Indemnification Clause

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A properly worded indemnification clause is critical to reducing risk in a construction contract. An indemnification clause may include any, or all, of three distinct obligations, including to (1) indemnify, (2) defend, and (3) hold harmless the client.  Indemnify means to reimburse your client following a loss.

Chapter on Indemnification Clauses

Kent Holland’s chapter on indemnification clauses is included here.  Details include avoiding uninsurable losses.

Article on Duty to Defend

Kent Holland’s article Design Professionals Should not Agree to Defend Clients

Sample Indemnification Clause

Sample 1:

Consultant shall indemnify and hold harmless the Client, its officers, directors, employees, from and against those liabilities, damages and costs that Client is legally obligated to pay as a result of the death or bodily injury to any person or the destruction or damage to any property, to the extent caused by the willful misconduct, negligent act, error or omission of the Consultant or anyone for whom the Consultant is legally responsible, subject to any limitations of liability contained in this Agreement. Consultant will reimburse Client for reasonable defense costs for claims arising out of Consultant’s professional negligence based on the percentage of Consultant’s liability.

Sample 2: For California contracts must add that there is no duty to defend:

Consultant shall indemnify and hold harmless (but not defend) the Client, its officers, directors, employees, from and against those liabilities, damages and costs that Client is legally obligated to pay as a result of the death or bodily injury to any person or the destruction or damage to any property, to the extent caused by the willful misconduct, negligent act, error or omission of the Consultant or anyone for whom the Consultant is legally responsible, subject to any limitations of liability contained in this Agreement. Consultant will reimburse Client for reasonable defense costs for claims arising out of Consultant’s professional negligence based on the percentage of Consultant’s liability.

Sample 3: Instead of referencing BI and PD, reference “third party claims”

Consultant shall indemnify and hold harmless the Client, its officers, directors, employees, from and against those liabilities, damages and costs arising out of third party claims to the extent caused by the willful misconduct, negligent act, error or omission of the Consultant or anyone for whom the Consultant is legally responsible, subject to any limitations of liability contained in this Agreement. Consultant will reimburse Client for reasonable defense costs for claims arising out of Consultant’s professional negligence based on the percentage of Consultant’s liability.

Sample 4: Include a duty to defend in the main text for CGL type claims but add sentence at conclusion to carve out professional liability claims.

Consultant shall indemnify, defend and hold harmless the Client, its officers, directors, employees, from and against those liabilities, damages and costs arising out of third party claims to the extent caused by the willful misconduct, negligent act, error or omission of the Consultant or anyone for whom the Consultant is legally responsible, subject to any limitations of liability contained in this Agreement. Consultant will reimburse Client for reasonable defense costs for claims arising out of Consultant’s professional negligence based on the percentage of Consultant’s liability. The duty to defend shall not apply to professional liability claims.

Sample 5: A different way to address defense obligations:

The foregoing defend, hold harmless and indemnity obligations of this paragraph shall apply solely to any such causes of action, damages, costs, expenses or defense obligations covered by Consultant’s Insurance specified in this Agreement.

Sample 6: Instead of agreeing to indemnify for all damages, including reasonable attorneys fees, strike out the attorneys fees in the body of the indemnity clause and use the simple one sentence shown in the above examples for attorneys fees or use the following:

Consultant agrees to reimburse Client for reasonable defense costs, provided however that such obligation is limited to the portion of such costs equal to the percentage of Consultant’s liability as ultimately determined to be caused by the willful misconduct or negligence of Consultant using principles of comparative fault.

Recommended Reading on Indemnity

The Changing Face of Indemnity  By Brian K. Stewart, Esq., Collins, Collins, Muir + Stewart, LLP

 


Articles on Indemnification Clauses from ConstructionRisk newsletters:

Indemnity Clause Void & Unenforceable Because Sub was not Sole Cause of Damages

Kent Holland ConstructionRisk, LLC On a condominium project, where an indemnification clause on its face made a subcontractor responsible for indemnifying the prime contractor for damages caused “in whole or in part” by the subcontractor, it was held that the state’s anti-indemnity statute made the clause unenforceable. The court declined to apply the saving language […]

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What Constitutes a Claim Triggering Indemnification Duty?

Kent Holland, Esq. ConstructionRisk Counsel, PLLC After a contractor settled a construction defect claim with the project owner, it sought indemnity from its subcontractor for the costs incurred in rectifying the construction.  The subcontractor successfully argued in a lower appellate court that no “claim” had been made by the owner that would trigger the indemnity […]

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Clarifying the Confusing World of Indemnification, Hold Harmless, and Defense Clauses

By: Sarah E. Swank O B E R | K A L E R We often get the all too familiar question from our clients, “What is the hold up on that contract?” When the answer is the indemnification, defense, or hold harmless provision, the authors have found a lack of resources for clients who often struggle to […]

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Indemnification Clause Required Engineer to Indemnify Owner for Losses it Incurred

Does a typical indemnification clause that requires a party such as a contractor or design professional to indemnify its client for damages the client sustains due to the actions of Indemnitor apply only to damages resulting from third party claims against the client, or does it apply even if there is no third party claim […]

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Subcontractor Owed Prime No Indemnity Obligation and Additional Insured Status Availed Nothing

Although a subcontractor damaged a sewer pipeline during the course of construction, it owed no indemnification duty to the prime contractor for expenses the prime incurred in repairing the pipe. The key reason given by the court was that a jury found that the sub was not negligent, and the Minnesota anti-indemnification statute prohibits indemnification […]

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Indemnification Clause in Prime Contract is not Incorporated by Reference into Subcontract Under New York Law in Absence of Express Agreement to Do So

Where an employee of an electrical sub-subcontractor was injured on the jobsite, he sued the project developer, the prime contractor, and others.  Those firms in turn filed a third-party claim against the sub-sub claiming the right to common law indemnity as well as contractual indemnity.  The court concluded that the provisions of the prime contract […]

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Agreement to Indemnify Project Owner for Penalties due to Violations of Americans with Disabilities Act Is Void and Unenforceable

Where design professionals agree by contract to indemnify a project owner for “any damages arising from any act, omission, or willful misconduct”, that provision cannot be enforced when the damages at issue arise out of violations of the Americans with Disabilities Act (ADA).   In the case involving Mandalay Bay Resort (Rolf Jensen & Associates v. […]

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Indemnification Clauses: Uninsurable Contractual Liability

Professional consultants are judged by whether or not they satisfied the professional standard of care (i.e., were not negligent in the performance of their services). That is what is covered under a professional liability policy; therefore, it is critical that the indemnification obligations be limited to damages to the extent caused by the consultant’s negligence. […]

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Indemnity Obligation Not Owed to Client for Claims Partially Caused by Client’s Negligence. Duty to Defend Only Applies to Claims Directly Attributable to Indemnitor’s Actions within Scope of Work

Where an indemnity clause did not expressly state that the subcontractor was required to indemnify its client, the prime contractor, for all damages including those caused partially by the client’s own negligence, the subcontractor’s indemnification obligations were limited to those damages determined by a jury to have been caused by the subcontractor’s own negligence only.   […]

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