Carnegie Hall Corp. v. Beinner Waterproofing, 74 N.Y.2d 907 (1989)
A subrogation waiver in a construction contract, where the owner agrees to waive rights against the contractor for damages covered by insurance, typically applies only to the specific “Work” defined in the contract, not to damages to other parts of the property.
Summary
Carnegie Hall Corp. contracted with Beinner Waterproofing for corrective work on its building. A fire caused damage beyond the scope of the contracted work. Carnegie Hall’s insurer, as subrogee, sued Beinner for negligence. The central issue was whether a subrogation waiver clause in the contract barred the insurer’s claim for damages to areas outside the “Work.” The New York Court of Appeals held that the waiver applied only to damages within the defined “Work,” allowing the insurer to pursue claims for damages to other parts of the building. The Court emphasized interpreting the contract to reflect the parties’ allocation of risk and insurance responsibilities.
Facts
Carnegie Hall Corp. (owner) contracted with Beinner Waterproofing (contractor) for corrective work on the exterior walls and parking garage floor of Carnegie Towers.
The contract, a standard AIA form, defined the “Work” as corrective work to masonry and concrete portions of exterior walls and the parking garage floor.
The contract included insurance provisions requiring the contractor to maintain liability insurance for damages *other than to the Work itself,* and the owner to maintain property insurance *upon the entire Work at the site.*
A fire occurred in a shed constructed by the contractor, causing damage to interior hallways, apartments, and the building’s exterior, totaling approximately $140,000.
Procedural History
Carnegie Hall’s insurer paid for the loss and sued Beinner as subrogee.
Beinner moved to dismiss based on the subrogation waiver clause in the contract.
Supreme Court granted the motion and dismissed the complaint.
The Appellate Division modified, reinstating the complaint to the extent it sought damages outside the contractual work. The Appellate Division certified the question to the Court of Appeals.
Issue(s)
Whether the subrogation waiver clause in the construction contract bars the subrogation claim of the owner’s insurer for damages caused by the contractor to areas of the building outside the defined limits of the “Work.”
Holding
No, because the subrogation waiver clause only applies to damages to the specific “Work” defined in the contract, not to other parts of the building, as indicated by the plain language of the agreement and the intended allocation of risk between the parties.
Court’s Reasoning
The Court interpreted Article 17.6, the waiver clause, which waived rights for damages caused by fire “to the extent covered by insurance obtained pursuant to this Article or any other property insurance applicable to the Work.”
The Court reasoned that the waiver applied only to insurance the owner obtained for the “Work” itself, protecting the contractor’s limited interest in that specific part of the building.
“It makes no difference whether the policy under which subrogation is sought is one which the owner purchased specifically to insure the Work pursuant to article 17.3 or some other policy covering the owner’s property in which the owner has also provided coverage for the Work. In either event, the waiver clause, if given its plain meaning, bars subrogation only for those damages covered by insurance which the owner has provided to meet the requirement of protecting the contractor’s limited interest in the building — i.e., damages to the Work itself.”
The Court emphasized that the contractor was required to obtain liability insurance for damages *other than to the Work itself* (Article 17.1).
The Court distinguished *Trump-Equitable Fifth Ave. Co. v H.R.H. Constr. Corp.*, where the contract involved the construction of an entire building, requiring the owner to procure insurance for the entire building, thus extending the subrogation waiver to all damages.
The dissenting judge argued that the waiver should bar any action by the owner or its subrogee for property damage covered by the owner’s first-party coverage, regardless of whether it was directly part of the “Work”, to promote certainty and avoid litigation. The dissent cited cases where similar clauses were interpreted to bar subrogation actions, emphasizing the intention to have one party provide insurance for all parties involved.