Standard Waiver of Subrogation Contract Language is Vague as to Duration
(September 2010) By Gregory L. Arbogast
For more information, contact Paul Farquharson.
John L. Mattingly Constr. Co. v. Hartford Ins. Co.,
No. 144 (Md. July 27, 2010)
In this contract case the seminal issue centered around the
interpretation of a form construction contract written by the AIA. In John L.
Mattingly Constr. Co. v. Hartford Ins. Co., the Maryland Court of Appeals found
the waiver of subrogation clause in that contract to be ambiguous as to whether
or not the waiver ends when the builder completes construction. Therefore, the
Court of Appeals remanded the case back to the Circuit Court of Calvert County
to hold a trial on the temporal ending of the waiver clause.
In this case, K.B.K., Inc. ("K.B.K") hired John L.
Mattingly Construction Co., Inc. ("Mattingly") to build an Arby's restaurant.
The two parties signed a form contract drafted by the AIA. That contract
contained a clause in which each party waived its right of subrogation for all
claims arising out of the construction. It also mandated that K.B.K. acquire
insurance to cover all losses on the property "arising out of the work." Over a
year after Mattingly completed construction, the Arby's caught fire. K.B.K.'s
insurance company, Hartford Underwriters Ins. Co. ("Hartford"), filed suit
against Mattingly alleging, among other claims, negligence. The Circuit Court of
Calvert County dismissed the case on Summary Judgment, claiming that the
contract between K.B.K. and Mattingly unambiguously waived K.B.K.'s right of
subrogation for all claims, including claims that arose after the completion of
the construction. The Court of Special Appeals reversed and remanded. Mattingly
appealed the Court of Special Appeal's decision to the Court of Appeals.
The Court of Appeals examined the waiver of subrogation
clause to determine whether the language of the contract was unambiguous.
That clause required K.B.K. to purchase insurance that covered all of "the
work" performed by the builders. The contract defined "the work" as:
The construction and services required by the Contract
Documents, whether completed or partially completed...The work may
constitute the whole or a part of the project.
Using this definition, the Court of Appeals found that
the first phrase, "construction and services required," clearly restricted
the definition of "the work" to the time before construction was completed.
However, the Court of Appeals found that the second phrase, "whether
completed or partially completed," appears to extend the definition of "the
work" beyond the completion of construction. The Court then found that the
second sentence, "The work may constitute the whole or part of the project,"
could be reasonably construed either way. Therefore, due to the internal
inconsistency of the definition, the Court of Appeals affirmed the Court of
Special Appeal's decision and remanded the case to the trial court.
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