Property Damage, Property Insurance and Reinforcing the Waiver of Subrogation

By AIA Contract Documents

August 30, 2022

Waiver of subrogation clauses have long been a part of construction contracts—and, as a result, the subject of case law.

A waiver of subrogation is a provision that often prevents one party’s insurance carrier from pursuing a claim against another party to recover for losses paid on a covered claim. The purpose and value of a waiver of subrogation has been spotlighted in recent case law.

The 2022 case of 2700 Bohn Motor, LLC v. F.H. Myers Construction Corp. (La. App. 4 Cir. 4/20/2022) is a recent case that considers the interplay of key provisions, such as key insurance requirements and waivers of subrogation, found in the AIA Contract Documents’ flagship A201, and related general conditions documents.

In the case of Bohn Motor, a fire occurred during the restoration of the old Bohn Motor Company automobile dealership in New Orleans. The building owner and its property insurers brought an action against the general contractor and subcontractors to recover for damages from the fire covered by the builder’s risk insurance.

However, the building owner and general contractor had agreed to a mutual waiver of subrogation found in the standard-form AIA Contract Document. Under this contract, the contracting parties waived “all rights” against “each other and any of their subcontractors, sub-subcontractors, agents and employees.”

The appellate court affirmed the trial court’s grant of summary judgment to the contractor and subcontractors, concluding that the claims of the owner and insurer were barred by the waiver of subrogation clause in the construction contract between owner and general contractor.

Waivers of subrogation have long been a part of AIA Contract Documents with good reason. These waiver of subrogation clauses shift the ultimate risk of loss resulting from perils such as fire to the insurer. The AIA Contract Documents’ waiver of subrogation clause is designed to avoid disruption during construction, and eliminate litigation among the project participant, by having the contracting parties look only to the property insurance for protection for an insured loss. Often, the expense of litigation and resulting award of damages would have a catastrophic financial impact on the project participants. On the other hand, the insurance carrier can spread the burden of the risk across thousands of construction projects and the policy premiums.

The concept of including an express waiver of subrogation as part of the property insurance provisions was first introduced in the 1958 edition of A201. Since that time, the express Waiver of Subrogation has been included in every edition of the AIA Contract Documents’ General Conditions. In fact, the AIA Contract Documents have a long history of using existing insurance products to address project risks, and to utilize established contract provisions, like the waiver of subrogation, to minimize claims among the parties that might impede progress of the work.

It’s worth noting that the ConsensusDocs documents and EJCDC documents include similar waiver of subrogation frameworks. The trade associations all agree that the property insurance and waiver of subrogation approach, first adopted by AIA, is the best mechanism for fairly allocating the risks addressed.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.