A “choice of law” provision in a contract provides for the law of a specified state to govern the contract and disputes between the parties that arise out of the contract. Often the law of the state where the project is performed is selected as the governing law. It is also possible, however, to select the law of the state of any of the parties to the contract as the governing law even if that is far removed from the location of the project.
In an interesting case (Maxim Crane Works v. Tilbury Constructors, 208 Cal. App. 4th 286 (2012), where the contract provided for Pennsylvania law to apply to a contract for services performed in California, the California court affirmed that Pennsylvania’s law would indeed apply and that this would prevent the supplier of a crane from recovering indemnification from the contractor that used the crane on a construction project resulting in injuries to that contractor’s worker.
The indemnification provision of the contract that was drafted by Maxim Crane Works would have required the contractor to indemnify the crane owner if California law had been applied. It would have also required indemnification under the Pennsylvania law if the injuries had occurred just one day later than they did.
Per Murphy’s law, however, the injuries happened on the very same day that the contract was executed, and under Pennsylvania law, indemnity provisions are only enforceable if included in a written contract executed “prior to the date” of a worker’s injury.
Another terrible twist for the crane owner was that a prevailing party’s attorney’s fees provision entitled the contractor to recover all its legal fees in defending against the injured worker’s suit as well as in specifically suing to enforce the indemnity obligation. This is because the court found the defense against the worker claim was so integral to the ability of the contractor to prove it was entitled to indemnity from the crane owner, that there was no need to segregate the injury defense cost from the indemnity case prosecution costs.
As aptly put by the appellate court, “Maxim Crane Works was hoist on its own petard when the trial court enforced an unfavorable choice-of-law provision in a form contract written by Maxim.”
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. 15, No. 1 (Jan 2013).
Copyright 2013, ConstructionRisk, LLC