Colorado Appeals Court Holds that AIA Contract Waiver of Subrogation Extends to “Non-Work” as Well as “Work”

Copper Mountain, Inc. v. Industrial Systems, Inc.
2007 Colo. App. LEXIS 2298 (Colo. App. Ct. Nov. 29, 2007)

Copper Mountain, Inc. hired Amako Resort Construction, Inc. as the general contractor to renovate and expand a mountain resort lodge. Amako subcontracted with Industrial to build the steel framework for the project. The parties signed a standard American Institute of Architects (AIA A201) contracts, which required Copper to obtain property insurance to cover damages for the work. To comply with this requirement, Copper relied on its all-purpose insurance policy that provided coverage for all of Copper Mountain, including the work and adjacent properties, instead of purchasing separate insurance policy, which would cover only the expansion and renovation work.

In addition, the AIA contract included standard waiver of liability provisions. Specifically, the waiver of subrogation provision provided that “[Copper] and [Amako] waive[d] all rights against each other and any of their subcontractors…for damages caused by fire…to the extent covered by property insurance obtained pursuant to [the contract] or other property insurance applicable to the Work.”

A fire started while Industrial was welding, damaging portions of the existing lodge. Copper sued Amako for the damages. Amako and Industrial asserted that the waiver of subrogation clause barred Copper’s claim. Copper, however, argued that the waiver provisions did not bar its claims for damages to the non-work portions of the lodge destroyed by the fire. Relying on the contract’s plain language, the court held that the waiver of subrogation provision was not limited to damages to the work, but extended to non-work portions of the lodge as well.

The court provided three reasons for its holding. First, the language of the waiver provision did not define waived claims according to the property that was harmed, but by the policy of insurance “applicable to the Work” that would pay for the damage. Additionally, under the contract, Copper could have purchased an “all risk” policy, which would have limited its protection to the work. Copper, however, chose to rely on its existing insurance policy, which covered the work and adjacent property. Finally, the court noted that other provisions in the contract demonstrated that the parties intended to waive claims for damages beyond those defined by the work. Specifically, another waiver clause provided that if Copper insured property separate from the project that was located “at or adjacent to the site,” claims for damages to that property would also be waived.

Because Copper chose to rely on its existing insurance policy that covered both work and other damaged areas, Copper and its insurer waived the right to sue for damages caused by the fire, including damages to the non-work portions of the lodge. The Court noted that although there was a split of authority on the question, its holding was consistent with the majority of courts which had considered the issue of the scope of the waiver.

Click here to view full opinion as PDF (provided with the permission of LexisNexis).

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