www.boylegentilelaw.com
What is Contractual Indemnity and Why is it Important for General
Contractors
What is
Indemnification?
Indemnification allows one party,
such as a general contractor or lessor, to shift payments or liability to
another party, such as a subcontractor or lessee. Indemnification can arise
from a multitude of factual situations. A more formal legal definition of
indemnity is a form of restitution that involves the shifting of the entire
loss from one who has paid it to another who would be unjustly enriched at the
expense of another. The specifics depend on the facts of your project, the law
of the applicable state, and the contract you signed.
A claim for indemnification is
usually filed before a party has actually paid or suffered the loss in
question. Thus, where a general contractor is facing a claim that potentially
arises from the fault of a subcontractor, the general contractor may raise its
indemnification claim against the subcontractor in the same lawsuit.
Contractual
Indemnification
Contractual indemnification
involves indemnity based on the agreement of the parties. In Florida,
construction contracts with contractual indemnity provisions are limited by
Fla. Stat. §725.06. Typically, contractual indemnification involves a party
agreeing to indemnify and hold a party harmless against a list of possible
harms. The indemnity obligation can also
include a defense obligation as well.are disallowed.
Contractual indemnity is important because the General Contractor bears the ultimate responsibility for the workmanship and quality of the finished project. Substandard workmanship, or work which falls short of building code requirements, can expose the General Contractor to liability for property damage occurring well after the structure has been completed. A General Contractor using all subcontractors to perform the work under its contract with the Owner/Developer can insulate itself from legal and financial destruction through the use of an indemnification provision in its contract with its subcontractors.
Actual Cases in Florida Involving Contractual Indemnification
The Defense Obligation in Contractual Indemnity
In Metropolitan Dade County v. Florida Aviation Fueling Co., Inc., 578 So. 2d 296 (Fla. 3d DCA 1991), the District Court considered whether an indemnitor had the duty to defend when the complaint filed against the indemnitee alleged more than one theory of liability, one which was covered by the indemnification clause and another which is not. The court held that when a complaint contains a covered claim and a claim which is not covered by the indemnity agreement, then the duty to defend extends to the entire lawsuit. General contractors should strive to have
all three in their contracts with subcontractors. However, general contractors
should be wary of entering into contracts with owners or developers when they
insist on having all three. It is
important to note that indemnification clauses wherein the general contractor
seeks to have the subcontractor indemnify him for purely his own negligence
Is the Duty to Pay Defense Costs
and Attorneys’ Fees Severable from the Duty to Indemnify?
In Barton-Marlow Co. v. Grunau Co., 835 So.
2d 1164 (Fla. 2d DCA 2002), the District Court answered this very question.
There, the trial court had determined that the indemnity provision was void and
unenforceable under §725.06, Florida Statutes, because it did not contain a
monetary limit on the subcontractor’s liability and no special consideration
was given by the subcontractor for the indemnity provision. In voiding the
indemnity provision, the court determined that the defense obligation was
severable from the indemnity obligation and thus still enforceable. The trial
court ultimately apportioned the defense obligation based the proportion of
each subcontractors’ contribution to the overall settlement. On appeal, Barton-Marlow, the general
contractor, argued that it was entitled to recover all of its defense costs and
attorneys’ fees because the duty to defend was severable from the duty to
indemnify. On the other hand, the subcontractors argued that the duty to defend
is part and parcel of the duty to indemnify, and the duty to defend arises only
out of the unenforceable indemnity provision, and the general contractor cannot
enforce one portion of an otherwise unenforceable provision. The District Court
ultimately held that the “duty to defend” is not severable from the remainder
of the indemnity provision.
Dear friend,
ReplyDeleteAnyone dealing with construction site regulation compliance issues knows that it's not an easy job. Federal, state and local laws impact many facets of construction work, and keeping up with what seem to be constant changes can be overwhelming. Compliance with the laws is vital, though, no matter how new they are.
my aim is to help you : Excavation Company Massachusetts
Thank you for read my comment.
Regards
sathiaja