Slow Down: Waiver of Subrogation Clause Does Not Bar Claim Against Co-Tenant

When an insurer pays an insurance claim, it becomes subrogated to the rights of its insured.  The rights of the insurer, however, are no greater than the rights of its insured.  Thus, any defenses that a potentially responsible party could assert against the insured can be asserted against the insurer.  It is not uncommon for contracts, especially lease agreements, to contain a “waiver of subrogation” clause.  A waiver of subrogation clause contained in an agreement entered into by an insured precludes an insurer from commencing a subrogation action against another party to that agreement.

An issue that recently was addressed by the Appellate Division is whether someone who is not a party to the agreement also can benefit from such a clause.  Based on the facts before it, the court concluded that it could not.

In Haftell v. Busch, 2017 WL 1077045 (N.J. Super. Ct. App. Div. March 22, 2017), the insurer for a residential tenant, Mitchell Haftell, commenced a subrogation claim against another tenant, Steven Busch, after it reimbursed its insured for damages resulting from a fire started by Mr. Busch.  The fire started after Mr. Busch discarded a lit cigarette while standing on the balcony of the apartment he shared with his wife and family.

After reimbursing its insured, The Cumberland Insurance Group commenced an action against the Busches.  Before any discovery was completed, the Busches moved for summary judgment based on a waiver of subrogation provision contained in the lease between Haftell and the landlord.  That provision provided:

Regardless of anything stated in this Lease, Tenant releases Landlord from any injury, loss or damage to personal property or persons from any cause.  Landlord shall only be responsible for any acts caused by negligence of its employees, servants or agents.  Tenant waives any right of subrogation by Tenant or any insurance company, which covers Tenant.

Id. at *1.  The Busches argued that they were entitled to the benefit of that provision because Haftell waived “any right of subrogation” and not just its right of subrogation against the landlord.  Id.  The trial judge agreed and granted summary judgment in favor of the Busches.  Not surprisingly, Cumberland appealed.

The Appellate Division reversed the trial court’s decision.  The court began its analysis by noting that, as a general rule, a non-party is not entitled to benefit from the terms of a contract absent evidence that the contracting parties intended to confer a benefit on the non-party.  The court then observed:

In the case before us, the contractual waiver of subrogation clause is contained in a lease between Haftell and the landlord.  Defendants are not parties to that contract.  Thus, the threshold inquiry is not whether the waiver of subrogation clause is generally enforceable, but rather whether the parties to the lease, Haftell and the landlord, “intended others to benefit from the existence of the contract[.]” Nothing in the lease suggests they did.

Id. at *3 (citation omitted).

The court distinguished this case from an earlier one, Skulskie v. Ceponis, 404 N.J. Super. 510 (App. Div. 2009), in which it held that the insurer of a condominium unit owner was barred from commencing a subrogation action against another unit owner.  There, the court found that the “scheme created by th[e] residential condominium community contemplated no litigation between unit owners or between unit owners and the Association.”  Id. at *514.  The Haftell court observed:

Unlike Skulskie, here we can discern no “scheme” created by either the landlord or the residential community.  Perhaps one exists, but if it does, it is not apparent from the summary judgment motion record.  The motion judge granted summary judgment before the parties could develop the issue through discovery.

Id. at *3.  The court further observed that, unlike the policy at issue in Skulskie, there was no evidence that Cumberland’s policy contained a waiver of subrogation provision.  However, it would be surprising if it did not.

The Appellate Division reversed the trial court’s decision.  Rather than rule in favor of the insurer, however, it remanded the action to give the parties “an opportunity to present their positions on the need for discovery and presentation of parol evidence.”  Id. at *4.

The Busches arguably jumped the gun by moving for summary judgment before any discovery was completed.  Thus, the Appellate Division had to rule on an incomplete record.  However, it is unclear whether conducting discovery would have helped the Busches.  It is unlikely that the owner of an apartment complex, unlike a condominium association, would have adopted a “scheme” to bar litigation by one tenant against another tenant.  Moreover, given the Appellate Division’s conclusion that they were not third-party beneficiaries of the Haftell lease, the Busches will be hard pressed to establish that the insurer’s claim is barred by the waiver of subrogation provision in that lease.


© William D. Wilson and, 2017.  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or with appropriate and specific direction to the original content.


By William D Wilson

I am a partner in Mound, Cotton, Wollan & Greengrass, which is headquartered in New York City. I am in charge of running the firm's New Jersey office, which is in Florham Park. I have been practicing law for approximately 23 years and focus primarily on insurance related matters