The AIA Standard Form of Agreement Between Owner and Contractor (A101-1987) and accompanying General Conditions (A201-1987) include a waiver of subrogation provision under which the owner and contractor waive all subrogation rights “for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 11.3 or other property insurance applicable to the Work….” Board of Commissioners of Jefferson County v. Teton Corp., 30 N.E.3d 711 (Ind. 2015) presented the issue of whether this waiver extends only to construction-related damages, or to all damages unrelated to repairs. In a case of first impression, the Indiana Supreme Court adopted the majority view that the broad waiver extends to non-work property, abrogating the holdings of two prior Court of Appeals decisions.
In 2008, Jefferson County awarded a contract to Teton Corporation for the first phase of a plan to remodel the county courthouse. The contract was for repairs to the roof, flashing, gutters and downspouts. Teton hired a subcontractor for the roof repairs, which in turn hired a second tier subcontractor. The AIA Contract gave the county the option of obtaining builders-risk insurance to cover the renovation work, or rely on an existing “all-risk” policy to cover the entire courthouse, including the renovations. The county elected to rely on its existing policy.
In May 2009, a fire began while the sub-subcontractor was soldering copper downspouts near the wood frame of the courthouse, much of which was destroyed by the fire. The damages were far in excess of the remodeling costs. After the county’s all-risk insurer paid for the damages, a subrogation lawsuit was filed against Teton and its subcontractors. The defendants argued that the subrogation waiver provision in the AIA Contract covered all the damages. The county contended that it waived subrogation rights only for damages to the work, not non-work property. The trial court granted summary judgment in favor of the defendants. The Court of Appeals affirmed in a split decision, in which the dissenting judge argued that Indiana should apply the “work versus non-work” approach reflected in recent decisions.
In deciding the case and affirming the grant of summary judgment, the Indiana Supreme Court noted that this was a case of first impression for the court, and that prior Indiana cases mirrored a national split of authority on the scope of the waiver. The court began its analysis with the waiver provision, the plain meaning of which defined the scope of the waiver by the source and extent of insurance coverage, not by the property damaged. The waiver applies to all damages caused by the fire, to the extent covered by property insurance obtained under the AIA Contract or other property insurance applicable to the work.
To determine what damages are covered by the waiver, the court looked to what followed the phrase “to the extent.” Because the county elected to rely on its existing coverage, which was other property insurance applicable to the work, if property damage of any sort is covered the waiver applies. This is true even though the scope of the insurance required by the AIA Contract is narrower than the broad scope of the waiver provision.
In summary, the court adopted “the ‘any insurance’ approach to the AIA waiver because it reflects the plain and unambiguous meaning of the contract – that as long as a property owner’s damages are covered by any property insurance policy used to insure construction-related damages (i.e., the work), the waiver applies to all damages.” Citing cases from other jurisdictions, the court explained that the “any insurance” approach is the majority view. Prior Indiana decisions applying the “work versus non-work” approach to the issue were abrogated.