Subrogation is a contractual clause that allows one party, typically an insurer, to assume the legal rights of another party, the insured, to pursue recovery from third parties responsible for a loss after compensation has been provided. This enables the insurer to seek reimbursement for claims paid out by holding the responsible third party accountable.
WHEREAS, before the date hereof, the Parties and their representatives have engaged in arms’ length, good-faith negotiations regarding a settlement of the Subrogation Claims against the Company on the terms set forth herein, including the allowance of Subrogation Claims at the Allowed Subrogation Claim Amount (each as defined below), which allowance will survive termination of this Agreement in certain circumstances, as expressly set forth herein, and the treatment of the Subrogation Claims with the Aggregate Subrogation Recovery (as defined below) on the Effective Date of the Plan (each as defined below) (the “Settlement”);
“Ad Hoc Subrogation Group” means that certain ad hoc group of holders of Subrogation Claims, each in their capacities as such, represented by Willkie Farr & Gallagher LLP, Diemer & Wei LLP and Rothschild & Co US Inc., the members of which are disclosed in that certain Verified Statement of the Ad Hoc Group of Subrogation Claim Holders Pursuant to Bankruptcy Rule 2019 [Dkt. No. 971] as such statement may be amended from time to time.
“Aggregate Subrogation Recovery” means the payment of $11 billion in full in cash (subject to replacing a portion of the cash with Non-Cash Recovery in accordance with Section 3(a)(ix) hereof) to a trust to be established pursuant to the Plan for the benefit of holders of Subrogation Claims.
“Subrogation Claims” means all claims (as such term is defined in section 101(5) of the Bankruptcy Code) against the Debtors related to or in any way arising from the Wildfires that arise from subrogation (whether such subrogation is contractual, equitable or statutory), assignment (whether such assignment is contractual, equitable or statutory), or otherwise in connection with payments made or to be made by the applicable insurer to insured tort victims, and whether arising as a matter of state or federal law, including Section 509 of the Bankruptcy Code, including attorneys’ fees and interest, and shall include Paid Claims and Reserved Claims. For the avoidance of doubt, Subrogation Claims shall not include the claims of any Governmental Unit (as defined in section 101(27) of the Bankruptcy Code) and any such claims shall not be the subject of, or compromised under, this Agreement.
4.ALLOWED SUBROGATION CLAIM AMOUNT. The Parties agree to settle the Subrogation Claims for an aggregate allowed claim amount of $11 billion pursuant to Bankruptcy Rule 9019 (the “Allowed Subrogation Claim Amount”). The Allowed Subrogation Claim Amount, shall be binding in the Chapter 11 Cases, and shall survive termination of this Agreement, except as otherwise expressly provided in this Agreement. Notwithstanding the allowance of Subrogation Claims as provided herein, the right of the Ad Hoc Subrogation Group to object to proofs of claim filed by individual holders of Subrogation Claims that are not parties to this Agreement shall be expressly reserved. At any time the Allowed Subrogation Claim Amount remains binding pursuant to the terms hereof, whether prior to or subsequent to the termination of this Agreement, absent the consent of the Requisite Consenting Creditors, the Debtors shall not (a) settle any Subrogation Claims, including with respect to the allowed amount of such Claim, or (b) object to any Subrogation Claim.
26.Additional Consenting Creditors. Any holder of Subrogation Claims may at any time become a party to this Agreement as a Consenting Creditor (a “Joining Party”) by executing a joinder agreement (the “Joinder”) substantially in the form attached as Exhibit D hereto, pursuant to which such Joining Party represents and warrants to the Company and the other Consenting Creditors that it agrees to be bound by the terms of this Agreement as a Consenting Creditor hereunder.
1.96 HoldCo Subrogation Wildfire Claim means any Subrogation Wildfire Claim against HoldCo.
1.172 Subrogation Claims Cap means $8.5 billion.
1.173 Subrogation Wildfire Claim means any Wildfire Claim that arises from subrogation (whether such subrogation is contractual, equitable, or statutory), assignment (whether such assignment is contractual, equitable, or statutory), or otherwise in connection with payments made or to be made by an insurer or similar entity to another person on account of damages or losses relating in any way to any Wildfire, including attorneys’ fees, and whether arising as a matter of state or federal law, including, without limitation, under section 509 of the Bankruptcy Code.
1.174 Subrogation Wildfire Claims Estimation Consideration means, at the option of the Reorganized Debtors, either (a) Cash, (b) wildfire victims recovery property created pursuant to the Wildfire Victim Recovery Bonds, or other securitized bonds, and the proceeds of such bonds (if applicable), (c) New HoldCo Common Stock, or (d) Mandatory Convertible Preferred Stock (if applicable) (or any combination of the foregoing) having an aggregate value equal to an amount to be estimated pursuant to the Subrogation Wildfire Claims Estimation Proceeding.
1.175 Subrogation Wildfire Claims Estimation Proceeding means a proceeding or proceedings initiated in the Bankruptcy Court and/or the District Court, which shall conclude prior to or at the Confirmation Hearing, pursuant to which the applicable court will estimate the Debtors’ aggregate liability with respect to Subrogation Wildfire Claims, for purposes of confirming and implementing the Plan.
1.176 Subrogation Wildfire Claims Resolution Procedures means the procedures for the resolution, liquidation, and payment of Subrogation Wildfire Claims by the Subrogation Wildfire Trust substantially in the form included in the Plan Supplement and described in the Disclosure Statement.
1.177 Subrogation Wildfire Trust means one or more trusts established on the Effective Date, in accordance with Section 6.4 of the Plan, to administer, process, settle, resolve, liquidate, satisfy, and pay all Subrogation Wildfire Claims.
1.178 Subrogation Wildfire Trust Advisory Board means the advisory board appointed by the board of directors of the Debtors or Reorganized Debtors, as applicable, to oversee the Subrogation Wildfire Trust in accordance with the Plan and the Subrogation Wildfire Trust Agreement; provided that, in the event the Debtors intend that a Subrogation Wildfire Trust will be funded (at least in part) through the issuance of tax-exempt bonds, the nature of the powers and responsibilities of the Subrogation Wildfire Trust Advisory Board shall not impair the use of tax-exempt financing.
1.179 Subrogation Wildfire Trust Agreement means that certain trust agreement or agreements by and among the Debtors, the Subrogation Wildfire Trust, and the Subrogation Wildfire Trustee, substantially in the form included in the Plan Supplement.
1.180 Subrogation Wildfire Trustee means the Person or Persons selected by the Debtors, subject to the approval of the Bankruptcy Court, to serve as the trustee or trustees of the Subrogation Wildfire Trust, and any successor thereto, appointed pursuant to the Subrogation Wildfire Trust Agreement; provided that, in the event the Debtors intend that a Subrogation Wildfire Trust will be funded (at least in part) through the issuance of tax-exempt bonds, the identity of the Person or Persons to be selected to serve as the trustee of such Subrogation Wildfire Trust shall not impair the use of tax-exempt financing.
4.6 Class 5A-II – HoldCo Subrogation Wildfire Claims. (a) Treatment: On the Effective Date, all HoldCo Subrogation Wildfire Claims shall be deemed satisfied, settled, released and discharged through the treatment provided to Utility Subrogation Wildfire Claims. Pursuant to the Channeling Injunction, each holder of a HoldCo Subrogation Wildfire Claim shall have its Claim permanently channeled to the Subrogation Wildfire Trust, and such Claim shall be asserted exclusively against the Subrogation Wildfire Trust in accordance with its terms, with no recourse to the Debtors, the Reorganized Debtors, or their respective assets and properties.
SECTION 3.01. Indemnity and Subrogation. In addition to all such rights of indemnity and subrogation as the Guarantors may have under applicable law (but subject to Section 3.03) in respect of any payment hereunder, the Borrower agrees that (a) in the event a payment in respect of any obligation of the Borrower shall be made by any Guarantor under this Agreement, the Borrower shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the Person to whom such payment shall have been made to the extent of such payment and (b) in the event any assets of any Guarantor shall be sold pursuant to any Security Document to satisfy in whole or in part any Secured Obligations owed to any Secured Party, the Borrower shall indemnify such Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold.
SECTION 3.02. Contribution and Subrogation. Each Guarantor (a “Contributing Party”) agrees (subject to Section 3.03) that, in the event a payment shall be made by any other Guarantor hereunder in respect of any Secured Obligations or assets of any other Guarantor (other than the Borrower) shall be sold pursuant to any Security Document to satisfy any Secured Obligation owed to any Secured Party and such other Guarantor (the “Claiming Party”) shall not have been fully indemnified as provided in Section 3.01, the Contributing Party shall indemnify the Claiming Party in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as the case may be, in each case multiplied by a fraction of which the numerator shall be the net worth of the Contributing Party on the date hereof (or, in the case of any Guarantor becoming a party hereto pursuant to Section 5.13, the date of the Supplement executed and delivered by such Guarantor) and the denominator shall be the aggregate net worth of all the Guarantors on the date hereof (or, in the case of any Guarantor becoming a party hereto pursuant to Section 5.13, such other date). Any Contributing Party making any payment to a Claiming Party pursuant to this Section 3.02 shall be subrogated to the rights of such Claiming Party under Section 3.01 to the extent of such payment.
Subrogation is a legal concept often used in insurance and finance, where one party steps into the shoes of another party to claim their rights or remedies. This usually occurs after one party (typically the insurer) has paid a loss or debt owed by another party (usually the insured). Subrogation allows the insurer to recover the amount of the claim paid from the party that caused the loss.
In simple terms, subrogation is a process that allows an insurer to pursue a third party responsible for causing an insurance loss to the insured. This helps in mitigating the financial losses of the insurer after compensating the insured.
Subrogation should be used when:
Writing a subrogation clause involves specifying the right of one party to claim reimbursement from a third party once any claims have been settled. Here’s a generic structure for a subrogation clause:
Subrogation Rights
Upon the payment of any claims under this Agreement, the Insurer shall be subrogated to all rights of the Insured against any third party who may be legally responsible for such loss, to the extent of the payment made by the Insurer.
The Insured agrees to assist and cooperate fully with the Insurer in the exercise of such rights, including but not limited to, executing documents and providing information necessary or helpful to facilitate the Insurer’s pursuit of its subrogation rights.
The Insurer’s right of subrogation will not apply if the Insured has waived in writing, prior to the loss, the Insurer’s subrogation rights in a form approved by the Insurer.**
Ensure the language is clear and detailed, addressing cooperation, the conditions under which subrogation takes place, and any limitations or waivers.
Subrogation clauses are typically found in the following types of contracts:
Insurance Policies: Most commonly in property, casualty, and auto insurance policies where insurers have paid the insured and wish to claim from the third party at fault.
Loan Agreements: Subrogation can appear in loan agreements where a third party might step in to meet a borrower’s obligations and then seek reimbursement.
Construction Contracts: In construction-related scenarios, subrogation is pertinent when insurance claims are made for damages caused during construction activities.
Real Estate Agreements: Especially in commercial real estate, subrogation can play a role in mitigating liabilities related to environmental damages.
These contracts specify how and when subrogation rights can be enforced and what the obligations of the involved parties are concerning those rights.
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