In a construction contract, an indemnity clause is an agreement between the parties regarding responsibility for losses or damages in connection with the construction project. Basically, an indemnity clause provides one of the parties with security against damages and sometimes exempts them from liability caused by their own acts
Indemnity clauses generally state that the contractor will indemnify the owner and hold them without fault for any losses, claims, demands, or lawsuits resulting from defects in the contractor’s performance. The clause provides the property owner with safeguards from many types of losses associated with the specific contractor (i.e., a designer or architect).
Some construction contracts include indemnity clauses for the contractor. These clauses state that the owner releases the contractor from liability. For example, an indemnity clause for limitation of liability for contractors will deal with secondary issues such as attorney’s fees or court costs.
Indemnity clauses are generally enforced so long as they do not violate any liability requirements. However, state laws sometimes look unfavorably upon indemnity clauses, especially clauses that limit contractor liability. This is because contractors always owe a general duty of care to the property owner. In some states indemnity clauses for contractors are rejected, though sometimes they are accepted subject to limitations.
A court is more likely to uphold indemnity clauses that do not directly limit the contractor’s liability for negligence or wrongdoing. Since indemnity clauses are subject to contract law, the parties are free to negotiate according to their individual circumstances. However, indemnity clauses must fit properly within the requirements of liability laws.
An indemnity clause may be invalidated if it is created under conditions of fraud or duress (the use or threat of force to obtain the agreement). For example, if the indemnity clause is difficult to identify in the contract or if it contains misleading language, it may be unenforceable in court.
One common remedy for indemnity clause disputes is where a court allows the parties to rewrite the clause to better reflect their original intentions. A judge may decide to strike down the clause in whole or in part if it is unreasonable, or if the parties’ intentions cannot be clearly determined from the clause.
If a construction contracts indemnity clause is found to be invalid, the party will not be held liable to the clause. Instead, liability will be determined according to statute or relevant case laws. In this case the contractor may once again become subject to a lawsuit if the previous clause is invalidated.
Indemnity clauses can sometimes be a necessary part of construction contract agreements. Some construction projects cannot proceed without clear instructions regarding the various parties’ liabilities. However, an indemnity clause must be drafted in a way that both parties will understand. For this reason, it is highly recommended that you consult a contracts attorney if you will be needing an indemnity clause. Your business lawyer will be able to draft and review the clause for you, and can also provide advice in case a lawsuit arises.