Widely accepted AIA contract provisions help to decide a complicated commercial project case

Maryland high court weighs joint tortfeasor statute against AIA’s waiver of subrogation in a commercial project destroyed by fire

WASHINGTON – June 29, 2020- Six years ago, a massive fire destroyed an unoccupied apartment building under construction at a complex in Rockville, Maryland causing an estimated $22 million in damages. The long and complicated case concluded on May 26 when the Maryland Court of Appeals issued a ruling in the case of Gables Constr., Inc. v. Red Coats, Inc., upholding the AIA Contract Documents’ waiver of subrogation concepts, finding them to be crucial to the industry-wide risk-shifting principles adopted over the last century.  This is the first time a Maryland court has heard a case on this precise issue.

“This was a tough case as the court had to weigh the impact of Maryland’s Uniform Contribution Among Joint Tortfeasors Act (UCATA) against the waiver of subrogation found in the AIA’s standard construction contracts to ensure all parties received a fair outcome in this horrible incident,” said Howard G. Goldberg, a nationally known construction litigation attorney and principal of Goldberg & Banks, P.C. “It was critical that the court understood the importance of the waiver of subrogation and related insurance provisions found in AIA documents for decades to decide the case”.  

While the owner and contractor used modified versions of the A102, Owner/Contractor-Cost Plus Fee with GMP and A201, General Conditions AIA contracts, they retained provisions requiring that the owner purchase and maintain builder’s risk property insurance in the amount of the total cost of the project, on a replacement cost basis.  The standard contract language also required the project participants to waive all rights against each other “for damages caused by fire or other causes of loss to the extent covered by the property insurance”. These provisions included in the AIA documents are very important risk allocation tools, intended to place the risk of catastrophic loss on a compensated insurer and to avoid the time and expense of protracted multiparty litigation.

In the intermediate appellate court, the court sought to minimize the impact of the waiver of subrogation in favor of other public policy concerns addressed by the UCATA. As a result, the AIA filed an amicus (“friend of the court”) brief explaining the significance and importance of waivers of subrogation in the construction context.

“The AIA’s brief, which was endorsed by other industry trade groups, including AGC of America and the Maryland Chapter of the AGC, explained the importance of the terms of the AIA waiver of subrogation, giving weight to the history and broad industry impact of the AIA Contract Documents. This helped the court reach what I believe to be the right conclusion,” says Robert L. Ferguson, Jr., the President of Ferguson, Schetelich & Ballew, P.A and one of the attorneys representing Gables Construction.

About AIA Contract Documents

AIA Contract Documents are the nearly 200 forms and contracts that define the relationships and terms involved in design and construction projects. Prepared by the AIA with the consensus of owners, contractors, attorneys, architects, engineers, and others, the documents have been finely tuned during their 132-year history. As a result, these comprehensive contracts and forms are now widely recognized as the industry standard. Used by all industry professionals, including architects, contractors, owners, consultants, and attorneys, AIA Contract Documents are organized into two categories: by families, based on types of projects or particular project delivery methods, and by series, based on the parties to the agreement or the use of the form. Visit aiacontracts.org.

About AIA

Founded in 1857, AIA consistently works to create more valuable, healthy, secure, and sustainable buildings, neighborhoods, and communities. Through more than 200 international, state and local chapters, AIA advocates for public policies that promote economic vitality and public wellbeing.

AIA provides members with tools and resources to assist them in their careers and business as well as engaging civic and government leaders and the public to find solutions to pressing issues facing our communities, institutions, nation, and world. Members adhere to a code of ethics and conduct to ensure the highest professional standards.

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