Waiving the Right to Sue

Contractors and owners should beware of - or be prepared to take advantage of - powerful American Institute of Architects (AIA) contract language waiving the right to sue for certain construction claims.

The AIA A201 General Conditions of Contract have long contained a provision by which the owner and contractor waive the right to sue one another and virtually all other parties to the construction project for many problems that could occur on the project, as long as the harm that occurred is covered by insurance. Paragraph 11.4.7 of the 1997 edition and paragraph 11.3.7 of the 1987 edition of the A201 provides as follows:

The Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees of each other, and (2) the Architect, Architect's consultants . for damages caused by fire or other causes of loss to the extent covered by property insurance ... .

The purpose of the clause is, in part, to ensure that construction work proceeds on schedule, without interruption by lawsuits or claims negotiations. The parties are to accept the insurance payment and move on to completion. The AIA contracts require the insurance to be maintained in place "until final payment" or "until no person or entity other than the Owner has an insurable interest in the property." [See, e.g., 11.4.1, A201-1997 edition] Most argue that the waiver of the right to sue remains in place for the same time period.

This "fine-print" term is almost never negotiated or even considered in contract document formation. Why not? In short, if a problem occurs during construction and it is covered by insurance, the parties to the AIA agreement have little or no incentive to pursue claims against the company that caused the loss.

In certain cases this often-overlooked contract provision can be a powerful tool for a project participant who has been accused of causing a loss. Occasionally, a casualty loss will occur shortly after completion of the project, at a time when the construction contract has been, for practical purposes, fully completed. In such a case, the insurance company will routinely pursue the negligent party - contractor, architect or engineer - to recover the paid-out insurance benefits. The insurance companies argue that the AIA waiver of claims provision shouldn't apply in such a case, since the purpose of the waiver is to make sure that if something went wrong during construction, the project...