Md. high court takes up Baltimore subrogation case stemming from Amazon warehouse damage

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The Maryland Supreme Court has agreed to hear a Baltimore City case that will determine the scope of subrogation waivers in construction contracts.

Last week, the state’s high court granted a contractor’s request to review an Appellate Court of Maryland decision in October 2023 that held that Lithko Contracting LLC and a handful of other subcontractors who built an Amazon warehouse fulfillment center in Baltimore City were not third-party beneficiaries of a subrogation waiver — or the waiver of the contractors’ obligation to pay the insurance company for reimbursement of a loss.

In a matter of first impression before the Maryland Supreme Court, the high court will decide whether the appellate court erred in holding that Amazon did not waive subrogation against the contractors, including Lithko Contracting.

The high court will also determine if the appellate court erred in holding that the contractors were not protected by the waiver of subrogation.

The case stems from XL Insurance America’s filing of a subrogation suit three years ago that alleged damage to Amazon’s Baltimore City warehouse roof from a 2018 tornado was caused by the subcontractors’ negligence in designing and building the warehouse. According to the appellate opinion, Lithko Contracting claimed that the insurance company’s claim against it and the other contractors was barred because it waived subrogation.

The trial court determined the contract documents “reflect the intent that all parties include mutual waivers at each level of the contracting and subcontracting process” and found the waiver of subrogation applied to the subcontractors. However, the appellate court disagreed, determining the insurance company’s claims were not barred by contractual waivers of subrogation.

Robert Ferguson Jr., counsel for Lithko Contracting, said he was pleased that the high court granted his client’s petition for review.

“It indicates to us that they’re at least receptive to the argument that we’re making that this particular case calls for enforcement of the waiver of subrogation in favor of my client,” Ferguson said of the high court’s decision to review the case.

Ferguson said it’s “far more efficient” to have a single insurer evaluate and pay possible losses to a construction project, rather than for each party to purchase their own insurance policy.

“The notion of shifting the risk of loss for a construction project to a single insurance company is a very sound principle,” Ferguson said. “We’re hopeful that the Supreme Court can recognize the importance of shifting the risk of loss to insurance and when that shift occurs, waiving the right of the insurance company to sue the parties — the owner or the contractors and subcontractors — to recover that loss. It sort of defeats the purpose of shifting the risk.”

Court filings show arguments are tentatively scheduled for May.

Counsel for XL Insurance America could not immediately be reached for comment on Thursday.