A recent Indiana Court of Appeals decision illustrates the importance of having an overall risk allocation strategy in contracts where appropriate, and paying close attention to the language used to express that strategy, particularly when multiple contracts and parties are involved. Contractual risk allocation provisions previously have been a focus of this blog and webinars offered by our Insurance Recovery and Counseling Group. In Performance Services, Inc. v. Hanover Ins. Co., 85 N.E.3d 655 (Ind. Ct. App. 2017), a school district submitted a property insurance claim to its insurer, Hanover, for damage that occurred during a construction project at a high school. Hanover paid nearly $700,000 to settle the claim. Hanover later asserted a subrogation claim against two contractors who had worked on the project, PSI and Huntingburg, to recover the amount it paid to settle the claim. Hanover’s ability to recover depended on the analysis of risk allocation provisions in three different contracts:
- The first contract was between the school district and a construction manager who oversaw the project. That contract had standard form American Institute of Architects (AIA) language, including a waiver of subrogation clause. The waiver of subrogation clause also stated that the school district would require similar waivers from other contractors working on the project.
- The second contract was one between the school district and PSI for construction work PSI performed. That contract did not include an express waiver of subrogation provision.
- A third contract between PSI and Huntingburg, who acted as a subcontractor, did contain an express waiver of subrogation clause.