The Subrogation Strategist

Investigating construction related claims involves more than just figuring out who is at fault. Construction contracts are often full of liability limiting provisions meant to allocate risk among the parties. A prime example is the consequential damages waiver provision, a clause that limits or waives a party’s ability to recover certain losses that do not flow directly from a breach of contract. In the construction context, consequential damages can include lost profits, loss of use, and financing costs. In contrast, direct damages are the immediate costs incurred to correct defective work or complete unfinished work. But what happens when the contract does not clearly define what those damages are? A court addressed this issue in Vista Holdings, LLC v. BSB Design, Inc., No. 7:24-cv-822, 2025 U.S. Dist. LEXIS 134486 (W.D. Va.) (“Vista Holdings”), where a federal judge in Virginia considered a contract dispute involving conflicting interpretations of a waiver of consequential damages provision. The parties disagreed both on the scope of the waiver and whether the damages claimed were consequential or direct.  

In Vista Holdings, a real estate developer hired an architectural firm to provide design services and, separately, retained a general contractor for construction. Both contracts contained waiver of consequential damages provisions. According to the developer, after the architect submitted the drawings, the Town of Blacksburg, required the relocation of the sanitary lines. As a result, the general contractor installed the sanitary lines in the original, incorrect location, which later had to be removed and reinstalled causing significant delays and increased costs. 

The developer sued the architect for breach of contract, seeking damages related to project delays. These included monetary losses associated with extending its builders risk insurance, mortgage insurance premiums, loan obligations and lost rental income. In response, the architect filed an answer and a third-party complaint against its engineering subcontractor who the architect hired to provide design drawings and construction administration services.

The architect argued that the architectural contract incorporated the broader consequential damage waiver in the contract for construction with the general contractor and that most of the developer’s claimed damages were not recoverable under the general contract’s consequential damage waiver provision. In turn, the developer filed a motion for partial summary judgment or alternatively, a judgment on the pleadings, seeking an early ruling on the scope of the consequential damage waiver.

The court addressed whether consequential damages were a “term” incorporated in the architectural contract by § 10.2 of AIA Document A201-2007, General Conditions for the Contract for Construction (“General Conditions”). The court found that since "consequential damages" is a legal concept and not a defined term in the construction contract, the broader waiver in the general contract was not incorporated by General Conditions. The court reasoned that a broader interpretation of the “terms” would improperly incorporate the entire construction contract into the architect’s agreement and render portions of the architectural contract meaningless. With respect to determining which damages were direct versus consequential, the court held that the case was still at the pleadings stage and, thus, this issue was premature for judgment.

For subrogation professionals, the Vista Holdings case is a reminder that recovery potential for construction related claims doesn’t just depend on proving liability. Contract provisions such as broad waivers of consequential damages can limit recovery. Spotting whether a consequential damages waiver exists early on can help a subrogation professional strategize and set realistic recovery expectations from the start.