In 2017, plaintiff 2700 Bohn Motor Company, LLC (Bohn) retained defendant FH Myers Construction Corporation (FH Myers) as the general contractor to renovate his agency in New Orleans. Bohn and FH Myers entered into the AIA construction contract for the renovation project. The contract contained a waiver of mutual subrogation, which states that the parties “waive all rights against (1) each other and any of our subcontractors, subcontractors, agents and employees, each other… for damages from fire or other causes of loss to the extent covered by property insurance obtained under this Section 11.3 or other property insurance applicable to the business.” FH Meyers has subcontracted Orleans Sheet Metal Works and Roofing, Inc. (OSM) and B&J Enterprise of Metairie, Inc. (B & J) on the project. The contract obligated Bohn to secure a property insurance policy for the project.
In November 2019, a fire broke out in the property during the renovation project. As a result of the damage, Bohn’s insurance companies issued payments to Bohn for necessary repairs. Boone also incurred a rebate. Bohn and its insurers sued FH Myers, OSM and B&J, alleging that the negligence of the defendants caused the fire. Defendants filed a joint motion for summary judgment on the grounds that waiver of subrogation precluded plaintiffs’ claims. The lower court granted the defendants’ request and dismissed the case entirely, including Boone’s claim for her deduction. The plaintiffs appealed to the Court of Appeal.
The Court of Appeals has held that, in Louisiana, an alternate person does not have greater rights than those of a substitute and is subject to all restrictions applicable to the alternate applicant’s original lawsuit. The Court also cited several decisions of the Court of Appeals where the waiver of subrogation by the AIA was deemed enforceable. In accordance with the language of the waiver, the court found that Bohn had clearly waived his subrogation rights against the defendants and thus had no rights that could be substituted for insurers.
The court then considered whether the waiver of subrogation by the AIA violated Louisiana’s no-compensation clause. Louisiana law prohibits La. RS 9: 2780.1 is, among other things, any provision, clause, covenant or agreement contained in, guarantee or affecting a construction contract that is intended to indemnify, defend or harm, or has the effect of indemnifying, defending or discharging the beneficiary of or against any liability for loss or damage resulting from the negligence of the beneficiary. The Court of Appeal agreed with the lower court that the Non-Compensation Act did not invalidate the waiver of subrogation because indemnity agreements and subrogation exemptions have separate and distinct legal meanings in the contract. The court made clear that unlike indemnification clauses, which can transfer liability from one responsible party to another, a waiver of subrogation is simply an assignment of risk. As such, the Court held that the waiver of subrogation did not violate the Anti-Compensation Act.
The appeals court also found that defendants OSM and B&J qualified as third-party beneficiaries under Louisiana law because of the direct language of subrogation of subrogations. Louisiana Law La. CC art. 1978 allows contracting parties to provide for a third-person benefit, commonly referred to as a “condition.” for others. Louisiana jurisprudence has identified three factors for determining whether contracting parties have provided a benefit to a third party: 1) the requirement for a third party is clear; 2) there is certainty as to the benefits offered; 3) that the benefit is not merely an accident of contract between signatories. Here, The court found that the explicit language of the subrogation waiver specifically waived the subrogation rights of the owner and the general contractor against each other and their subcontractors and subcontractors in the project.Because the court found the clause to be clearly stated, the benefit is certain and the benefit is not incidental, the court confirmed the court’s decision Lower which concluded that OSM and B&J were third party beneficiaries of the contract.
Finally, the court also dismissed Bohn’s claim to “ her opponent. The court found that the contract expressly obligated Bohn, as the owner, to insure the property insurance policy, and stated that if “property insurance requires deductions, the owner must pay costs that were not covered by these deductions.” Thus, the court decided that Boone had to bear the cost of forbearance regardless of the fault.
The Bohn Motor The case establishes that, in Louisiana, the standard AIA subrogation waiver does not violate the state’s Anti-Compensation Act and is enforceable. Bohn Motor It was also found that a waiver of the subrogation clause could apply to signatories’ subcontractors if the clause satisfies the elements necessary to establish subcontractors as third party beneficiaries. The case also serves as a reminder that in Louisiana, the insured may not be able to recover the “withholding` amount if there is an insurance clause similar to that in Bohn Motor building contract.