No Indemnity Provision in Your Construction Contract? PRAY.
In construction, typically an owner contracts with a general contractor, and then the general contractor contracts with subcontractors who actually perform the work. The owner in most projects will not have any contractual relationship with a subcontractor. So, if a subcontractor negligently performs work and damages the owner, the owner asserts a claim against the general contractor with whom the owner has contracted.
What does the contractor do in that situation? The contractor seeks indemnity from the subcontractor. Because it was the subcontractor’s negligence that caused the general contractor to become liable to the owner, then the subcontractor should reimburse the general contractor for the damages caused for which the general contractor must pay to the owner. Right? Well, maybe, maybe not.
The general contractor’s right to indemnity from the subcontractor can arise out of contract, or, if the subcontract agreement does not have a provision giving a right of indemnity to the general contractor, then the general contractor can rely on “common law” indemnity (indemnity recognized by the courts under principles of equity).
WARNING: Your subcontract agreement better have an indemnity clause in it, Mr. General Contractor. Relying on common law indemnity is a very risky proposition.
The principles governing common law indemnity find their basis in notions of equity, and those equitable notions provide a much narrower basis of recovery than is potentially available under contractual indemnity. This is because contractual indemnity provisions are not based on notions of equity. They are based on principles of contract. The extent of a contractual duty to indemnify must be determined from the contract and not by reliance on implied indemnity principles. Accordingly, if a contractual indemnity provision plainly specifies that a general contractor can seek indemnity from its subcontractors despite its own negligence, it may do so if not otherwise limited by the contract and the circumstances.
Under common law indemnity, however, the right to indemnity is only available if the general contractor proves to be free from negligence, meaning, totally free of any negligence. If a court or jury or arbitrator were to determine that the general contractor was in some degree negligent for the loss, however minimal, because it should have supervised the subcontractor’s work better, it should have pointed out certain aspect of the building plans, it negligently hired a subcontractor that maybe performed work outside the scope of its license, etc., then no right of any indemnity from the subcontractor is available as a matter of law.
Contractors should never rely on common law indemnity. Any and all construction contracts should have an appropriate indemnity provision so that the right to indemnity is contractual. Mesch Clark Rothschild can protect your right to assert an indemnity claim by drafting indemnity provisions into your contracts so that you are not held responsible for the negligence of others.