Picture this scenario: you have a massive water loss at a commercial construction project. You send your forensic plumbing consultant to the scene. Your consultant determines that the plumbing subcontractor forgot to apply adhesive to the pipes that served the fire suppression system. One of the pipes split and flooded the entire complex when the general contractor turned the water on for the inspection.
Everything seems to be lining up for subrogation recovery:
- Insured target – Check!
- Eyewitness statement – Check!
- Evidence – Check!
- No indemnification provision or subrogation waiver in the contract between the Builder/Insured and the plumbing subcontractor – Check!
You are pumped… then it all starts to unravel. You review the policy and discover that you are operating under an Owner Controlled Insurance Program (OCIP) taken out in the name of the Building Owner and General Contractor. You send a notice letter to the plumbing subcontractor, but their counsel advises that they are one of the wrap-enrollees covered by the policy. You call the OCIP administrator and ask for a list of enrolled parties and low and behold, the plumbing subcontractor is an enrolled subcontractor. You know that the incident occurred when the plumbing subcontractor was performing work covered by the policy. Unfortunately, you have to close the file because the Anti-Subrogation Rule prevents the carrier from pursuing the subcontractor for damages covered by the policy they are enrolled in. How could they possibly insure the at-fault subcontractor? How is this fair?
OCIP policies are written with the ultimate goal of finishing the project and avoiding litigation arising out of construction in the process. In practice, this means that the carrier cannot pursue enrolled subcontractors for subrogation even when their negligence is the cause of the damages. This is another element that you can add to the list of subrogation pitfalls for construction claims: Uninsured/un-covered subcontractors, subrogation waivers, indemnification provisions, missing evidence, etc.
Thus, when it comes to construction claims, you need to determine if the policy you are operating under is an OCIP before strategizing on how to investigate the subrogation aspect of a construction claim. Next, you need to identify the at-fault party. After that, immediately contact the OCIP administrator and confirm if the at-fault party is enrolled in your policy. Next, determine if the loss occurred while the at-fault party was performing work covered by the policy. If not, review the construction contract for waivers and indemnification provisions. Making an effective subrogation recovery analysis for a construction claim requires first examining each of these issues.