By Bruce Jervis
Construction industry agreements have traditionally included broadly written indemnification clauses. Everyone has seen them. If anything goes wrong, if any liability is incurred, Party A will be indemnified and held harmless by Party B to the maximum extent permitted by law. Party A will be fully reimbursed, including attorney fees.
While it is easy to pass these clauses off as a bunch of “legal boilerplate,” that would be a mistake. Indemnification clauses can have devastating liability consequences. And they are frequently imposed by a party in a superior bargaining position. They are presented as part of the “standard” terms and conditions. Take it or leave it.
As a result of this problem, a number of state legislatures have enacted statutes limiting the enforceability of indemnification clauses in construction industry contracts. One state is Florida. Contracts “between an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman, or any combination thereof … shall be void and unenforceable unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract.”
Recently, an equipment supplier, which had not included a monetary limitation in the indemnification clause on the back side of its work order, argued that the Florida statute was intended to protect only project owners in their agreements with the listed parties. A court rejected that contention. The statute applies to agreements between or among “any combination thereof.” The supplier’s indemnification clause was unenforceable.
What is your opinion of indemnification clauses? Are they a legitimate means of allocating risk within a construction contract? Or are they disproportionate to the commercial realities of the transaction, imposed by parties with superior financial leverage? In the face of legislative and judicial limitations on enforceability, are you seeing clauses that are more narrowly and reasonably drafted? I welcome your comments.
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