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.   Although the clause stated that the subcontractor was required to indemnify for all claims “save and except claims or litigation arising through the sole negligence” of the prime contractor, this was not deemed sufficient by the court to constitute an express agreement to indemnify for damages caused by the prime contractor’s own negligence – even if caused only in part by the prime contractor.  In reversing the trial court’s award to the prime contractor of almost $1 million in defense attorneys fees under the duty to defend section of the indemnification clause, the appellate court held the court erred in awarding the fees incurred in defending against the third party claims without first apportioning those fees incurred in defending claims “directly attributable to [subcontractor’s] scope of work, if any.”  Reyburn Lawn & Landscape Designers v. Plaster Development Company, 155, P.3d 268 (Nevada, 2011).

The contract between the contractor, Plaster Corp. and the subcontractor, Reyburn Corp., contained the following indemnification clause:

 INDEMNITY: … Subcontractor agrees to save, indemnify and keep harmless Contractor against any and all liability, claims, judgments or demands, including demands arising from injuries or death of persons (Subcontractor’s employees included) and damage to property, arising directly or indirectly out of the obligation herein undertaken or out of the obligations conducted by Subcontractor, save and except claims or litigation arising through the sole negligence or sole willful misconduct of Contractor, and will make good to and reimburse Contractor of any expenditures, including reasonable attorney’s fees. If requested by Contractor, Subcontractor will defend any such suits at the sole cost and expense of Subcontractor.

 This case began when home owners filed a class-action complaint against the developer/general contractor alleging that their perimeter retaining walls and sidewalls were defective as a result of improper design, preparation, materials, and construction. Over a year and half after the suit was filed, the contractor notified the subcontractor and demanded a defense of the claims pursuant to the indemnification clause.  The subcontractor didn’t take over the defense as demanded and the contractor brought a third-party claim against the subcontractor for indemnity and/or contribution, and also asserted a breach of contract claim against the Sub for failing to defend.

In resolving this appeal, the court began by explaining that strict interpretation is applied to indemnification clauses.  “When the duty to indemnify arises from contractual language, it generally is not subject to equitable considerations; rather, it is enforced in accordance with the terms of the contracting parties’ agreement.” In this regard, the court cited a recent decision in which it stated:

We adopted the rule that, while the parties are free to contractually agree to indemnify another for its own negligence, “an express or explicit reference to the indemnitee’s own negligence is required.” Therefore, “contracts purporting to indemnify a party against its own negligence will only be enforced if they clearly express such an intent and a general provision indemnifying the indemnitee ‘against any and all claims,’ standing alone, is not sufficient.”

The holding concerning indemnification was stated as follows:

Here, Plaster argues that the agreement’s scope was intended to indemnify Plaster for its own negligence so long as Plaster was contributively, not solely, negligent. Plaster explains that because the agreement expressly excludes indemnification for its sole negligence, the parties intended that Plaster would be indemnified for its contributory negligence. Therefore, according to Plaster, once it demonstrated that it was not solely negligent in causing the defects, the indemnification agreement was triggered. The district court agreed and determined that Plaster only needed to demonstrate that it was not solely negligent in order to invoke the indemnity clause and thus granted Plaster’s motion for judgment as a matter of law. We disagree and conclude that because the indemnity clause is not explicit about whether Reyburn is required to indemnify Plaster even if Reyburn is not negligent, and as to whether the scope of the agreement includes indemnity for Plaster’s contributory negligence, the clause necessarily covers only Reyburn’s negligence.

 According to the indemnity clause at issue here, Plaster must be indemnified for “any and all” liabilities that “aris[e] directly or indirectly out of” Reyburn’s obligations under the subcontract. Consistent with our holding in Brown, we determine that this phrasing does not unequivocally condition Reyburn’s duty to indemnify Plaster upon anything other than Reyburn’s actions, and it does not explicitly state that Reyburn has to indemnify Plaster for Plaster’s own negligence. Because the clause at issue here is not explicit, and because we must strictly construe the indemnity clause’s language, (citation omitted), we conclude that there must be a showing of negligence on Reyburn’s part prior to triggering Reyburn’s duty to indemnify Plaster. Otherwise, Reyburn’s duty to indemnify could arise from another subcontractor’s obligation or scope of work, which should trigger that subcontractor’s duty to indemnify, if any, not Reyburn’s. Moreover, the indemnity clause does not contain a clear and unequivocal statement of the parties’ intent for Reyburn to indemnify Plaster for Plaster’s own negligence. … Thus, we conclude that because the indemnity clause does not expressly or explicitly state that Reyburn would indemnify Plaster for Plaster’s contributory negligence, Reyburn is required to indemnify Plaster only for liability or damages that can be attributed to Reyburn’s negligence.

 In its holding addressing whether the subcontractor had a duty to defend the indemnitee, the court began by acknowledging that the duty to defend is broader than the obligation to indemnify in that “[t]he duty to defend is broader than the duty to indemnify” because it covers not just claims under which the indemnitor is liable, but also claims under which the indemnitor could be found liable.  The court concluded:

We now hold that unless specifically otherwise stated in the indemnity clause, an indemnitor’s duty to defend an indemnitee is limited to those claims directly attributed to the indemnitor’s scope of work and does not include defending against claims arising from the negligence of other subcontractors or the indemnitee’s own negligence….

To invoke the duty to defend, the plaintiffs’ complaint must have sufficiently alleged negligence on the part of Reyburn, or their claims must have concerned Reyburn’s scope of work for the project….  We conclude that the indemnity clause in this case does not unequivocally or explicitly state that Reyburn would be required to indemnify Plaster, even if Reyburn was not negligent, and does not clearly require indemnification for Plaster’s contributory negligence. Therefore, the indemnity clause must be interpreted against Plaster, meaning that Plaster must prove negligence on the part of Reyburn before the clause is triggered and that Plaster may be indemnified only for damages associated with Reyburn’s negligence….

Because Reyburn’s duty to defend Plaster is limited to those claims directly attributed to Reyburn’s scope of work and does not include defending against the negligence of other subcontractors or Plaster’s own negligence, we conclude that whether the homeowners’ complaint sufficiently alleged negligence on the part of Reyburn, triggering its duty to defend, was also a material issue of fact for the jury to decide. Thus, we conclude that the district court erred in granting judgment as a matter of law on Plaster’s breach of contract cause of action as well.

For these reasons, the court reversed the trial court judgment against the subcontractor, and concluded that the matter must be decided by a jury as a question of fact rather than as a matter of law.

Comment:  The Nevada court in this case cited favorably the California decision of Crawford v.Weathershield, and stated that it was following the principles of that decision with regard to determining whether the subcontractor had a duty to defend the contractor.

In crafting indemnification clauses, the case demonstrates the importance of choosing the language carefully to avoid any uncertainty as to what is expected of the indemnitor.

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. 5 (May 2012).

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