Does a construction contract damage waiver apply when insurance doesn't cover the work? Hemingway v. Construction By Design Corporation Explained

In Hemingway v. Construction By Design Corporation, the Utah Court of Appeals addressed a critical issue in construction law: when does a contractual damages waiver apply in insurance subrogation cases?

Background and Facts

The Hemingways hired Anderson to remodel their kitchen and sun room under a written agreement. Article 12.1 required the Hemingways to purchase property insurance covering “the entire Work” including the interests of both parties and subcontractors. Article 12.4 contained a waiver stating both parties waived rights against each other “for damages caused by fire or other perils to the extent covered by insurance provided under this Article.” When a fire occurred during construction, the Hemingways’ Liberty Mutual policy paid $532,370 for damage to the existing home but denied coverage for damage to the work itself. Liberty Mutual then brought a subrogation claim against Anderson.

Key Legal Issues

The district court granted summary judgment for Anderson, applying the “source of coverage” approach which broadly interprets damage waivers to cover all damages paid by any insurance policy used to satisfy the contract’s insurance requirements. The Hemingways argued the waiver didn’t apply because their preexisting homeowners’ policy didn’t actually cover the work as required by Article 12.1.

Court’s Analysis and Holding

The Court of Appeals reversed, holding that the contractual waiver only applies if the insurance policy actually covers the work specified in the contract. The court noted that both the majority “source of coverage” and minority “type of damages” approaches require that the insurance policy cover the work itself. Since there was a disputed question whether the Liberty Mutual policy covered Anderson’s work, summary judgment was inappropriate.

Practice Implications

This decision clarifies that construction contract damage waivers are not blanket shields against liability. The waiver’s scope is tied directly to the insurance coverage actually obtained under the contract’s requirements. Practitioners should carefully examine whether insurance policies actually cover the work being performed, as waivers cannot extend beyond the coverage contemplated by the contract’s insurance provisions. The court also noted this issue of first impression regarding which interpretive approach Utah should adopt remains unresolved.