Construction Contract Indemnification Clause
It is one that discusses who is responsible for the damages or losses that are incurred in connection with a construction job.3 min read
A construction contract indemnification clause is one that discusses who is responsible for the damages or losses that are incurred in connection with a construction job. An indemnification clause is a provision that provides one party security against losses, and may even exempt them from liability arising from their own actions. These provisions usually say that the contractor will indemnify the project owner and hold them harmless, or without fault, from any claims, losses, demands, or lawsuits that result from any defects in the contractor's work.
An indemnification clause is often a necessity in construction agreements, and the business deal may not proceed without a clear picture of what each party's liabilities are. Indemnity clauses are very specific and need to be drafted clearly so both parties understand the terms. It's highly recommended you have a contract attorney draft any indemnification clauses. The attorney can not only draft and review an indemnification clause; he or she can also provide legal advice if a lawsuit is filed.
Tips for Drafting Indemnification Clauses
Indemnity clauses are sometimes applied incorrectly in construction contracts. The error usually occurs when the drafting party wants to build more protection into an indemnification clause by including the promise to “indemnify” the other party against defective materials and workmanship. In this instance, the contract should include a warranty, not an indemnity clause. Warranties are agreements that indicate the materials and labor will be of a particular quality. In contrast, an indemnity clause would protect the other party against third-party claims.
There is a chance defective material could give rise to a liability claim. For example, if a product is defective, a worker could be injured. The indemnification clause protects the owner against a claim from the worker while the warranty would cover repairs to the defective product. Some courts have opined that indemnification clauses should not be interpreted as offering indemnity to someone against his or her own wrongdoing because doing so might encourage carelessness. The prevailing legal view is that indemnity is akin to insurance.
Are Indemnity Clauses Legal?
As long as they don't violate any laws or liability requirements, indemnification clauses are typically enforced. Some states are not a fan of clauses that limit contractor liability because they believe contractors already owe the property owner a general duty of care. Some states may reject the clause entirely or accept it with limitations. Courts are more likely to accept an indemnity clause if it doesn't directly limit the contractor's liability for wrongdoing or negligence.
Because indemnity clauses fall under contract law, parties can negotiate the terms that fit their individual circumstances. They must adhere to liability law requirements, though, in order to be enforceable.
Invalidating an Indemnity Clause
There are circumstances where an indemnity clause could be invalidated:
- If it was created under duress or fraud
- If the indemnity clause is difficult to identify
- If the clause contains confusing or misleading language
Remedies for Improper Indemnity Clauses
A common option for remedying an improper indemnity clause is when the court allows the parties to rewrite the clause. Allowing revisions ensures the clause is a better reflection of the drafting parties' original intentions. A judge might opt to strike down only a portion of the indemnification clause, leaving the remainder of the clause enforceable.
However, if the judge finds the clause to be invalid in its entirety, the parties are not held to the terms. Liability will be determined per relevant state laws or ruling case law.
Elements of a Good Indemnification Clause
A well-balanced indemnity clause will include:
- Limit indemnification to property damage and personal injury.
- When feasible, the contractor or subcontractor should limit its indemnity and hold harmless obligations to things it can get insurance for.
- Limit indemnification clauses to third-party claims and leave out owners' claims on the contract.
- Keep the clause limited to negligence with similar language to “caused by negligent acts or omissions of the contractor or any others for whom the contractor is responsible.”
- Exclude contract claims, so the contractor has to be found negligent before the indemnity clause is triggered. The contractor shouldn't pay for the claim if it isn't caused by his or her negligence.
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