Justices adopt ‘any insurance’ approach in subrogation dispute

Deciding an issue of first impression stemming from a fire that heavily damaged the Jefferson County courthouse in 2009, the Indiana Supreme Court on Wednesday decided Indiana should follow the “any insurance” approach in deciding when property owners waive subrogation rights in certain cases. In doing so, the justices rejected the “work versus non-work” approach that the Court of Appeals has used.

While renovating the Jefferson County courthouse six years ago, a roofing contractor sparked a fire that destroyed much of the courthouse. The damages were fully covered by Jefferson County’s property insurer, but the county, contractors and subcontractors involved in the renovation work dispute whose insurance company should cover the loss.

The contract between the county and Teton Corp. incorporated a 1987 version of the American Institute of Architects’ standard form into their contract for repair. The AIA contract waives subrogation rights for all “damages caused by fire or other perils to the extent covered by property insurance.”

The county sought to subrogate all damages unrelated to repairs, arguing the waiver only applies to construction-related damages. The contractors argued that all damages covered by the county’s property insurance policy are waived.

The trial court ruled in favor of the contractors, and the Indiana Court of Appeals affirmed in a split decision. The appeals court applied the “any insurance” approach, but Judge Elaine Brown believed the court should continue using the “work versus non-work” approach, under which the county would waive subrogation only for losses related to the work.

“We must decide whether, under the plain meaning of the AIA contract, property owners waive subrogation rights for construction damages by maintaining ‘all-risk’ property insurance policies that cover both their construction-related damages and their entire property. Our Court of Appeals has offered two competing approaches to resolve this question, mirroring a national split of authority. In a matter of first impression for this Court, we adopt the ‘any insurance’ approach, which applies the plain meaning of the waiver, and therefore hold Jefferson County’s subrogation claim is barred,” Chief Justice Loretta Rush wrote.

The plain meaning of the AIA subrogation waiver defines the scope of the waiver by the source and extent of the insurance coverage, not by the property damaged, the justices held.

Rush noted that the plain meaning of the AIA waiver is consistent with the majority of other courts that have interpreted similar AIA waivers.

“The ‘Work versus non-Work’ approach does have support in several other jurisdictions, but we believe that the ‘any insurance’ approach more faithfully tracks the plain meaning of the contract. We therefore resolve the split in authority created by the Court of Appeals (now-vacated) decision in this case and apply the ‘any insurance’ approach to bar Jefferson County’s claim,” Rush wrote in The Board of Commissioners of the County of Jefferson v. Teton Corporation, Innovative Roofing Solutions, Inc., Gutapfel Roofing, Inc., and Daniel L. Gutapfel, 72S04-1410-CT-642.