In Allstate Insurance Company v. ADT, LLC, No. 1:15-cv-517-WSD, 2016 U.S. Dist. LEXIS 120880 (N.D. Ga.), the United States District Court for the Northern District of Georgia addressed the question of whether a contract’s insurance and waiver of subrogation clause was an exculpatory clause that was unenforceable because it did not pass Georgia’s Prominence Test. The court held that a waiver of subrogation clause is not an exculpatory clause and, thus, its enforceability does not depend on the clause being prominently displayed.
In Allstate, Chris and Jill Kernion (the Kernions) signed a Protective Service Agreement (Contract) with Defendant ADT, LLC (ADT), in which ADT agreed to install and maintain certain protective equipment in the Kernions’ home. In pertinent part, Section 7(e) of the Contract stated:
YOU . . . AGREE THAT [DEFENDANT’S] LIABILITY TO YOU . . . IS LIMITED TO A TOTAL RECOVERY OF NOT MORE THAN THE TOTAL AMOUNT OF FEES ACTUALLY PAID TO [DEFENDANT] . . . DURING THE TWELVE-MONTH PERIOD PRECEDING THE EVENT . . . FOR WHICH YOU . . . MAKE A CLAIM AGAINST [DEFENDANT]. YOU ACCEPT RESPONSIBILITY FOR ANY LIABILITY BEYOND THESE LIMITS AND YOU WILL MAINTAIN OUR OWN INSURANCE COVERAGE . . . TO PROTECT YOU . . . FROM ANY LOSSES EXCEEDING THESE LIMITS. YOU WILL ENSURE THAT EACH SUCH POLICY CONTAINS A PROVISION OR ENDORSEMENT WAIVING ANY AND ALL SUBROGATION RIGHTS AGAINST [DEFENDANT]. . . .
One piece of equipment ADT agreed to install was a water sensor known as a “water bug.” On January 8, 2014, while the Kernions were out of town, the water pipes in their home burst, sending thousands of gallons of water into the Kernions’ home. After Allstate Insurance Company (Allstate) paid the Kernions’ claim for damages, Allstate filed a subrogation action against ADT, alleging, in part, that ADT failed to install the water bug with the correct wire connects. ADT filed a Motion to Dismiss Allstate’s complaint. In response to ADT’s Motion, Allstate argued that the Contract’s subrogation waiver was invalid because it was not displayed prominently in the contract.
Although the parties agreed that Section 7(e) of the Contract is a subrogation clause, they disagreed as to whether it is also an “exculpatory clause.” If the clause is an exculpatory clause, Georgia law dictates that the clause must pass a Prominence Test, under which the clause “must be explicit, prominent, clear and unambiguous.” The court noted that Georgia courts regularly enforce subrogation waivers, including waivers established by a mutual agreement to provide insurance, and held that the clause was not an exculpatory clause. For this reason, the court held that it need not satisfy the Prominence Test. Thus, the court enforced the waiver of subrogation clause and granted ADT’s Motion to Dismiss.
The analysis in Allstate serves as a reminder that many courts treat waiver of subrogation clauses differently from exculpatory clauses. Further, it serves as a reminder that, particularly with respect to alarm company contracts, it is difficult to overcome express waiver of subrogation clauses. Thus, in order to overcome an express waiver of subrogation clause, insurers will generally have to try and identify arguments other than those to the effect that the waiver of subrogation clause is unenforceable or unconscionable because it is not prominently displayed.