131_C147

WAIVER OF SUBROGATION IN ALARM MONITORING SERVICE AGREEMENT BARRED CARRIER FROM RECOVERY

Commercial Property	Breach of Contract	Exculpatory Clause
Waiver of Subrogation	Breach of Implied Warranty	Gross versus Ordinary Negligence

Travelers Property Casualty Company of America (Travelers) issued a property policy to The Hackley School (Hackley). Hackley sustained extensive damage from a fire on August 4, 2007. Travelers paid the loss. As Hackley’s subrogee, Travelers sued defendants Rapid Response Monitoring Services Incorporated (Rapid) and Global Protection Systems, Inc. (Global), the alarm monitoring companies to recover damages for breach of contract, breach of implied warranty, negligence, and strict products liability.

Rapid moved to dismiss the complaint. The Supreme Court, Westchester County dismissed the charge of strict products liability but did not dismiss breach of contract charges against Global or the breach of implied warranty and negligence charges against Rapid. Rapid appealed.

Rapid submitted the alarm monitoring service agreement between it and Hackley to support its appeal. One part of it stated that Rapid was not an insurance company and required that Hackley obtain property insurance on the property. Another part stated that Hackley released and discharged Rapid from and against all hazards that the insurance covered. It also had a clause stating, “That no insurance company…shall have…any right of subrogation against Rapid.” This was the de-facto waiver of subrogation clause. Both parties agreed to the terms and signed the agreement.

This de-facto waiver of subrogation clause was the reason that the Supreme Court, Appellate Division, Second Department, New York disagreed with Travelers. It determined that the waiver of subrogation expressly released and discharged Rapid from all hazards that the school’s policy insured against and barred Travelers from seeking from Rapid return of any proceeds it paid to Hackley. In addition, it stated, “[a] distinction must be drawn between contractual provisions which seek to exempt a party from liability to persons…whose property has been damaged and contractual provisions…which, in effect, simply require one of the parties to provide insurance for all parties.” It stated that an exculpatory (dealing with authority or power exercised in good faith) clause in an agreement will not protect a defendant for liability for gross negligence. However, a waiver of subrogation clause that releases and discharges an alarm company from and against all hazards that insurance covers clearly precludes a carrier (Travelers) from seeking return of any proceeds that insurance covered, notwithstanding any claim of gross negligence.

The appellate court ruled that the waiver of subrogation conclusively established a defense to Traveler’s claims against Rapid and reversed the trial court’s decision to not dismiss the charges against both Rapid and Global.

Supreme Court, Appellate Division, Second Department, New York. Travelers Property Casualty Company of America, as subrogee of The Hackley School, etc., Respondent, v. Global Protection Systems, Inc., defendant, Rapid Response Monitoring Services Incorporated, Appellant. March 30, 2010. 71 A.D.3d 1124, 898 N.Y.S.2d 215