Indemnity Agreement in Construction Contracts
An Indemnity agreement can protect you and allow others to bear the costs associated with damages. An indemnity agreement will reduce your construction risks and can control your total legal expenses. It is important that the agreement itself can describe the types of losses being covered, including legal fees. Some states do not favor indemnity agreements and present limitations to indemnity agreements. It is very important that the agreement properly identifies the scope and extent of the indemnification. This type of agreement is developed to protect the contractor less active under one particular trade or series of events.
Types of Indemnity Clauses
Every indemnity agreement should be prepared accordingly to the type of project being executed. The most common indemnity clauses are:
Also known as a Broad Form Indemnity. Under this clause the indemnitor is responsible for his own negligence as well as the negligence of a third party. This means that the indemnitor may be liable for the sole negligence of the indemnitee. In some states, such as California, the indemnitee cannot transfer damages caused by his sole negligence or willful misconduct to the indemnitor.
The type II or intermediate form of agreements will put the indemnitor assuming all the risks associated but not if the risk is the indemnitee responsibility. It is the preferred clause in the construction industry and could hold the owner harmless from any and all claims, caused by negligent acts or omissions of the owner. It requires all-or-nothing indemnification.
A Type III or a comparative form clause requires a comparison of negligence. Under this clause the indemnitor will be held responsible for the loss caused by the indemnitor. This Type Three agreement is based upon common law principals commonly recognized in the United States. The indemnitor is not liable for direct negligence committed by the indemnitee.
Other Types of Indemnity Clauses
A mutual clause applies the same standard to each party, the indemnitor and the indemnitee.
Indemnity Clause Claims
An indemnity clause can be used for the following purposes:
Liability for negligence
Compensation due to injuries or property damages.
Claims for loss.
All types of property infringement.
Legal costs and related expenses.
Taxes and interests payable by a default contractor.
Indemnity Clause Contract Forms
The AIA Document A401 'Standard Form of Agreement Between Contractor and Subcontractor' states and provides for indemnity as follows:
'§ 4.3.4 To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Subcontractor, the Subcontractor's Sub-subcontractors, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work in the affected area if in fact the material or substance presents the risk of bodily injury or death as described in Section 4.3.3 and has not been rendered harmless, 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) except to the extent that such damage, loss or expense is due to the fault or negligence of the party seeking indemnity.
§ 4.3.5 The Subcontractor shall indemnify the Contractor for the cost and expense the Contractor incurs (1) for remediation of a material or substance brought to the site and negligently handled by the Subcontractor or (2) where the Subcontractor fails to perform its obligations under Section 4.3.3, except to the extent that the cost and expenses are due to the Contractor's fault or negligence.'
If you decide to use ConsensusDOCS 'Standard Form of Agreement Between Contractor and Subcontractor',ConsensusDocs 750, you will also be covered with an indemnity clause specified under section 9.1.1 and 9.1.2.
Both of these contract forms limit the subcontractor's obligation to indemnify the contractor. This last form, imposes additional indemnity obligations not covered under the AIA A401 form. In addition to these clauses it is very important to consider all other insurance requirements.