Revising Construction AIA Contracts and Effective Risk Transfer: Waivers of Subrogation and Builder's Risk Policies

Description

Waiver of subrogation provisions in standard boilerplate language in the AIA Form in their simplest form provide that the parties waive their rights to sue each other for losses covered by their insurance. Although it may seem straightforward, there are several potential pitfalls that counsel and parties should consider when negotiating their contract.

Waiver of subrogation clauses often require that the parties obtain their insurers' consent; a failure to do so can lead to a denial of the claim by the insurance policies themselves. Some boilerplate provisions limit the scope of the waiver and the definition of "work" that can limit the types of losses covered. Where a project involves repair or renovation of an existing structure, a dispute can arise as to whether damage to existing or adjacent property is part of the "work."

The drafting, review, and approval of insurance provisions in construction contracts is either limited to the use of boilerplate language found in AIA Forms, delegated to non-lawyers, or ignored. Other times, the parties insert boilerplate language, such as the language found in an AIA Form, without considering how that language might impact the particular project. As with other construction contract provisions, while the AIA Forms can provide a good starting point, the parties should not accept insurance provisions without understanding how these clauses will operate.

These pitfalls highlight why contracting parties should not simply accept boilerplate AIA subrogation and insurance provisions without carefully considering how they might impact the project.

Listen as our expert panel reviews and advises on each of these provisions and discusses how these provisions can help ensure that all parties effectively minimize and shift the risk to the intended parties and their insurers.