Commercial Construction Contract Mistakes: Indemnification Too Broad
A term every subcontractor should understand is “indemnification.”
Because, done incorrectly, it could mean someone else’s mistake is your financial nightmare.
Nearly all construction contracts contain indemnification clauses. The term means covering or saving one party to the contract from money damages and additional costs, usually caused by the other.
The problem is that many indemnification clauses are far more broad than they need to be.
In fact, many are more broad than they’re legally allowed to be.
And if you’re a subcontractor, broad is bad.
Broad means “bigger chance that you wind up footing the bill for something that isn’t even your fault.”
The American Institute of Architects (AIA) A201 General Conditions — arguably the most commonly used contract document in the country — includes an indemnity clause that most would characterize as fair.
A201 requires a Contractor to indemnify the Owner and the Architect for claims…
(i) arising out of the Work
(ii) attributable to personal injury or property damage, and..
(iii) caused by the negligence of the Contractor or its subcontractors.
Custom-made contract forms prepared by lawyers often aren’t so reasonable.
Many “customized” indemnity clauses state that you’ll cover your customer’s costs, expenses, or claims against them — even if those claims are not necessarily caused by your negligence.
Some will require you to indemnify your customer even if it is partially — or fully — responsible for the losses.
This shouldn’t be allowed, of course.
And it isn’t.
Ohio’s Anti-Indemnity statute (O.R.C. 2305.31) specifically bars indemnity clauses that attempt to require one party to indemnify the other for its own negligence.
But contracts with very broad indemnity are still out there.
And if you enter into one, you can wind up on an expensive and painful path.
For example, a demolition subcontractor once had an accident during a project where their operator was severely injured. Part of the cause was inadequate grading and preparation of the soil by the sub’s customer.
Both the general contractor (GC) and the subcontractor were cited by OSHA for the accident and injury.
The subcontract between them contained a broad indemnification clause. So the GC demanded that the subcontractor indemnify the GC from all fines, costs, expenses, and legal fees resulting from the accident.
The subcontractor argued that its customer was at least partially at fault for the accident. And many would agree.
But in the end, the subcontractor didn’t have the resources to fight the customer over the negligence and anti-indemnity issues.
As a result, the sub was forced to accept a settlement far worse than what the law would have supported.
Standing up for your rights in the contract negotiation process can avoid a result like this. If you’d like help with your commercial construction contract, fill out our contact us form. Reference this article and you’ll get a complimentary consultation with one of our legal team members. You can also find more related information in our Guide to Avoiding Commercial Construction Contract Nightmares.
