Gallet Dreyer & Berkey, LLP | An Overly Broad Indemnification Clause Strikes Again!
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  • An Overly Broad Indemnification Clause Strikes Again!
    02/19/2021
    Most construction contracts contain indemnification clauses.  They have become more and more complicated over the years and can baffle even lawyers not steeped in the intricacies of these risk-shifting clauses.
     
    The basic premise of these clauses is this:  if party “A” is sued by someone who suffered personal injuries or property damage, but it was really party “B” who was the wrongdoer, party “B” should have to indemnify (i.e., reimburse) party “A” for any damages party “A” is forced to pay to the injured party.  Seems fair.
     
    But this basic premise has been stretched and stretched over the years to cover situations where party “B” did nothing wrong—but still must indemnify party “A.”  
     
    As contractors negotiate these indemnification clauses, the battle lines are drawn over how narrow or broad the clauses will be.  A narrow clause obligates party “B” to indemnify party “A” for party “B’s” own negligence or, perhaps, its liability under a statute.  A broad indemnity clause will expand the liability of party “B” to, perhaps, injuries which “arise out of, are connected with, or relate to” the work performed by party “B.”  That is significantly more broad than just the “negligence” of party “B.”
     
    A recent case shines a light on an even more broad indemnification clause which ensnared an “innocent” contractor.  In 650 Madison Avenue Owner v. Americon Construction, First Department NY 2021, a worker on the job fell while painting a window and sued the Owner.  The worker did not work for Americon (he worked for another contractor) and Americon’s contract had expressly excluded painting work.  But the Owner had a contract with Americon which contained a broad indemnity clause.  
     
    The indemnification clause in this case not only obligated Americon to reimburse the Owner for injuries which “arise out of, are connected with, or relate to” Americon’s work (already pretty broad). The clause went on to obligate Americon to indemnify the Owner for injuries “while any of [Americon]’s property or equipment … [is] in or about such place or the vicinity thereof.”  So even though Americon’s work had nothing to do with painting, and it did not cause the accident in any way, the appellate court held that Americon, simply by virtue of working in the vicinity of the injury, must indemnify the Owner for any damages the Owner had to pay to the injured worker. 
     
    Americon argued that it should not be forced to bear these costs because it was not negligent and, in fact, had nothing to do with the worker’s injuries.  But Americon had signed a contract with an extremely broad indemnity clause and the court held Americon to the risks it had agreed to assume under the contract.
     
    Understanding and negotiating indemnity clauses has become a real challenge these days.  An attorney familiar with these clauses should be consulted before one agrees to assume these extraordinary risks.
    ATTORNEY: Randy J. Heller