APPELLATE COURT HOLDS INSURER UNABLE TO SEEK SUBROGATION AND INDEMNITY FOR DAMAGES RESULTING FROM FIRE AT UNIVERSITY OF TEXAS’ GOLF CLUBHOUSE ALLEGEDLY CAUSED BY SUBCONTRACTOR

October 29, 2012

In February 2009, American Zurich Insurance Company (AZIC), as Subrogee of the Varsity Golf Club, Ltd d/b/a The University of Texas Golf Club (UT), filed suit against Barker Roofing, L.P. (Barker) alleging the roofer was negligent in the performance of its work and services at the UT clubhouse resulting in a catastrophic fire that caused UT to suffer business interruption damages. American Zurich Ins. Co. v. Barker Roofing, L.P., ––– S.W.3d ––––, 2012 WL 5231858, Cause No. 07–11–0038–CV (Tex. App.–Amarillo, Oct. 23, 2012).  AZIC sought damages it paid to UT resulting from the fire allegedly caused by Barker.  The trial court granted summary judgment in favor of Barker based upon the affirmative defense of waiver to which AZIC appealed.

By way of background, in February 2007, UT and Harvey–Cleary Builders (HCB) executed a general contract for the construction of clubhouse improvements at UT’s Golf Club in Austin Texas.   As part of the contract, UT and HCB waived all rights against each other and any of their subcontractors for damages caused by fire or other perils to the extent covered by property insurance or any other property insurance applicable to the work under the contract.

In March 2007, the HCB entered into a subcontract with Barker to complete the roof, vinyl siding and flashing at UT’s clubhouse. The subcontract contained two indemnification provisions whereby Barker agreed to “indemnify, defend and save Contractor and Owner harmless from any liability for all claims, causes  of  action,  losses,  costs,  expenses,  damages,  liabilities  and  judgments”  due  to  any  delay  in performance or Barker’s failure to properly pursue the subcontract work or comply with the terms of the subcontract.  Before Barker completed performance under the subcontract, there was a catastrophic fire at UT’s clubhouse that originated in the exterior roof covering, ignited by a “spark, ember or flame,” with a contributing factor of high wind.

At the time of the fire, UT was insured under a commercial insurance policy issued by AZIC that insured UT against, among other things, real and personal property damage including business income loss.  AZIC paid business interruption damages to UT totaling $500,000 resulting from the fire.  On appeal, AZIC argued it was entitled to recovery of business interruption damages it paid to UT resulting from the fire plus any deductible paid by UT.  AZIC also argued it was entitled to contractual indemnity under Barker’s subcontract with HCB for UT’s uninsured losses.

In reviewing the contracts and insurance policies at issue, the Court concluded the parties intended claims against HCB and its subcontractors (and resultantly any subrogation claims) be waived if UT had already purchased, or later obtained property insurance, that otherwise covered any damage to UT’s clubhouse resulting from fire and/or other perils. The Court held that since AZIC’s policy covered damages resulting from the destruction of UT’s property, UT waived all rights against Barker for damages caused by the fire, and,  because  AZIC’s  rights  were  limited  by  UT’s  rights,  the  trial  court  properly  held  that  AZIC’s subrogation claim was barred as a matter of law.

As to AZIC’s claim for indemnity from Barker, the Court held the indemnification clause(s) in Barker’s subcontract did not modify, or conflict with, the waiver clause in the primary contract between UT and HCB.  As a result, AZIC’s subrogation claims against Barker were barred as a matter of law by Barker’s affirmative defense of waiver of subrogation.  Concluding its analysis, the Court stated that the trial court did not err by granting Barker’s traditional motion for summary judgment on AZIC’s claims because Barker’s affirmative defense of waiver applied to all AZIC’s theories of recovery, including its breach of contract claim asserting UT’s rights, if any, to indemnity under the subcontract.