What is a Non-Waiver Agreement?
A non-waiver agreement (sometimes known as a "non-waiver provision") is an agreement or a clause in a contract that indicates that by signing or entering into the contract, the parties are not waiving any and all of their rights and/or remedies under the contract and/or under the applicable law. Of course, under some circumstances, such a waiver may in fact take place if the parties’ actions appear to support such a finding, but under a non-waiver agreement, the parties agree that the fact that such a waiver occurs will not be used against any of the parties.
The purpose of a non-waiver agreement is often to preserve each party’s rights and/or remedies despite the other party’s breach of the contract. For example, in most instances, in the case of a material breach of a contract, the innocent party may be entitled to breach of contract damages. However, the parties may want to enter into a non-waiver agreement to indicate that if, in the future, the other party commits another material breach of the contract, the non-breaching party may still be entitled to breach of contract damages .
A non-waiver agreement is similar to a waiver, but a waiver is the voluntary relinquishment of a known right (which need not be in writing), effectively giving up the waiver’s potential benefit. "Non-waiver" preserves all rights and defenses, while still possibly preserving the benefit of a waiver.
Non-waiver agreements or clauses are generally included in contracts with a potential to be breached frequently. These non-waiver agreements are wise to have since they may help to ward off a party asserting a waiver of all of its rights under a prior breach.
For example, in a contract for the sale of a car, a non-waiver provision would indicate that if the buyer were late in making payments on the car note, this failure to make timely payments would not constitute a waiver by the seller of the right to repossess the car due to a future late payment.
Essentials of Non-Waiver Agreements
While the specifics of every non-waiver agreement may differ, there are several key elements that are essential to an enforceable agreement. To avoid any later invalidation of the agreement, clear and specific language should be used. Both parties to the agreement must clearly understand what rights, responsibilities and liabilities are being granted or withheld under the agreement.
Elements of the non-waiver agreement include:
• Identification – Each non-waiver agreement should identify the parties involved in the agreement, the insurance policies that are subject to the non-waiver clause, and the applicable dates of coverage.
• Specificity – A non-waiver agreement should be narrowly defined to cover only the precise subject matter and time frame. Non-waiver agreements that are overbroad or ambiguous are more likely to be set aside by a court. For example, it is not acceptable to issue a non-waiver agreement on an entire policy for the entire duration of the policy term.
• Conditions – Non-waiver agreements should identify the conditions that must be met by the insured for the agreement to remain in effect. Conditions can include payment of premiums as they become due, timely furnishing of any requested documents associated with a claim, keeping the insurer apprised of change in residence, and the fact that payment of the claim amount will not prejudice the rights of the insurer if its liability is later found to be dependent upon facts other than those already disclosed.
• Reservation of Rights – Non-waiver agreements do not require a reservation of rights however it is advisable to include a reservation of rights. Non-waiver agreements are more frequently held to be unenforceable where there was not a reservation of rights. The more detailed the reservation of rights, the better the likelihood that the scope of the non-waiver agreement will be upheld if challenged.
• Right to Defend – Non-waiver agreements should reserve the right of the insurer to provide a defense to the insured for the subject claim but reserve the right to deny liability of the insured for indemnification (if applicable). A failure to reserve a right to defend may result in unavoidable liability for costs and expenses (even if the amount being paid is less than the applicable policy limits).
• Reservation – A non-waiver agreement should reserve the right of the insurer to withdraw or modify the non-waiver agreement. A non-waiver agreement should also explicitly state that the entrance into the agreement does not trigger the insurers duty to defend. Depending on the claims obligations, a non-waiver agreement that contains a detailed reservation of rights can obviate any alleged waiver of coverage that results from an insurer providing a defense.
A non-waiver agreement is preferable to reservation of rights letters in certain situations.
How a Non-Waiver Agreement Benefits You
In the context of an insurance claim or a lawsuit, a non-waiver agreement can not only afford protection to an insurer that otherwise might be waived, but also can afford such protection to an insured. Such protection is most commonly sought by an insurer when it wants to reserve its right to later deny coverage causes of action asserted in the lawsuit by the insured, or to contest coverage for a claim. Most non-waiver agreements provide that the parties agree that nothing in the agreement shall constitute a waiver of any party’s rights with respect to the applicability of certain policy exclusions to the claim. So, how does such an agreement afford protection to an insured? Imagine this scenario: An insurer has provisionally accepted liability for its insured’s claims, but under a reservation of rights pending the completion of its investigation. During the course of its investigation, the insurer does not dispute coverage and issues a check that fully compensates the insured. The insured cashes the check. After an adjusted damages settlement is obtained, the insured sues the insurer for bad faith. At that point, the insurer may be in a position to argue that, by accepting (and cashing) the settlement check, the insured waived its right to later contest the adequacy of the insurer’s coverage position. If the insurer also can argue that the insured’s act of cashing the check constituted a general release, the insured may be left to his, her or its own devices to defeat the insurer’s ability to rely on the release as a bar to its bad faith action. In effect, non-waiver agreements afford the parties a "placeholder" for later litigation. By agreeing at the outset that nothing in the non-waiver agreement shall constitute a waiver of the respective parties’ rights, they can reserve their arguments for trial or settlement. Thus, the parties gain clarity up front without necessarily limiting the claims available to them later.
Typical Situations and Examples
Non-waiver agreements can be found in a multitude of contexts, and there are several common use cases. Below, we discuss some of these scenarios, from the perspective of both parties involved. The classic example is the extension of a interest rate lock, which is understood to carry with it the risk that the original terms were left open and the extension will be deemed a commitment to those terms in the event it is not included in the documents. So it is not unusual for extension requests to be accompanied by a non-waiver agreement from the lender. This is particularly true where an extension request follows an unsuccessful negotiation of definitive documents. In a similar vein, it is common for lenders to accept amended financial statements after closing, either as part of a deficiency notice or on an ongoing basis (as may happen, for example, with an operating line of credit). While the borrower is likely to view any new financial information as having previously been provided to the lender, the lender may perceive it as a post-closing "fix" to an unclosed deficiency and insist on a non-waiver. In an acquisition, a non-waiver agreement may be used to correct the timing of closing. For example, if the buyer wishes to take possession of the target’s assets before the closing of the acquisition, it is customary for the seller to ask the buyer for a non-waiver agreement. This is to protect the seller against claims on the buyer’s post-closing obligations (including recycling of environmental contaminants) that prophylactic actions during a period of pre-closing possession might have prevented. Tax indemnity is another area where non-waiver agreements are frequently used. It is a common occurrence that in connection with the closing of a transaction, the purchaser may be indemnifying the vendor for various known or unknown tax liabilities that are related to the transaction but do not or might not occur until after the closing date. These indemnities may also include undertakings related to filings, disclosures or fees associated with taxes. Stock exchanges also use non-waiver agreements regularly, even if the parties are not otherwise contracting with one another. In circumstances where securities laws require a disclosure to be made about business or property, the stock exchange often requires the issuer to sign a non-waiver agreement excluding the exchange from liability arising from the issuers disclosure of the issue. In addition to the above examples, non-waiver agreements are often used in various other situations depending on the relevant circumstances. For example, they are frequently used in time and cost-sensitive situations where, the parties would rather proceed without further delay than argue over formalities or entitlements.
Creating a Non-Waiver Agreement: Top Tips
The drafting of a non-waiver agreement should be done with careful attention to detail. If not sufficiently specific, the agreement could impact the entire contract. For example, parties will often incorporate a non-waiver agreement or provision into a construction contract in order to eliminate waivers attributed to the completion of punch list items. However, to be effective, the contract must expressly limit the scope of the waiver to only those punch list items pertaining to the project at hand. Otherwise, courts have enforced non-waiver agreements that impact all existing and future contracts. Also, by referencing a single previous project and its potential impact on a third project, courts may broaden the scope of the non-waiver agreement or hold it inapplicable altogether.
The best non-waiver agreements are limited to the actual circumstances affecting the parties and include clear language as to what is being preserved. If a confident position can be taken without further investigation in future claims , one should be taken. Failures to pay for prior services and other potential lien rights are usually waived unless expressly mentioned otherwise. A non-waiver agreement is frequently used to accelerate the progress of work on a project. Often, the agreement states that the work must be done within 30, 60, or 90 days after its execution or the agreement is void. Because many contracts with customers have time is of the essence clauses, courts inspect these issues closely. The non-waiver agreement is construed as an amendment to the main contract document and is also considered a change order. A change order alters the scope of the contract in the eyes of the court, just as the original contract does. Proper scope, estimates, and legal positions should be established as early on as possible, even before executing the non-waiver agreement.
Common Mistakes for Non-Waiver Agreements
Incorporating non-waiver agreements into your policy must be done with care. The main challenge is that, no matter how carefully one writes the non-waiver agreement, it may still be subject to unrelated state law of what constitutes a waiver. It is also subject to statutory limits on the types of provisions states might find to be non-compliant with their states’ statutory requirements.
One of the most common mistakes in non-waiver agreements (whether in auto policies or anywhere else) is the use of ambiguous language or imprecise definitions. Such ambiguity renders the non-waiver agreement vulnerable to a state challenge on a state-by-state basis. While insurers cannot control what states require, they can be careful to draft precise and accurate non-waiver agreements so that the agreements at least do not make a problem worse.
A state might also find an application of the non-waiver agreement to be inconsistent with the policy, and possibly impose liability on the insurer despite the non-waiver agreement. For example, an insurer in New York had a non-waiver agreement that contained a provision stating that the insurance company’s "liability will not be diminished because of [the insured’s] admission of liability or any other such conduct." The New York Court of Appeals found this language to contradict New York’s Accident and Health Insurance Regulation 62.2(c)(1), which prohibits all policy clauses that would act to relieve an insured from the consequences of his or her conduct.
Putting Non-Waiver Agreements into Action
Non-waiver agreements can be interpreted and enforced by a court. If, on the other hand, an insurance policy has a provision that seeks to disallow oral waivers, then a court is unlikely to interpret the policy to allow for a non-waiver agreement. That is to say, a court is less likely to interpret an insurance policy to allow the insurer to reach an agreement with an insured that it would otherwise be barred from entering into by virtue of the policy language. Thus, if a policy contains language that denies the right to oral waiver, a non-waiver agreement is less likely to be upheld in a court of law.
Courts have held that in order for a non-waiver agreement to be enforceable , the non-waiver form must contain the following elements: (1) clear expression of intent to waive any right under the policy; (2) must be executed by a person who has the capacity to waive the rights of both himself and the party for whom he is acting (if he is acting as agent for another); (3) must be executed at a time when insurance company has had complete knowledge of all the material facts and circumstances relative to extent and measure of liability; (4) by the express terms of the agreement, must only operate to relieve the insurer from prejudice that might have existed if the insured had not signed the non-waiver agreement; and (5) must clearly state its objective, scope and purpose as to limit it to specific acts.