The Subrogation Strategist

On its face, the power of a waiver of subrogation clause in a construction contract is profound. It bars otherwise actionable – and sometimes egregious – losses resulting from contractor carelessness before they can ever get started. One question courts have long battled with is the limits to the lasting effects of such a waiver. Whether the waiver power can be transferred amongst parties, applied to third parties or used with policies taken out after construction completion are among the few grey areas that have kept subrogation practitioners and the courts busy. Recently, a federal court in Idaho clarified its position on the power to waive subrogation.  

In Seneca Ins. Co. v. McAlvain Constr., Inc., No. 1:24-cv-00340-BLW, 2025 U.S. Dist. LEXIS 251777 (D. Idaho), the United States District Court for the District of Idaho (District Court) addressed whether a subrogation waiver in an AIA construction contract, signed between an owner and the general contractor, applied to the subsequent owner of a building. In doing so, the court looked at the limiting language of the waiver as well as the contractual posture of the subsequent owner. Ultimately, the court found the waiver inapplicable, denying the motion for summary judgment of Defendant, Cross-Plaintiff McAlvain Construction, Inc. (McAlvain).  

The subject case arises out of a large-scale construction project to build an eight-story apartment building known as “The Vanguard.” McAlvain was the general contractor for the project and the original owner was 600 Vanguard, LLC (600 Vanguard). The building was completed in March of 2022. In May of 2021, 600 Vanguard agreed to sell the building to Concord Capital Partners, LLC (Concord), agreeing to close on April 23, 2022. The City of Boise issued a Certificate of Occupancy for the building on March 25, 2022, and Concord assigned its rights in the sale agreement to Baron Equities, Inc. (Baron) on April 4, 2022. Baron purchased commercial property insurance for the building with Seneca Insurance, which it renewed to last until May 26, 2024. In January of 2024, a fire suppression water line froze and burst, causing significant property damage in the building.

Pursuant to its policy with Baron, Seneca paid for the subject property damage. In July of 2024, it sued McAlvain and numerous other construction defendants, including subcontractors Shilo Automatic Sprinkler, Inc. (Shilo) and Builder Services Group, Inc. (BSG). McAlvain filed a motion for summary judgment and Shilo and BSG joined the motion.

McAlvain argued that the case should be dismissed since Baron was restricted to the waiver of subrogation that was in the original contract with 600 Vanguard. Seneca argued that the policy for Baron was not a builder’s risk policy and was not intended to replace the coverage maintained by 600 Vanguard during construction. The court found the plaintiff’s argument persuasive.

The court noted that the waiver of subrogation was only applicable to post-construction losses where there was an obligation to procure such post-construction coverage initially. Since there was no such obligation here, the waiver did not extend to post-loss coverage. The court also found that the phrase “other property insurance applicable to the Project” was not broad enough to include any property policy, let alone one taken out by a subsequent owner.

The holding in this case is a big win for subrogation practitioners in Idaho. While the strength of an AIA subrogation waiver is mighty, limiting its reach is important. Here, the waiver is at least neutered for claims and policies taking place once property construction is complete. All should be cautioned, and this court even mentions in its opinion, that several states have held differently on similar issues. Thus, it is important to know the law of the state of a particular loss. If this case gives any direction though, it is that if there is a gray area on current legal standing, it may be worth challenging.