Overview
In a decision that underscores the destructive power of the Economic Loss Doctrine in New Jersey, the Appellate Division recently dismissed a property insurer’s subrogation action arising from a construction defect. The case, 1410 Grand Adams, LLC v. Trematore Construction, LLC, 2025 WL 1742859 (N.J. App. Div. 2025), reaffirmed that when losses are purely economic and derive solely from contractual obligations, tort claims are barred—even when brought by a subrogated insurer.
Factual Background
The dispute originated after a domestic hot water pipe installed by a subcontractor at a large residential development detached, flooding multiple units, and causing significant delay in completion. Aspen American Insurance Company, the property insurer for the owner-developer 1410 Grand Adams, LLC, paid over $880,000 in property damage and delay-related costs. Aspen, as subrogee, sought to recover these funds by filing negligence and gross negligence claims against two plumbing subcontractors, Trematore Construction, LLC and Affinity Mechanical Services, Inc., who had no direct contractual relationship with the property owner.
Contractual Waivers Blocking Subrogation
The contractual language itself was clear and decisive in blocking Aspen’s subrogation claim. Section 7.6 of the Bijou–Trematore LLC Subcontract stated:
…the [c]ontractor and [s]ubcontractor waive claims against each other for consequential damages arising out of or relating to this [s]ubcontract, including without limitation, any consequential damages due to either party’s termination.
Additionally, Section 8.8 included a broad waiver of subrogation, declaring that:
…the parties waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other, and (2) the [o]wner, the [a]rchitect, the [a]rchitect’s consultants, separate contractors, and any of their subcontractors, sub-subcontractors, agents and employees for damages caused by fire or other causes of loss to the extent covered by property [i]nsurance provided under the [p]rime [c]ontract or other property insurance applicable to the [w]ork.
This sweeping contractual language left Aspen, as subrogee, without a tort-based remedy, since it inherited both the benefits and the burdens (i.e., stepped into the shoes) of its insured and the agreements they were bound by.
Court’s Analysis Under the Economic Loss Doctrine
Despite the extensive damage and the presence of subrogation rights, the court rejected Aspen’s attempt to frame the claims in tort. Citing longstanding precedent, the Appellate Division held that the economic loss doctrine precludes tort claims where the losses are financial in nature and stem from a contractual relationship. The court emphasized that the duties allegedly breached were rooted in the subcontractor agreements and not in any independent legal obligation imposed by law. Moreover, the plaintiff, as a third-party beneficiary to those contracts, was also bound by their express waivers of consequential damages.
Implications for Subrogation in New Jersey
The ruling is significant for subrogation professionals and insurers in New Jersey, as it draws a bright line around what kinds of losses are recoverable in tort. When an insurer steps into the shoes of its insured, it inherits both the rights and the limitations of the insured—including contractual waivers and bars. Here, Aspen’s claims were functionally those of 1410 Grand Adams, and because the insured had no right to pursue tort damages against the subcontractors, neither did Aspen. The fact that the loss involved substantial water damage and consequential financial fallout did not alter the essential legal character of the claim—it remained one based in contract.
Why Subrogation Rights Are Derivative
Importantly, the decision does not break new ground, but it does serve as a powerful reminder: subrogation rights are not superior rights. They are derivative. This case reinforces that subrogated insurers must be vigilant in evaluating the contract web underlying construction and commercial projects. If the underlying agreements contain waivers, damages limitations, or no-privity defenses, those same hurdles will confront the insurer later. Subrogation claims are often strongest where the tortfeasor owes an independent duty outside the contract. Where no such duty exists, the path to recovery narrows sharply.
Practice Pointers for Insurers and Counsel
While disappointing for Aspen, the decision provides clarity to insurers and their counsel navigating subrogation in construction settings. It also offers a cautionary tale: before pursuing litigation, review the underlying contracts with a fine-tooth comb. Even in cases of clear fault and substantial loss, legal doctrines like the economic loss rule can block recovery if the damages are contract-bound. The lesson is that recovery is not just about fault—it’s about legal fit.
Conclusion
The 1410 Grand Adams decision reinforces the predictable boundaries of New Jersey’s economic loss doctrine and confirms its continuing vitality in subrogation cases. Subrogated insurers cannot sidestep contractual limitations by pleading tort when the losses are purely economic and the obligations arise from negotiated agreements. As such, it is an important reminder to approach construction defect subrogation with a blend of legal realism and strategic foresight.
Contact
For questions regarding subrogating property damage in construction settings in New Jersey or for inquiries about the role contracts and the Economic Loss Doctrine will play in subrogating in that state, please contact Liz Peter at epeter@mwl-law.com. Liz has nearly 25 years of subrogation litigation experience and oversees MWL’s New Jersey office.
