Lease waiver of subrogation after a hot-works fire
Harlow Components Ltd leases a unit from Brookfield Estates. The lease requires Brookfield to insure the building and Harlow to reimburse the premium. It also says: 'Each party waives all rights of subrogation against the other for loss or damage covered by insurance.' A contractor, Sparkrite Ltd, was hired by Harlow to repair a roof. Sparkrite's employee used a hot-works torch without a permit; a fire destroyed part of the building, causing £300,000 of damage, and damaged £80,000 of Harlow's stock and machinery. Brookfield's property insurer pays £300,000. Harlow's own insurer pays £80,000 for the contents and also provides public liability cover. Brookfield's insurer now seeks to recover £300,000 from Harlow and from Sparkrite. Harlow's liability insurer says the waiver protects Harlow. Sparkrite says it was never told about the waiver and that Harlow should indemnify it under their repair contract. Neither policy is a consumer policy.
1. Can Brookfield's insurer recover from Harlow? From Sparkrite?
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Subrogation puts Brookfield's insurer in Brookfield's shoes, so it can recover only where Brookfield could have sued. The lease contains a mutual waiver of subrogation for loss covered by insurance. That is a contractual promise by Brookfield not to pursue Harlow for the fire loss. The insurer's rights are subject to that promise, and an insurer that pays with knowledge of the lease is bound by it. Brookfield's insurer therefore cannot recover the £300,000 from Harlow. The position with Sparkrite is different. Sparkrite is not a party to the lease, and the waiver does not expressly extend to contractors. Privity of contract means Sparkrite cannot rely on a contract to which it is not a party, and the Contract (Rights of Third Parties) Act 1999 is unlikely to help because the lease does not purport to confer a benefit on contractors. Brookfield's insurer can therefore sue Sparkrite in tort for negligence if Sparkrite's employee caused the fire. Sparkrite may argue contributory negligence, or that Harlow, not Sparkrite, is liable, but that does not defeat the direct claim. If Harlow is vicariously liable for Sparkrite's acts, the waiver protects Harlow; but Sparkrite's own liability is not automatically waived. The insurer should check the repair contract for any indemnity or waiver in Sparkrite's favour.
2. Does the waiver protect Sparkrite, and can Harlow's liability insurer rely on it?
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The waiver does not protect Sparkrite. It is a bilateral promise between Brookfield and Harlow, and Sparkrite is a stranger to it. The wording 'each party waives ... against the other' does not include contractors, and there is no third-party rights clause. Sparkrite may still have a contractual claim against Harlow for an indemnity under the repair contract, and Harlow's liability insurer may have to consider that claim. But the waiver does not answer Brookfield's insurer's direct negligence claim. Harlow's liability insurer is right that Harlow is protected against Brookfield's claim, but that does not mean the insurer must pay Sparkrite's claim. If Sparkrite seeks an indemnity from Harlow, the liability policy may respond only if the liability is covered; liability assumed under contract is often excluded unless it would exist in tort. The insurer should check the wording. Also, Harlow's property insurer can pursue Sparkrite for the £80,000 contents loss, because that is a subrogated claim by Harlow, not Brookfield, and the lease waiver does not bar Harlow's own insurer from suing a third party. That may put pressure on Sparkrite.
3. Is there double insurance or contribution between the property insurers?
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No double insurance and no contribution. Brookfield's property policy covers the building, which is Brookfield's interest. Harlow's property policy covers Harlow's stock and machinery, which is Harlow's interest. The policies insure different insureds and different property. Contribution requires the same insured, the same interest, and the same risk; those elements are absent. Harlow's public liability policy is liability insurance, not property insurance, so it does not contribute to the building loss. The lease's waiver is not a double insurance clause; it allocates the risk of fire to the landlord's insurance. If Harlow had insured the building itself, for example under a landlord's property extension, there might be double insurance and the insurers would contribute rateably. On these facts, Brookfield's insurer bears the building loss and can look to Sparkrite, while Harlow's insurer bears the contents loss and can also look to Sparkrite. The two insurers should coordinate their subrogated claims against Sparkrite to avoid duplication, but neither can demand contribution from the other.