This is the second appeal decision in this case. I'll try and cut through the legal procedural stuff and give you the info you need to know. You can read the entire case on my web site under the Leading Cases section.
Here are some excerpts from the case:
ADT sells and monitors burglar alarm systems. Synnex is a distributor of
information technology products. In 2001, Synnex requested ADT to design,
install, and monitor a burglar alarm system at Synnex's warehouse in Edison. On
July 11, 2002, the parties executed ADT's form contract, which contained a broad
exculpatory provision. The paragraph containing the exculpatory provision also governed Synnex's obligation to indemnify ADT for third-party claims.
On March 8, 2003, six months after ADT had installed the alarm system, a
burglary occurred at the warehouse, resulting in a $ 7,600,000 loss of
inventory. At the time of the loss, Mitsui Sumitomo Insurance Group (MSIG)
insured Synnex. MSIG paid Synnex $ 7,100,000 in settlement of the loss. On March
8, 2004, MSIG brought a subrogation action in Synnex's name against ADT, seeking
to recover the monies it paid Synnex under the insurance policy, together with
additional losses that Synnex incurred which were not covered by the policy. ADT
filed a counterclaim for indemnification, alleging that MSIG was the real party
in interest in the action, and thus, Synnex was obligated to indemnify ADT for
attorney fees and other expenses it was then incurring in defending the action.
ADT moved for dismissal and Synnex moved to strike the exculpatory clause defense. The trial court did strike the exculpatory cause, declaring it against public policy. After the trial [ADT found liable for almost 4 million dollars] ADT appealed and the Appellate Court reversed, enforcing the exculpatory clause.
ADT then filed a new complaint seeking indemnity from Synnex. It was Synnex's insurance carrier, suing under subrogation rights, who had sued ADT.
There were lots of procedural legal issues addressed in the Appellate decision, not relevant for our purposes. What is important is what the Appellate Court had to say about subrogation and the indemnity clause. I'll quote from the case:
"What is more, as previously noted, we determined that the nature of the
underlying action was primarily a subrogation claim brought by MSIG, albeit, in
the name of its insured. Synnex Corp., supra, 394 N.J. Super. at 583.
Subrogation is "'[t]he substitution of one person in the place of another with
reference to a lawful claim, demand or right, so that he who is substituted
succeeds to the rights of the other in relation to the debt or claim, and its
rights, remedies or securities.'" Hanover Ins. Co. v. Borough of Atl. Highlands,
310 N.J. Super. 599, 603 (Law Div. 1997) (quoting Black's Law Dictionary (5th
Ed. 1979)), aff'd, 310 N.J. Super. 568 (App. Div.), certif. denied, 156 N.J. 383
(1998).
However, "a subrogee's rights can rise no higher than those of the subrogor."
Hayes v. Pittsgrove Twp. Bd. of Educ., 269 N.J. Super. 449, 455 (App. Div. 1994)
. "As the right of subrogation turns on the obligation or duty that the third
party itself owes the subrogor, subrogation is wholly dependent on the merits of
the subrogor's claim against the third party." Holloway v. State, 125 N.J. 386,
396 (1991). Moreover, "[t]he subrogee, which succeeds to the position of the
subrogor, may recover only if the subrogor likewise could have recovered; the
subrogee gains no additional rights and is subject to all defenses that were
available against the subrogors." Ibid.
Here, the indemnification provision sought to be enforced only requires
Synnex to indemnify ADT for expenses incurred in defending actions by third
parties, not in an action brought by Synnex itself. As MSIG filed the underlying
action to enforce its subrogation rights, it stepped into the shoes of Synnex,
and the indemnification provision is not applicable."
Three issues:
First, is it possible that ADT's contract doesn't have a waiver of subrogation clause? I hope your contract does, and if it doesn't then don't even finish this email without ordering your new contracts.
Second, is it possible that ADT's contract does have a waiver of subrogation clause and that the insurance company defense attorneys didn't move to dismiss the complaint based on that clause? Maybe someone has some info on this mystery. That's something I would have done.
Third, is there some reason the ADT contract calls for indemnity only when claims are brought by third parties? My Standard Contracts, not used by ADT I am happy to report, are not worded that way. What can I say?