May 14, 2013

A construction lawsuit against four subcontractors was given new life last week when the Texas First Court of Appeals in Houston overturned a summary judgment based in part on the conclusion that the general contractor’s insurers’ subrogation rights did not prevent a suit against the subs.  In Concierge Nursing Centers, Inc. v. Antex Roofing, Inc., No. 01-11-00882-CV, 2013 WL 1912342 (Tex. App.—Houston [1st Dist.] May 9, 2013), the trial court had reasoned that the general’s assignment of its claims against the subs to the property owner as part of a settlement was ineffective because the general’s insurers were subrogated to those claims.  The subcontractors contended that because of the subrogation, the insurers, not the general, owned the claims, and therefore the general’s attempt to convey the claims as part of the settlement was void. 

In an opinion issued last Thursday, the court of appeals disagreed.  First, the court explained that the policies’ subrogation provisions transferred only the general’s right to recover against a third party.  The policies did not create a complete transfer of all claims, and the general retained the right to bring a lawsuit, which it could convey to the property owner.  The court of appeals analyzed the express language of the subrogation provisions, and concluded that while the policies transferred some rights, they did not transfer all rights.  The court also reviewed the business activity served by the policies, and noted that subrogation provisions are intended to reduce risk, not enable insurers to potentially profit from a loss.  The insurer only has a right to recover an amount equal to its payment, and does not fully obtain the entire claim as though it were wholly transferred by an assignment.

The court of appeals ultimately concluded that the general’s claims against its subcontractors were assignable even given the subrogation rights held by the insurers.  The court also separately analyzed an indemnity dispute between the parties that did not directly implicate insurance issues, and concluded that the subcontractors had not established as a matter of law that they had not breached the indemnity provisions of the subcontracts.