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Subrogation: Insured or Not Insured

By Dennis H. Bower and Ivy B. Wagner

Real estate lawyers have recently been reminded of the importance of carefully crafting 'waiver of subrogation' and 'release of liability' provisions in leases. For instance, in a recent New York case, The GAP, Inc. v. Red Apple Companies, Inc., 282 A.D.2d 119 (N.Y. App. Div. 2001), such express clauses saved the landlord from liability to its tenant's insurance company; unfortunately, the provisions did not relieve the landlord from responsibility for the cost of its tenant's insurance deductible ' a million dollar mistake.

Absent express covenants waiving subrogation and releasing insured claims, however, landlords and tenants can achieve the same end ' ie, protection from an insurer's subrogated claim ' by requiring that each name the other as an 'additional insured' on its respective policy. As the Pennsylvania Superior Court explained with eloquent economy: 'Subrogation is an equitable doctrine; and, therefore, equitable principles apply in determining whether subrogation is available. By definition subrogation can arise only against third persons to whom the insurer owes no duty. It follows and, indeed, is now well established that an insurer cannot recover by means of subrogation against its own insured.' Remy v. Michael D's Carpet Outlets, 571 A.2d 446, 452 (Pa. Super. 1990) (citations omitted) , aff'd on other grounds, 637 A.2d 603 (1993). Indeed, this 'antisubrogation' rule has even been stretched so far as to estop subrogation when the 'insured' is insured by the insurance carrier under a different insurance policy. Fidelity and Guaranty Insurance Underwriters, Inc. v Joseph Banks Construction Co. Inc., 14 F. Supp. 2d 704 (M.D. Pa. 1998). Like the express waiver of subrogation clauses, this approach to protecting against an insurance carrier's subrogation of claims requires conscious decisions by the parties ' insisting on being named as an 'additional insured' on the other party's policy or having the prescience to procure insurance from the same insurer as the other party.

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