Subrogation: The assumption by an insurance company of another's legal right to collect a debt or damages.
There are a bunch of issues surrounding these clauses and on the commercial side of the industry we are struggling to manage our exposure while still trying to get work. There is some background behind these clauses.
Back in the day all the subs and the GC would sign an agreement to waive subrogation, which basically meant we ALL waived our rights to sue each other under specific circumstances and should there be a disaster on the job, like a fire or something everyone?s insurance would be pooled to rectify the fire damage and then to sell the job to the owner. The bottom line being no one sub-contractor?s insurance would be enough to cover the damage, but all parties involved were still contractually obligated to provide a completed building by the schedule, so with the right contractual language in place the subs and GC insurance would pool the liability and complete the project.
That was how we used to do it, now things are a bit more complicated. Under the ?standard indemnity clause? above, when something like a fire happens the liability pool is divided among all the subs, but the GC does not get a piece of that pie. Why? Because they have not waived their right of subrogation and have explicitly made that clear with the signed contract that the subs agreed to indemnify the GC ?against any and all claims?, even if they GC is the ?Negligent party?. To further complicate this there is usually a second clause in the same contract naming the GC as an insured party (on your insurance) which basically prevents you from suing them for an insurance claim.
Same fire (started by the roofer), in present day, with the ?standard indemnity clause?, all the subs will end up pooling their insurance to pay for the damage, while the GC has no obligation to file on their policy at all.
The job is somehow built with your insurance money for a fire you had nothing to do with, and the project turned over to the owner 9 months late. So who pays the liquidated damages? Who pays for what the insurance does not cover? Keep in mind you had nothing to do with starting the fire but your insurance is maxed out, now what? Remember this last line on the clause?
the coverage of any insurance policy requirements herein or actually carried by the subcontractor shall not be limit the extent of subcontractor?s of subcontractor?s liability
That?s right so when you get that registered letter a year after you finished that disaster of a project, you will know who gets to pay the LDs out of your pocket.
So who pays for the GC?s loss on the project? That?s right you get to pay that too, read the contract.
