As a matter of first impression, and in a reported opinion of significance to the construction industry, the Court of Appeals in Gables Construction, Inc. v. Red Coats, Inc., et al., No. 23, September Term, 2019, held that a party against whom the injured party contractually waived subrogation cannot be a joint tortfeasor liable in tort to a third-party under the Maryland Uniform Contribution Amount Joint Tort-Feasors Act ("UCATA") Md. Code (1974, 2013 Repl. Vol., 2019 Cum. Supp.), Courts and Judicial Proceedings Article ("CJ") § 3-1401, et. seq. This decision is significant in that it precludes the beneficiary of a contractual waiver, which is a common provision in construction contracts, from being brought into litigation by a thirdparty who seeks contribution, and it serves as a reminder to legal practitioners to examine the rights and obligations set forth in the relevant contracts.

Gables v. Red Coats arose from litigation relating to a large fire occurring in 2014 that caused $22,150,000 in property damage to a 139-unit apartment building. Gables Construction, Inc. ("Gables"), the general contractor on the project, had a standard construction contract ("the Prime Contract") with Upper Rock II, LLC ("Upper Rock"), the property owner, to perform work at the site. Upper Rock contractually agreed to insure the property against fire loss and to transfer the risk of loss for fire-related claims to its' insurer, to waive all claims against Gables caused by fire loss, and to waive rights by its' insurer to subrogate any such losses against Gables. These contractual waivers prevented Upper Rock and its' insurer from pursuing a direct claim against Gables. Instead, Upper Rock, through its insurer, filed a subrogation action against Red Coats, Inc. ("Red Coats"), the subcontractor hired to perform security and fire watch for the project, and Red Coats subsequently filed a third-party action against Gables seeking contribution. Red Coats was not a party to the Prime Contract.

Gables moved for summary judgment, arguing that Upper Rock's waiver of subrogation precluded Gables from being liable in tort to Upper Rock and precluded Gables from fitting the definition of a joint tortfeasor under the UCATA. The motion was denied and the case proceeded to trial. The jury found Red Coats was entitled to contribution from Gables in the amount of $7 million. The Court of Special Appeals affirmed Red Coats' right to contribution, but reduced the amount to $2 million, which represents half of the amount Red Coats paid out-of-pocket to settle with Upper Rock.

The issue before the Court of Appeals was whether Gables could be liable for joint tortfeasor contribution to Red Coats given that Upper Rock, the injured party, had contractually waived its' rights against Gables in the Prime Contract and intended for the fire loss to be covered by insurance. While Maryland jurisprudence has long recognized that a waiver of subrogation is intended to shift the risks, such as the risks inherent in performing construction projects, and to avoid the economic inefficiency of parties procuring insurance for the same risks, it had not previously addressed whether the beneficiary of a contractual waiver could be liable in tort to a third-party for contribution under the UCATA.

A claim for contribution pursuant to the UCATA arises where wrongdoers are "jointly or severally liable in tort for the same injury to person or property, whether or not judgment has been recovered against all or some of them." CJ § 3-1401(c). By definition, the right to contribution under the UCATA is predicated on the wrongdoer's direct liability to the injured party and the "joint tortfeasor must be legally responsible to the plaintiff for his or her injuries." See, Montgomery Cty. v. Valk Mfg. Co., 317 Md. 185, 199-200 (1989).

Whether a defendant is liable in tort and shares common liability under the UCATA has been interpreted in the context of interspousal immunity (see Ennis v. Donovan, 222 Md. 536, 540 (1960)); workers' compensation immunity (see Balt. Transit Co. v. State ex rel. Schriefer, 183 Md. 674, 679 (1944)); and contributory negligence (see Valk Mfg. Co., 317 Md. at 190-91). In each instance, Maryland courts have held that there is no right to contribution under the UCATA where the injured party has no right to recover directly against the third-party defendant. In each instance, courts have held there can no contribution between concurrent tortfeasors unless they share a "common legal liability" to the plaintiff because the contribution action arises from "the original obligation that the party cast in contribution owed to the plaintiff.'" Id. at 195 (citing Simeon v. T. Smith & Son, Inc., 852 F.2d 1421, 1434 (5th Cir. 1988)). Thus, a joint tortfeasor must have legal responsibility, not mere culpability, to the injured party to be liable for contribution. The statutory right to contribution is not an independent cause of action, but rather it is a derivative right arising out of common liability to the injured party.

In Gables v. Red Coats, the Court of Appeals wrote that there is no reason to deviate from this rationale in the context of contractual waivers. The holding clarifies that a contractual waiver of subrogation prevents liability from arising between the injured party and a third-party and, therefore, the third-party defendant cannot be liable to another wrongdoer for contribution under the UCATA. Even though Red Coats was not a party to the Prime Contract, the subrogation waiver between Upper Rock and Gables precludes Gables from being a joint tortfeasor and Red Coats from seeking contribution from Gables under UCATA.

Originally published by The Defense Line, Maryland Defense Counsel on August 2020

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