Construction Law: Successful Subrogation Defense for Contractors

(Towson, Maryland) Bowie & Jensen trial attorney Jason Brino successfully defended a contractor in a subrogation claim brought by an insurance carrier claiming that faulty workmanship caused a building to collapse in a recent lawsuit.

The defendant in the trial was contracted by a farmer to build a pole barn to house equipment used on the farm, including a generator.  A severe windstorm caused the barn to collapse damaging the adjacent generator prior to construction being completed.  The farmer’s insurance policy covered the damage to the barn and the generator.  The farmer did not demand the contractor to absorb the cost of rebuilding the barn and agreed to pay the same contractor to rebuild the barn.  

The farmer’s insurance company brought a subrogation lawsuit against the contractor alleging negligence due to insufficient lateral bracing in the barn’s construction.  Lateral bracing and other truss bracing is essential in pole barn structures to withstand the effects of severe weather.

The insurance company’s expert witness testified that the construction was defective and that the barn would not have held up even in less severe weather, despite the barn’s incomplete construction.  The defense’s primary argument was that the Economic Loss Rule prevented the insurance company from recovering damages to the barn caused by alleged negligence.  

“In a subrogation lawsuit, the plaintiff insurer essentially steps into the shoes of its insured and thus has only those rights that the farmer had at the time it paid the claim,” said Brino. “The Economic Loss Rule applies to purely economic losses such as loss of value or use of the product itself, or the cost to repair or replace the product. Generally this rule prevents a purchaser like the farmer who sustains economic losses from recovering damages due to negligence.  The economic loss rule thus limits recovery of economic damages to contract causes of action, including breach of warranty.” 

One exception to the Economic Loss Rule does allow for compensation due to negligence if the defect creates a substantial and unreasonable risk of death or personal injury.  The court rejected the plaintiff’s argument seeking to invoke the exception because of the nature of the intended use of the equipment barn, and seeing as the only damage was only to the generator.  The court ultimately agreed with the defense because the plaintiff insurer had alleged only negligence.