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An indemnification clause will only apply to liability for claims brought by third parties. It will not apply to claims between the contracting parties. In Florida, a contract’s general indemnity clause does not apply to first party claims for costs and expenses unless the clause specifically states it applies to such claims. To depart from the normal default position that indemnity provisions apply to a third party liability, the parties must expressly state that intent in their contract. International Fidelity Ins. Co. v. Americaribe-Moriarty JV, 906 F.3d 1329 (U.S. Court of Appeals, 11th Circuit – Florida 2018).

In this case, a subcontractor to the general contractor (GC) was found by the trial court to be in default under its construction subcontract. Fidelity, as the subcontractor’s surety, issued a performance bond on behalf of the subcontractor. When the subcontractor defaulted, the GC retained another contractor to finish the sub’s work and then subsequently made a demand on Fidelity under the performance bond.

Fidelity denied the GC’s claim because the CG failed to comply with the requirements of the performance bond in that it failed to give Fidelity reasonable notice before undertaking the remedy to the subcontractor’s default, and commenced efforts to supplement the subcontractor’s work before providing Fidelity with an opportunity to remedy the alleged defect.   Fidelity asked the trial court to declare the bond null and void due to the actions taken by the GC. It also asked the court to grant it attorney’s fees pursuant to the performance bond and the subcontract indemnification clause.

The trial court decided in favor of Fidelity and awarded it attorney’s fees under the indemnification clause. On appeal, the court reversed the attorney’s fee decision –holding that the indemnity clause applied only to third party claims and could not be used to recover attorney’s fees arising in the dispute between parties to the contract.

Florida Statutes, Sec. 57.105(7), explained the court, renders a unilateral contract clause for prevailing party attorney’s fees bilateral in effect. But his didn’t matter in this case because the court found as a threshold matter that the indemnity clause didn’t even constitute an attorney’s fee provision applicable to the situation in dispute.  The court explained:

“Generally speaking, ‘a contract for indemnity is an agreement by which the promisor agrees to protect the promisee against loss or damages by reason of liability to a third party [emphasis in original]….   That is, it is generally not the case that an indemnity clause will be understood to include protections for the expense of liability caused by the indemnified party itself…. ‘An indemnification provision that is silent or unclear whether it applies to first-party claims will normally be interpreted to apply only to third-party claims.’… Likewise, ‘a party to a contract cannot use an indemnity clause to shift attorney fees between the parties unless the language of the clause shows an intent to clearly and unambiguously shift the fees.’”

In conclusion, the court stated that if the parties to the subcontract intended to depart from the default position that indemnity provisions apply only to third party liability, they would have had do to so expressly in the contract. And likewise, if they wished to depart from the general rule in Florida that prevailing litigants are not entitled to attorney’s fees, they would have needed to include a prevailing party attorney’s fee provision in the subcontract.

 

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. 21, No. 3 (Mar 2019).

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