Indemnification for Construction Claims: 101
Some of the most common questions posed to a construction law attorney are concerning indemnification clauses in construction contracts. Indemnification is critical in construction projects, as it limits liability and minimizes risk. While there are multiple avenues to pass through the liability that can arise from a construction project, indemnification is likely the most commonly utilized (and often disputed) avenue.
What Does Indemnification Mean?
Essentially, indemnification is defined as “to secure (someone) against legal liability for their actions.” This indicates that one party agrees to assume responsibility for any third-party claims for actions taken by the other party.
Often, liability is “passed down” from owner to contractor, and so on, with various layers protecting each level. An example would be the owner or developer of a new shopping mall receiving indemnification from the construction company for any harm or damages caused by the construction company. This could apply to construction site accidents or damages caused by defective work. The construction company, in turn, may also have the ability to seek indemnification from its subcontractors, indemnifying it against any claims resulting from losses stemming from their work.
There are three basic parties involved in an indemnification clause — first, the indemnitee (the party who is indemnified by the clause). Then there is the indemnitor (the party who has agreed to indemnify the indemnitee), and finally the claimant (who files a claim against the indemnitee).
Types of Indemnification
There are two types of indemnification: contractual and common law.
As you would imagine, contractual indemnification is a creature of contract. The most common and widely used indemnification clauses include compensation benefits for harm or loss as security against legal liability for one’s actions. In other words, the indemnitor agrees in writing to compensate the indemnitee for liability that is spelled out in the terms of the indemnification clause. Indemnification clauses may be drafted in broad form, intermediate form, or limited form, each specifying how the extent of the indemnification is determined. The better contractual indemnification clauses are more detailed, clearly specifying who is providing indemnification to whom and for what. The various parties involved (general contractors, subcontractors, architects, designers, etc.) all need to be considered and accounted for in the clause.
To protect against overreaching indemnification clauses, many states have “anti-indemnification” statutes that limit exposure and benefits and even void them if they go too far. For example, Florida Statute Section 725.26, puts a monetary limitation on the amount of indemnification someone can owe for their own negligence. If the indemnification clause violates Florida Statute Section 725.26, some or all of the clause may be void as a matter of law.
Common law indemnification is a court-created doctrine that allows a defendant to shift responsibility to another party, making them financially liable for damages. For example, a general contractor with “passive negligence” could pass the liability to someone with “active negligence,” which resulted in the claimant’s harm or damage. However, in order for there to be common law indemnification, there needs to be a special relationship between the two parties that makes one vicariously, constructively, derivatively, or technically liable for the other. Additionally, the party seeking the indemnification must be completely and wholly without fault. Even a tiny indiscretion of 1% could result in the court dismissing the common law indemnification claim.
It is critical to know all the elements and contingencies related to an indemnification claim in order to best protect your interests in a construction project. To learn more contact Christopher Utrera at email@example.com.