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Where a pipeline was damaged when it was struck by sheeting being installed by a sub-subcontractor while installing lift stations along a pipeline previously installed by the prime contractor, the sub-subcontractor was found to be liable to its client (ECI Corporation) under its indemnification clause for the costs that firm incurred in repairing the damaged pipe.   ECI also submitted a claim for its damages to Travelers Insurance on whose policy it was an additional insured.   The court held that under Minnesota law, although indemnification clauses in construction contracts are unenforceable unless damages are attributable to the indemnitor’s negligence, there is an exception to the rule when the contract also requires the indemnitor to provide insurance for the benefit of others.  Thus, where the subcontractor agrees both to indemnify for another’s negligence and to provide insurance for that risk, the provisions are enforceable.

Details of Indemnification Clause

The indemnification clause in question required the sub-subcontractor to indemnity ECI from and against “all claims, causes of action, liabilities, obligations, demands, costs, and expenses arising out of … damages to property caused or alleged to have been caused by any act or omission of [sub-subcontractor]….”  As stated by the court, “In other words, Bolduc agreed to indemnify ECI without regard to fault….  “Because the contract required Bolduc to insure and indemnify ECI without regard to fault, the district court erred by concluding that the jury’s finding that Bolduc was not negligent extinguished its obligation under the contract.”   With regard to the coverage as an additional insured, the additional insured endorsement provided coverage where “the injury or damage is caused by acts or omissions of you or your subcontractor in the performance of your work to which the written contract requiring insurance applies.”  This language, said the court, does not condition coverage on a finding of negligence.   Just because a jury found there was no negligence in damaging the pipeline, “this finding does not equate to a finding that Bolduc did not cause the damage to the pipeline.”  For these reasons, the court found that both the duty of the sub-subcontractor to indemnify it client, and the duty of the sub-subcontractor’s insurance carrier to cover the damages sustained by that client, were triggered as soon as they were “alleged to have been caused” by the sub-subcontractor, and it was not relevant that there were no allegations of negligence or findings of negligence.  Engineering & Construction Innovations, Inc. v. L. H. Bolduc Co., 803 N.W. 2d 916 (MN 2011).

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 14, No.3 (Mar 2012).

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