In Frymire Engineering Company, Inc. v. Jomar International, Ltd., a subcontractor and its liability insurer brought an action against the manufacturers of an allegedly faulty valve the subcontractor had installed in a hotel in order to recover payments made to the hotel owner for water damage incurred as a result of the valve. In its contract with the hotel’s general contractor, the subcontractor had agreed to pay for any damages caused to the general contractor or the hotel owner by reason of the subcontractor’s performance of the work and to obtain liability insurance to cover this indemnity obligation. When a water line installed by the subcontractor ruptured at the site of a valve, the subcontractor’s insurer indemnified the hotel owner for the resulting damage according to the contract, and the subcontractor and insurer then sued the valve manufacturer to recoup the indemnification payment. The Court of Appeals affirmed the trial court’s award of summary judgment to the manufacturers, holding that the subcontractor lacked standing to assert its claims because it failed to establish a right to equitable subrogation. In Texas, a party seeking equitable subrogation must show it involuntarily paid a debt primarily owed by another in a situation that favors equitable relief. The Court of Appeals determined that the subcontractor “paid the hotel owner to satisfy its own contractual obligation” and that the payment was voluntary and did not unjustly enrich the manufacturers. The Supreme Court of Texas reversed, holding that (1) the subcontractor satisfied its summary judgment burden by providing evidence that a defect in the valve primarily caused the rupture, and therefore, the manufacturers were primarily responsible for the resulting damage; (2) although the subcontractor’s decision to contract with the hotel owner was voluntary, “its duty to honor that contract was not,” so the subcontractor had involuntarily extinguished the debt; and (3) in light of the hotel owner’s inaction, the manufacturers would be unjustly enriched if the subcontractor was not permitted to pursue its claims. With these findings, the Supreme Court of Texas enabled subcontractors attempting to recoup contractual payments from alleged thirdparty tortfeasors to meet the traditional requirements of equitable subrogation.
__ S.W.3d __, 2008 WL 2404961 (Tex. June 13, 2008).