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A subcontractor is hired on a new retail development and just started the scope of work on the project. Within the first hour, several employees are injured by the general contractor’s employee while operating a piece of equipment in the subcontractor’s work area. For this hypothetical, the incident is clearly a result of the sole negligence of the contractor’s employee. Of course, the immediate concern is whether the employees are OK and receiving immediate attention. 

The next concern is “Who is responsible for this?” The answer sounds like a no-brainer, but it can actually be pretty complicated. In fact, depending on the language in the contract and applicable state laws, the subcontractor in this scenario may be responsible for claims arising from these injuries. 

The contractual provision at issue in this scenario is the indemnity clause. The indemnity provision in a construction contract is one of the most significant risk-shifting tools and a frequent issue in construction disputes. Nearly all construction contracts contain some form of indemnification, requiring one of the contracting parties to defend, indemnify and hold the other contracting party harmless for claims, injuries and damages arising out of the work on the project. The question here is who is responsible for the contractor’s negligence?

Standard Industry Contract Language

Many construction contracts use or adopt the American Institute of Architects (AIA) forms, ConsensusDocs or other widely recognized industry agreements. If the contract in the hypothetical example used the AIA A401-2017 Standard Form of Agreement Between Contractor and Subcontractor, the indemnity language typically means good news for the subcontractor, as it reads:

§ 4.7.1. To the fullest extent permitted by law, the Subcontractor shall indemnify and hold harmless the Owner, Contractor, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses, and expenses, including but not limited to attorney’s fees, arising out of or resulting from performance of the Subcontractor’s Work under this Subcontract, provided that such claim, damage, loss, or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Subcontractor, the Subcontractor’s Sub-subcontractors, anyone directly or indirectly employed by them, or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss, or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity that would otherwise exist as to a party or person described in this Section 4.7.

§ 4.7.2. In claims against any person or entity indemnified under this Section 4.7 by an employee of the Subcontractor, the Subcontractor’s Sub-subcontractor, anyone directly or indirectly employed by them, or anyone for whose acts they may be liable, the indemnification obligation under Section 4.7.1 shall not be limited by a limitation on amount or type of damages, compensation, or benefits payable by or for the Subcontractor, or the Subcontractor’s Sub-subcontractors under workers’ compensation acts, disability benefit acts, or other employee benefit acts.

The critical language in this scenario is the phrase “the Subcontractor shall indemnify and hold harmless . . . only to the extent [the claims, damages, losses, and expenses are] caused by the negligent acts or omissions of the Subcontractor…” As stated above, the injuries in this hypothetical arose from the sole negligence of the contractor’s employee and, therefore, the subcontractor would not be required to indemnify the owner and contractor for claims arising from these injuries. 

Varying State Enforcement of Indemnification 

The outcome could be quite different if the applicable state law allowed indemnification of another party for claims arising from its own, sole negligence. Some states will enforce broadly written indemnity provisions so long as they are clear and unequivocal, including provisions requiring one party to indemnify another party for claims arising solely from the negligence of the indemnified party. This means the subcontractor in the previous hypothetical might be responsible for costs stemming from the contractor’s negligence.

Alabama, for instance, is one of those states and will enforce an agreement requiring a subcontractor to indemnify a contractor for damages arising from the contractor’s sole negligence, so long as the terms of the indemnification provision are clear and unequivocal. However, other states like Georgia will not enforce such agreements because they are against public policy, void and unenforceable.

In states that allow indemnity for a contractor’s own negligence, the subcontractor’s indemnification duty may be triggered if the indemnity clause is similar to one of these:

“To the fullest extent permitted by law, [indemnitor] shall defend and indemnify...‘Indemnitees'[] against...all liabilities, [etc.]...that arise in any way, directly or indirectly, out of...the Work... [indemnitor's] obligation to defend and indemnify the Indemnitees shall not be diminished or excused merely because the negligence or other breach of a legal duty on the part of any Indemnitee also contributing to the Indemnified Loss...”

“[Indemnify/defend claims]...arising out of or resulting from the performance of the work, provided that any such claim...(1) is attributable to bodily injury..., and (2) is caused in whole or in part by any negligent act...of the contractor, any subcontractor, anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable, regardless of whether or not it is caused in whole or in part by a party indemnified hereunder.”

“[Indemnify/defend claims]...arising out of the work undertaken by the Subcontractor...and arising out of any other operation no matter by whom performed for and on behalf of the Subcontractor, whether or not due in whole or in part to conditions, acts or omissions done or permitted by the Contractor or Owner.”

The language in any of these indemnity provisions could trigger the subcontractor’s duty to indemnify the contractor for the contractor’s sole negligence if permitted by the applicable state law. 

Considerations to Evaluate Risk Placement in Indemnity Provisions

There are many considerations when evaluating an indemnity clause, such as control of the area where the injury occurred, who were the contracting parties, whether the employees were contributorily negligent in causing their injuries, whether the agreement clearly and unequivocally expresses an intent by the parties for one party to indemnify the other party for its sole negligence, how terms such as scope of work are defined and numerous other factors.

Regardless of the contract form, the indemnification language should be carefully scrutinized to fully understand obligations and potential exposure in the event of a claim for property damage or personal injury on the jobsite. It also may be necessary to consult with an attorney to ensure the scope of responsibilities, the applicable state law and potential exposure in the event of an injury, loss or claim are understood.

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