AIA Waiver Of Subrogation Enforced After Project Completion

Contractors and Design Professionals are often sued for losses arising out of casualties long after their work is completed.  For example, a fire loss may result in payment by the owner’s insurer to the owner.  The insurer then files a subrogation action to recover its payment.  The action is filed against alleged wrongdoers such as contractors or design professionals.

AIA A101 1987 Standard Form of Agreement Between Owner and Contractor and A201 1987 General Conditions of the Contract for Construction contain Waiver of Subrogation clauses in the General Conditions.  

In TX. C.C., Inc. v. Wilson/Barnes General Contractors, 233 S.W.3d 562 (Texas App. Aug. 28, 2007), the court tackled the issue of whether 

a subrogation action arising four years after completion of the project was barred by the waiver of subrogation clauses.  The court enforced the clauses and affirmed dismissal of the case.

The court reasoned that the contract waived fire damage covered by property insurance applicable to the work, with “work” defined as the construction services required by the contract documents, whether completed or partially completed.  The court also considered public policy underlying construction waivers.  Their purpose extends beyond the construction period.  By having all the contracting parties look solely to any insurance coverage maintained by the owner post-construction in the event of loss, subrogation waivers continue to ensure economic relations are preserved, risks are anticipated, proper insurance protection obtained, and also continue to afford the contracting parties certainty as to liability.

Please contact Jim Hoey at jhoey@clausen.com if you would like a copy of this decision.