EFFECTIVE USE OF THE SHIELD – INDEMNIFICATION IN CONSTRUCTION CONTRACTS
EFFECTIVE USE OF THE SHIELD –
INDEMNIFICATION IN CONSTRUCTION CONTRACTS
Construction projects are breeding grounds for lawsuits. Injuries occurring on the jobsite, defect claims, warranty claims and payment disputes arise all too often in the industry. Contractors should use effectively-drafted indemnification provisions in contracts with subcontractors to shield themselves from the potential liability and costs associated with lawsuits. Indemnity is when one party, the indemnitor, compensates another party, the indemnitee, for losses or damages incurred. It is common in the construction industry for the general contractor to indemnify the owner, and subcontractors to indemnify the general contractor.
Unfortunately, many contractors believe that indemnity applies even if not contained in the contract (which is partially true) and therefore fail to include an indemnification provision in their contract with subcontractors. This is a mistake. While the law provides for non-contractual indemnification, it is limited in scope and only applies if the person seeking indemnification is completely without fault, which is difficult to prove. For instance, suppose a subcontractor is painting a home using scaffolding. The subcontractor requires its workers to use safety harnesses while on the scaffolding and the general contractor knows this. While the general contractor’s foreman is overseeing the work, he notices that none of the subcontractor’s workers are wearing their harness. He decides not to say anything to the workers about the missing harnesses and instead directs them to patch some of the paint on the other side of the scaffolding. Inevitably, one of the workers falls and is injured. Because the general contractor’s foreman failed to enforce jobsite protocol, the general contractor cannot claim to be completely without fault, and non-contractual indemnity will not protect the contractor.
General contractors are able to expand the scope of indemnification provided by a subcontractor by using a well-drafted contractual indemnification clause. (Similarly, subcontractors should use this protection when retaining sub-subcontractors.) Contractual indemnification provisions can be limited to only losses caused by the subcontractor’s own negligence, or can be expanded to include losses caused in part by the general contractor’s negligence (i.e., intermediate indemnification clause), or can even be as far reaching as to cover losses caused solely by the general contractor (i.e, broad indemnification clauses). Contractors seeking indemnity from their subcontractors need to follow a few rules to make their intermediate or broad indemnification provisions enforceable.
Include a duty to defend: Don’t just ask for indemnity, also ask for a defense. This will require the subcontractor to pay for the general contractor’s attorney from the beginning of a lawsuit. As shown in the sample included at the end of this article, the indemnification provision should use the word “defend” and also specifically reference that reasonable attorneys’ fees are included as part of the indemnity provided by the subcontractor.
No broad or intermediate form indemnity for public projects: Florida Statutes prohibit broad or intermediate form indemnity in public projects. On a public project, indemnification provisions are limited to losses caused by the negligence, recklessness or intentional misconduct of the indemnifying party. We still recommend including this limited indemnification provision in your contract as it is easier to enforce than a non-contractual indemnity claim.
Include a monetary limitation: The Florida Statutes also require that a monetary limitation be placed on any contractual indemnification provision where a party is seeking indemnity for losses caused in whole or in part by its own negligence. The monetary limitation must bear a reasonable commercial relationship to the amount of the contract. In addition, if the project has bid documents, the must include the fact that an indemnification provision will be part of the contract as well as the monetary limitation. If the bid documents and the contract do not meet these requirements, the entire clause will be deemed void and unenforceable. To comply with these requirements, follow the form of the sample provision below.
Exclude your own gross negligence and willful conduct: Although general contractors are permitted to include an indemnification provision that covers their own negligence, the law does not allow a general contractor to seek indemnity from a subcontractor resulting from its own gross negligence or willful, wanton or intentional misconduct. The sample indemnification clause below shows how to incorporate these limitations into your contract.
Sample Subcontractor Indemnification Clause
(where subcontractor agrees to indemnify for losses caused in part by general contractor)
To the fullest extent permitted by law, the Subcontractor shall defend, indemnify and hold harmless the Contractor, Owner, Architect and their respective agents, officers, employees and partners (hereinafter collectively “Indemnities”) from and against all claims, damages, losses, expenses (including, but not limited to reasonable attorneys’ fees), liabilities, interest, judgments which (i) are attributable to injury, sickness, disease, or death or to injury or to destruction or damage to property or Contractor’s equipment, including loss of use there from and (ii) are caused in whole or in part by any default or negligent act or omission of the Subcontractor, its sub-subcontractor(s) or anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable, regardless of whether or not it is caused in part by a party indemnified under this Subcontract. Such indemnification shall not include claims of, or damages resulting from, gross negligence, or willful, wanton or intentional misconduct of the Contractor or its officers, directors, agents or employees, or for statutory violation or punitive damages except and to the extent the statutory violation or punitive damages are caused by or result from the acts or omissions of the Subcontractor or any of the Subcontractor’s contractors, subcontractors, sub-subcontractors, materialmen, or agents of any tier or their respective employees. The parties mutually acknowledge that the amount of indemnity provided for herein is equal to the limits of aggregate insurance provided by Subcontractor under this Agreement or $1 Million, whichever is greater, that this amount bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any, and that the requirements of §725.06, Fla. Stat. have been fulfilled and apply to this section. The aforesaid indemnification obligation shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable by or for the Subcontractor Workmen’s Compensation, Disability Benefit Acts or other employee benefit acts.
Bruce E. Loren and Kyle W. Ohlenschlaeger of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. Loren & Kean Law is a boutique law firm concentrating in construction law, employment law, and complex commercial litigation. Mr. Ohlenschlaeger focuses his practice on construction law and a wide range of commercial litigation disputes. Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar, exemplifying the Bar’s recognition of this expertise. The firm’s construction clients include owners/developers, general contractors, specialty contractors in every trade, suppliers and professional architects and engineers. Mr. Loren and Mr. Ohlenschlaeger can be reached at [email protected] or [email protected] or 561-615-5701.