The Mechanics of a Non-Waiver Agreement
Non-waiver agreements are ways to protect the parties’ contractual rights despite their actions showing a potential waiver. With a non-waiver agreement, in spite of what the parties may actually do, the court can still give effect to the parties’ intent and hold them to their agreements.
Non-waiver agreements have been used for many decades in collecting cases. Courts have said that these non-waiver agreements in the use of footnotes in their opinions to explain how a collection creditor has decided to work with a consumer, notwithstanding the consumer’s legal rights. In other words, collection lawyers understand that if they do certain things, they can let the consumer go about their business and still collect on the debt. Courts are interested in upholding the parties’ agreement and intent. That is the value and benefit of a non-waiver agreement.
Even when a party has acted in a way that might ordinarily mean that they have voluntarily given up their right to enforce something , a non-waiver agreement allows that party to later change their mind about waiving their rights.
The term "non-waiver" simply means that a party has not given up its rights or claims against the other party in a contract. If the party has not given up their rights or claims, then those rights or claims are preserved for any future use. A non-waiver agreement is significant when one of the parties is trying to enforce its rights or claims against the other party. One important purpose of a non-waiver agreement is to allow a party to retain its rights while it is trying to negotiate an extension of time, or during other situations and circumstances where it would be against the party’s best interest to otherwise enforce its rights or claims.
Part of a typical non-waiver agreement says something like: "[A]s long as [one party] and [the other party] are negotiating in good faith regarding the loan, [one party] has not waived and shall not be deemed to have waived any of its rights, claims or remedies against [the other party], nor shall [one party] be deemed to have impliedly waived any rights, claims or remedies or its right to assert same at a later date."
Legal Advantages of Non-Waiver Provisions
By including a non-waiver agreement as a provision of a contract, a landlord or any other party engaging in a business transaction is letting the other party know that they are not giving up any rights or remedies, even though they may act in a way that could be considered a waiver. The law allows for the right to be reserved in a straightforward and unambiguous way. The intention of the parties must be clearly stated in order to be sure that it will be upheld in the event that the issue goes to court. This can be a separate clause or part of the same contract language.
An example of correct clause construction for a non-waiver clause would look like this: "Not withstanding anything to the contrary contained herein, the failure of either party to exercise any right or remedy within any time period set forth in this Agreement shall not constitute a waiver of the same, and all rights and remedies hereunder may be exercised at any time and from time to time. No provision of this Agreement shall be considered waived by either party unless such waiver is in writing. A waiver of a provision hereof on one occasion shall not limit in any way the rights of either party to enforce such provision in the future on any other occasion."
To be effective, the wording of the clause must indicate that the waiver is not permanent or final. It should make it clear that all rights and remedies are reserved, and that the item stated to potentially be waived still applies to all future occurrences. It prevents any accidental "slip of the tongue" from being considered a waiver of a legal right. It has been held in court that this includes all unintentional relinquishment of a right and not just conduct that if acted upon, that could be considered as a waiver. In situations where there may be a reason to feel that a retort from a company or property owner may be misinterpreted as a relinquishment of a right, a non-waiver clause or letter can be an important tool. Examples of where these documents are used often include: a landlord trying to evict a tenant who may have not made their rent payment. If there is confusion over whether a payment has been made, it is possible for the landlord to seemingly waive that right. A contractor who is late getting back to a homebuyer about warranty work. In order to try and prevent a potential lawsuit, the contractor may be lenient, and thus anyone thinks that the contractor has given up the right. Perhaps a company is not able to uphold its contract due to unforeseen circumstances outside of its control. It could try to negotiate an extension. Although functioning effectively, it is possible that any concession made could be read as a relinquishment of a right, and thus a clause or letter could prevent this from occurring. The inclusion of a non-waiver clause can benefit any party that is a part of a contract negotiation. However, it is especially beneficial to a property owner. If there is anything in the future that might be used as evidence that a right has been relinquished, this clause could be taken advantage of.
Common Uses for Non-Waiver Agreements
Non-waiver agreements are most commonly associated with insurance claims contexts, but they have a wide range of applicability across many industries and situations. Under an insurance policy, the insurer typically has no duty to pay in full for any claim that is caused by an excluded risk or that is not covered for some other reason. Nevertheless, so that the company is not forced to file a lawsuit to get even partial payment, the insurer frequently agrees to handle the claim under a non-waiver agreement. Non-waiver agreements are also prevalent outside the insurance context. For instance, a manufacturer’s supplier may provide raw materials for the manufacturer’s goods. In such case, the manufacturer may enter into a non-waiver agreement with the supplier to prevent it from asserting defenses to payment or counterclaims arising out of delays attributable to the supplier. Sometimes, a party has concerns about its prospective liability in connection with a contemplated transaction. For example, a real estate tenant may worry that the lessor will later assert that it breached the lease because the tenant initially took possession of the space before the lease was fully executed. A non-waiver agreement could be a way for the tenant to address that issue. Each of these examples illustrates how non-waiver agreements can be useful as a tool for the resolution of disputes both before and after those disputes arise.
Crafting Effective Non-Waiver Provisions
When drafting a non-waiver clause it is important to include the essential elements of waiver in the clause. These elements are:
• Knowledge of breach by the waiveror.
• Intent of the waiveror to abandon, relinquish, or surrender a known breach.
• Inaction by the waiveror resulting in prejudice to the waivor.
In order to eliminate an inclination to pretextulately construe waiver in favor of the claimed intent of some unartful drafter, a line-by-line set of preferred wording is suggested as follows:
ANY INSURANCE COMPANY, AGENT, OR OTHER PERSON SHALL NOT BE WAIVED BY, AND THIS POLICY IS NOT ALTERED BY, (i) ANY PREVIOUS EXAMINATION, OR (ii) THE ACT OR FAILURE TO ACT OF ANY INSURANCE COMPANY, AGENT OR OTHER PERSON. THIS POLICY OR ITS TERMS AND CONDITIONS ARE NOT WAIVED BY VIRTUE OF ANY PAST ACT, AGENT, OR OTHER PERSON, OR ANY AGENT’S ADMISSION OR OTHER ACT OF NEGLIGENCE, PROVIDED THAT (i) PERFORMANCE BY ANY INSURANCE COMPANY, AGENT, OR OTHER PERSON IS HEREBY WAIVED, (ii) WANING OF PERFORMANCE PLAN IS MAINTAINED DURING THE PERIOD OF _________, AND (iii) ALL RIGHTS APPROPRIATELY CONSISTENT WITH _____________________, ARE NOT ADMITTED.
A well drafted non-waiver clause may be used as a preventative tool by either individual adjusters or entire claim units for two practical reasons. First, the formal policy provisions may not fully allow the claims department to waive the formal provisions of the policy, and the department may want to exercise caution in accepting and settling open claims. Second, the adjuster and department have a strong desire to mitigate allegations of bad faith assistance at trial. A well drafted non-waiver provides the department with evidence of applying the reasonable and prudent person test on long known breaches and acts of negligence. Also, it shows that the department considered the matter dutifully, discretionary authority was exercised and both management and counsel were kept informed. The following example shows the appropriate wording for a non-waiver guiding the department against bad faith discovery and liability at trial.
Challenges and Considerations
It’s important to be aware of the potential limitations and common disputes that can arise in relation to non-waiver agreements. As with any contract, courts may need to interpret non-waiver clauses.
An example of a non-waiver clause is one that states: "Satisfaction of obligations under this agreement does not waive our right to take other action that may address any other obligation."
The intention of the non-waiver clause is to clarify that the act of satisfying one obligation (usually a material one) does not amount to a waiver of other or future obligations. The underlying aim is to clarify that something like paying an outstanding balance is not an acceptance of all terms of a contract, nor should satisfying one obligation set a precedent for future dealings.
However, a common dispute is whether the actions of a party, typically the creditor, have waived its rights to enforce terms of the agreement. The actions of the parties may show that the creditor is prepared to overlook stipulations in the agreement, thus leading to an implicit finding that the creditor has waived equal enforcement of the agreement’s terms.
Courts will sometimes refer to whether the creditor led the debtor to believe that strict performance of the contract will not be insisted on. Courts will thus look at whether the creditor’s actions amount to waiver.
An example of this situation is a mortgagee who takes possession of mortgaged property. A mortgagee may be shown to have waived a right if its conduct , such as taking possession of mortgaged property, suggests the creditor will not insist on performance in accordance with the contract, demonstrating that the creditor is willing to overlook the debtor’s inability to perform.
The exception noted by courts to the above is a condition precedent in contracts. This is because conditions precedent are usually for the benefit of the promisor, meaning such a situation is one where the promisor may waive performance and still hold the counterparty liable to any other obligations flowing from the contract.
In an industrial relations and employment law context, there are instances involving grievances in relation to post-termination payments. An employer who processes payments to an employee after termination without reservation may be seen as having waived its right to enforce terms of the contract with the employee. However, by reserving the right to enforce terms of the contract, the employer can minimize the risk of finding that its actions amount to waiver.
Other limitations can arise with non-waiver agreements as they are not often strictly enforced by an employer. For example, an employer may make a non-waiver agreement that is not reflected in its actions, pay rates or benefits offered to employees.
Case Law and Legal Precedents
Non-waiver agreements have been the subject of numerous court decisions in relation to both policyholder and insurers. For public policy considerations, the agreements have been found to be enforceable to the extent that they are clearly worded, and that the parties knowingly entered into an agreement to the applicable terms and conditions. Contractual interpretation principles apply. In Zurich insurance Co. v. Hagan, 757 So 2d 1096 (Fla., 2000), the Florida Supreme Court analyzed non-waiver agreements in detail, indicating "we believe it is a useful exercise to review the law related to non-waiver agreements because both Hagan and Zurich cite to and rely on caselaw utilizing the principle of estoppel that applies to building and construction contracts. In the context of a denial of a building and construction contract, courts have borrowed extensively from the doctrine of equitable estoppel to describe the scope of liability an insurer faces when its insured has objected to the amount of repairs." They continued that "Equitable estoppel is based on principles of fairness and preventing injury to an insured by a refusal to accept a reasonable repair of its damaged property. Under this approach, there is a significant difference between the responsibilities of (1) insurance companies to their insureds whose damaged property is not being repaired following the scope of the repair that has been agreed upon, or where the insurer refuses to provide a sufficient scope of repairs, and (2) insurance companies that are following an agreed-upon scope of repairs." At the time of entering into the non-waiver agreement, the insurer had already denied coverage. The decision highlighted the fact that the courts are inclined to enforce carefully written non-renewal or reservation of rights agreement signed by an insured. It is clear that the legal principles laid down in Zurich Insurance Co v Hagan, motivates insurers to force policyholders unwillingly to engage in repairs, while maintaining all reservations of rights, whether or not tenable, and then to deny the new construction denies. In reference to moral hazard, in the case of Oklahoma Farmers Union Mut. Ins., Co. v. McCoy, 534 P.2d 1308 (Okla. 1975), the Oklahoma Supreme Court appears to draw the opposite conclusion, emphasizing that the reason for requiring the insurance company to repair without waiving its right to deny the claim is because such repairs decrease the likelihood that insureds would deliberately cause the very problem resulting in a claim. The Florida court found that the concern of some courts about moral hazard is not a consideration under the law of Florida. For instance, if the insurer paid for repairs, the property would be restored to its previous condition, thus reducing the temptation to destroy the property. It is the viewpoint of some courts that the examination of equity in such circumstances gives rise to a new cause of action and precludes any consideration of the underlying issues of liability.
Concluding Remarks on Non-Waiver Agreements
All in all, non-waiver agreements serve a useful purpose in the construction industry. Even if they cannot guarantee that a party’s rights will not be waived or lost, they can provide useful support to parties making claims against insurers. They can discourage wrongful conduct by other parties, such as employer pressure on laborers to waive contractual rights . It is always good practice to confirm that a waiver of rights and defenses has not been made, although it may be too late when one is presented with a completed job. A non-waiver agreement is no substitute for a contract with strong terms that will protect your rights.