the general contractor who in turn
sues the subcontractors for indemnity.
In evaluating the claim, it is crucial to
understand the parties to the indemnity contract. For example, was the
general contractor licensed during all
times the work by the subcontractor
was being performed? In California, if
the contractor is unlicensed during the
time the contract is performed, he may
be prohibited from enforcing any affirmative claims against the subcontractor, including a claim for indemnity.
What? What type of work is involved
in the indemnity contract? Depending
on the state and the timing of the signing of the contract, indemnity without
a showing of fault may be prohibited
in residential projects, but still permissible in commercial projects. Also
consider what type of professional or
contractor is involved in the signing
of the contract? There may be a bar
as to certain kinds of indemnity as it
applies to subcontractors, which does
not apply to design professionals.
When? When was the contract
signed? Anti-indemnity statutes began
to become law in approximately 2006,
but the vast majority of states make
these statutes applicable from a date
certain moving forward. Therefore,
the timing of the signing of the indemnity provision can be crucial in evaluating these claims.
Where? Where was the contract
signed? The enforceability of a contract is evaluated based upon where the
contract was executed, but the laws are
different based on the state. With only
a few exceptions, including states such
as Main, Iowa, Vermont and Wyoming,
most states have passed some form of
anti-indemnity statute. But even for
those states with anti-indemnity statutes, many of the prohibitions are limited to type of trade or type of work. As
a result, it is crucial to understand the
exact facts involved before evaluating a
claim for indemnity.
Know the Agreement
It is not uncommon in both California
and Nevada, for only a small portion
of the indemnity settlement demands
being made by a general contractor
to a subcontractor to be comprised of
the plaintiff’s claims for damages. The
larger percentage is comprised typi-
cally of what the general contractor is
seeking to recover from the subcon-
tractor for fees and costs in defending
the claim. It is also not uncommon
for general contractors to expect sub-
contractors to pay 100 percent of any
settlement as well as to reimburse the
general contractor and its insurers to
reimburse all of the costs associated
with defending the case.
General contractors are able to do this
because they signed written indemnity
provisions with their subcontractors,
which purport to shift the entire risk
of loss to the subcontractor so long as
the loss arises out of the work of the
subcontractor, even if it is proven that
the subcontractor did nothing wrong.
In recent years there has been significant debate over the interpretation of
indemnity provisions in contracts for
which there is no effective anti-indemnity statute. For example, in Crawford
v. Weathershield Manufacturing (2008)
44 Cal.4th 541, the court held that the
subcontractor had to pay all of the
general contractor’s attorney fees even
though the subcontractor itself was
found by the jury to be NOT negligent.
The court interpreted California Civil
Code 2778( 4) to require a subcontractor to defend any suit brought against
the general contractor so long as the
claim arose out of allegations of damage
caused by the subcontractor. Regardless
of the location, courts tend to interpret
the contractual terms according to the
plain meaning of the words.
Know the Law
State legislatures across the country
beginning in about 2006, began to rec-
ognize the basic inequity in requiring
subcontractors and their insurers to
bear the burden of the expenses of liti-
gation via indemnity provisions with-
out some sort of showing of fault on
the part of the indemnitor. Therefore,
most states have seen the implemen-
tation of anti-indemnity statutes. The
typical statute provides that any provi-
sion that purports to transfer risk from
a general contractor to a subcontrac-
tor without some showing of negli-
gence on the part of the subcontractor
is unenforceable.
For example, in South Carolina, the
statute provides that a construction
contract that indemnifies the promisee, its employees or indemnitees
against liability for damages resulting from the sole negligence of the
promise. Similarly, in Massachusetts,
the statute states that if an indemnity
clause requires a subcontractor to
indemnify any party for injury to persons or damage to property not caused
by the subcontractor or its employees,
agents or subcontractors, the clause is
void. The Louisiana legislature adopted its first anti-indemnity statute in
2010. However the problem with this
statute, like many other states, is that
it is applicable only to those contracts
signed after the effective date of the
statute. The laws in each state are different, so it is important to become
familiar with the intricacies in the
state in which the claim is venued.
Issues of indemnity are so complex
and varied, that each and every claim
requires a significant investigation
into the facts, agreement and law
applicable. Each state varies significantly as to whether or not they will
enforce indemnity provisions and
to what extent. How these provisions interact with insurance coverage issues, is an even bigger wrinkle.
However, what is clear is that with
effort, one can wade through the
morass in order to properly evaluate and manage indemnity claims in
order to ensure they are for the most
part, successfully resolved.
Elizabeth A. Skane is a partner with the law
firm Skane Wilcox, which has offices in San
Diego, Los Angeles, San Francisco and Las
Vegas. Chris Casson is a Claims Manager for
Vela Insurance Services and works out of their
Omaha office.
