One Word In An Indemnification Clause Spells the Difference Between Liability And Dismissal
In an action seeking indemnification from three contractors, one walks away with no liability while the other two remain on the hook—all due to one small difference among their indemnity clauses.
All written construction contracts contain some form of indemnification clause. It has become one of the most hotly negotiated provisions in the contract, and also one of the most onerous. One party (almost always the downstream entity) must agree to “indemnify, defend and hold harmless” the other (usually upstream) entity.
These clauses go on at great length in their attempt to protect the “indemnitee” from all conceivable cost and damage resulting from every possible occurrence (and some impossible ones too). The temptation to overreach is so great that the legislature had to pass a statute providing that one party may not seek indemnification from the other party for its own negligence. Usually, only a few tweaks on minor points are permitted to the language of these provisions. But sometimes those tweaks can mean the difference between liability or none.
In a recent case, an injured worker sued the owner for his leg injuries suffered on a construction site. There was little proof that anyone had created the hole which the worker stepped in. But the owner had an absolute liability to the worker under the Labor Law. The owner then sought to be indemnified by the contractor and sub-contractors on its project relying on the indemnification provisions in their respective contracts.
Two of the contractors had clauses that required them to indemnify the owner for “any accident or occurrence which happens, or is alleged to have happened, in or about the place where such work is being performed.” This is very broad.
The other contractor, Alfa Piping Corp., had a clause that required it to indemnify the owner from damages “arising from Alfa’s work and caused by Alfa’s negligence.” Because this clause required proof that Alfa was negligent—not just that the accident occurred in the vicinity of its work—Alfa was held to have no obligation to indemnify the owner. The appellate court held that the owner did not need to prove negligence to recover from the other two contractors, only that the injury occurred “in or about the place where their work was being performed.” But Alfa got to walk away scot-free.
So the insertion of the word “negligence” made all the difference. Sometimes it is worth fighting for those important words.
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Further information on indemnification clauses can be found on our blog:
Overreaching In Tough Indemnity Clause Proves Costly