Most of us in the construction industry are familiar with contractual provisions which require one of the parties to obtain insurance on the project (frequently called “builder’s risk” policies). These provisions are typically accompanied by “waiver of subrogation” provisions. Usually, if everything goes well on a construction project, these provisions don’t ever come up for discussion. However, in the event there is an accident during the course of construction, these provisions can be critical for purposes of allocating risks and potentially protecting a contractor or its subcontractors from liability.

How do these provisions work?

Typically, a construction contract will require the owner (or the contractor) to obtain property insurance to protect the project during the course of construction. For example, the standard AIA General Conditions require the owner to “purchase and maintain property insurance upon the entire work at the site to the full insurable value thereof.” This insurance is to include the interests of the owner, the contractor and all subcontractors. In short, the insurance is intended to protect the project against all “perils” and is generally intended to provide protection for everyone involved in the work.

A “Waiver of Subrogation” provision is typically designed to prevent an insurance company from asserting claims against the party who may have been responsible for causing damage to the property. Thus, if the project is damaged during construction and the insurance company is forced to pay for the damage, the insurance company is prohibited from asserting claims against the contractor or its subcontractors or others who may have been responsible for the damage.

Florida Law

A significant Florida case dealing with these provisions is Insurance Co. of N. America v. E.L. Nezeleck, Inc., 480 So.2d 1333 (Fla. 4th DCA 1986). In that case, the contractor was hired to construct an addition to a clubhouse. Near the conclusion of the work, a fire caused significant damage to the structure. After paying proceeds for the damage, the owner’s property insurance carrier brought suit against the contractor, claiming that the damage was caused by the contractor’s negligence.

The insurance carrier was trying to recover the amount that it paid in insurance from the party responsible for causing the damage (this is called a “subrogation” claim). The court, however, determined that the contractor was a beneficiary of the contractual provision which required the owner to carry insurance. Further, the court stated that the waiver of subrogation provision was intended to prevent the insurance company from asserting claims against the contractor.

Consequently, even if the contractor’s negligence caused the fire, the contractor was protected by the insurance and could not be forced to compensate the owner or the insurance company for the damages. The same provisions can also provide protection to subcontractors who may accidentally cause damage during the course of construction.

Practice Pointer

For those involved in a construction project, these contractual provisions can provide a significant measure of protection in the event of accidents which occur during construction. Accordingly, it is important to review your construction contract at the outset, along with the requirements for insurance on the project, to make sure that you are properly protected.

Similarly, if a claim has been asserted against your company based upon damage caused during the course of construction, it is probably worth checking to see if the damage is covered by contractually required insurance.

If you should have any questions or need assistance preparing a construction contract, please feel free to contact me at or by phone at 239-344-1165.