AIA Subrogation Waivers
May, 2008
Accidents and injuries, to both persons and property, occur on construction sites every day. While often it is easy to place blame on the responsible party, getting their insurance company to cover the loss and pay the resulting damages is another issue. Often, the owner and General Contractor utilize the American Institute of Architects (AIA) form contract, A201. This contract contains a standard “waiver of subrogation” which has evolved over the years and is constantly under scrutiny as to its application. Here is an example of a standard waiver of subrogation, and a brief discussion of some issues that arise in litigation:
“11.4.7 Waivers of Subrogation. The Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other, and (2) the Architect, Architect’s consultants, separate contractors described in Article 6, if any, 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 insurance obtained pursuant to this Paragraph 11.4 or other property insurance applicable to the Work, except such rights as they have to proceeds of such insurance held by the Owner as fiduciary. The Owner or Contractor, as appropriate, shall require of the Architect, Architect’s consultants, separate contractors described in Article 6, if any, and the subcontractors, sub-subcontractors, agents and employees of any of them, by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated herein. The policy shall provide such waivers of subrogation by endorsement or otherwise. A waiver of subro-gation shall be effective as to a person or entity even though that person or entity would otherwise have a duty of indemnification, contractual or otherwise, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged.”
The following hypothetical “point-counterpoint” discussion illustrates the debate concerning the effectiveness of the “waiver of subrogation” provision:
John Defendant: I love subrogation waivers. I win cases because of them. They bar most, if not all, lawsuits arising out of accidents at construction sites.
Joe Plaintiff: I hate subrogation waivers. I try to defeat them by exploiting ambiguous language. Further, they won’t bar claims involving gross negligence.
John Defendant: The waivers apply to all “work” included on a construction site regardless of who does it, a contractor or subcontractor.
Joe Plaintiff: Depends on how you define “work.”
John Defendant: “Work” is any type of construction work done at the site by any contractor or subcontractor.
Joe Plaintiff: “Work” is limited to the activities called for under the specific contract in question. It does not relate to activities taking place adjacent to those specific activities.
John Defendant: Any recovery is limited to damage which occurs in an area where the “work” was ongoing.
Joe Plaintiff: Recovery for resulting damage can be had as long as the damage relates back to the “work”, regardless of where the damage occurred.
John Defendant: Such a waiver extends into the future indefinitely.
Joe Plaintiff: Such a waiver ends when the “work” called for in the contract is completed, and the entities’ insurable interest no longer exists.
John Defendant: As long as I’ve named subcontractors as additional insureds in my contract, I’m protected.
Joe Plaintiff: If there is a provision requiring mutual waivers, and/or mutual naming as additional insureds, and one party does not satisfy this, the waivers are invalid.
John Defendant: These waivers apply in all states across the board, equally.
Joe Plaintiff: States have adopted their own interpretation of such provisions, and each must be looked at on a state by state basis.
John Defendant: The waiver applies to all types of insurance policies regardless of whether it’s Builders Risk or CGL.
Joe Plaintiff: The waiver ends when the builders risk policy expires and does not apply to any losses which are covered by the CGL.
One of the most litigated issues with respect to such waivers is “when is the ‘work’ terminated?” From the Plaintiff’s perspective, the “work” terminates upon completion of the project and the tender of final payment. Various courts across the country have upheld this position, identifying that the contractor’s insurable interest extends only to the tools, labor and materials it has furnished. See Tishman Co. v. Carney & Del Guidice, 34 N.Y.2d 941, 316 N.E.2d 875 (1974); S.S.D.W. Co. v. Brisk Waterproofing Co., Inc., 76 N.Y.2d 228, 234-5, 556 N.E.2d 1097, 1100 (N.Y.Ct.App. 1990); Automobile Insurance Co. of Hartford v. United H.R.B. General Contractors, 876 S.W.2d 291 (Mo.App. 1994); Turner Construction Co. v. John B. Kelly Co., 442 F.Supp. 551 (E.D.Pa. 1976); McBroome-Bennett Plumbing, Inc. v. Villa France, Inc., 515 S.W.2d 32 (Tex.Cir.App. 1974). These courts and others have held that the completed structure is no longer “work” under a Builder’s Risk Policy, after final payment is made, and the waiver only applies to ongoing activities with respect to the completed structure, up to the time of final payment.
Conversely, other courts have held that the underlying policy of insurance is to be read broadly, so to insure not only the “work,” but any liability that may be placed on the contractor as a result of the work, regardless of when the loss occurs. See General Electric Co. v Zurich American Insurance Co., 952 F.Supp.18 (D.Me. 1996); Western Washington Corp. of Seventh Day Adventists v. Ferrellgas, Inc., 7 P.3d 861 (Wash.App. 2000); Baugh-Belarde Constr. Co. v. College Utilities Corp., 561 P.2d 1211 (Alaska 1977); Dyson & Co. v. Flood Engineers, Architects, Planners, Inc., 523 So.2d 756 (Fla.Dist.Ct.App. 1988); State ex rel. Regents of New Mexico State University v. Siplast Inc., 117 N.M. 738, 877 P.2d 38 (1994).
The bottom line is, if you’re faced with such an issue, do some diligent research and determine how your jurisdiction and the surrounding jurisdictions view this issue.
Feel free to contact Robert E. Wilens (rwilens@clausen.com) for more information on AIA Subrogation Waivers.
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