Construction projects are risky, and parties allocate risk to reduce their own liabilities. Indemnification clauses shift risk from one party to another, but they come in may shapes and sizes. Therefore, it is important to read yours carefully.
Terminology and Effect of Indemnification
An “indemnitor” promises to compensate an “indemnitee” for injury or loss that the indemnitee incurs. Subcontractors are typically indemnitors that promise to “indemnify” the general contractor for an injury or loss.
Types of Indemnification Clauses
General contractors prefer indemnification clauses to be broad while subcontractors prefer to limit their scope.
Limited Scope: Subcontractors may promise to indemnify the general contractor only for losses that result from the subcontractor’s work. The general contractor may be required to prove the subcontractor was negligent. The general contractor may be required to incur personal injury or property damage before the subcontractor is required to indemnify.
Broad Scope: General contractors may insist that subcontractors indemnify for any loss incurred. Negligence need not be proven. Also, the loss may be caused by the general contractor, and the subcontractor would still be obligated to indemnify.
Intermediate: Most indemnification clauses fall into this category. A typical indemnification clause that is intermediate in scope will require the subcontractor to indemnify for any loss incurred by the general contractor, unless the general contractor is at fault.
There is a public policy concern for broad scope indemnification clauses that require indemnitors to compensate an indemnitee, even when the indemnitee is negligent. As a result, many states have adopted anti-indemnity statutes. Neb. Rev. Stat. § 25-21,187(1) states that any indemnity clause that requires a party to compensate an indemnitee for the indemnitee’s negligence is void.
If you need help interpreting or writing an indemnification clause, we recommend you contact an experienced construction attorney.
Special thanks to Roger Sack for writing this blog.