogation differently from other statutory and common law defenses such as immunities and contributory negligence.”

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 22, No. 6 (Jul/Aug 2020).

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