Indemnity and Defense Obligations: Not Necessarily Absolute

11/29/2010

Now that everyone’s had their fill of Thanksgiving food and good cheer, it’s time to get back to the old grindstone. One way to burn off those holiday calories is to exercise the old mind; hey, in my book, every calorie burned counts, not matter how you burn it!

The Virginia Supreme Court recently dabbled into the indemnity and hold harmless field in the case of Uniwest Construction, Inc. v. Amtech Elevator Services, Inc., 280 Va. 428, 699 S.E.2d 223 (2010), in which it considered whether a subcontractor had an absolute obligation to indemnify and hold a general contractor harmless. While the court held the subcontractor did have to indemnify and hold the contractor harmless, it held that obligation was not absolute, and only found the obligation after voiding another more specific obligation in the parties’ subcontract.

The subcontract had a very specific indemnity / hold harmless provision that required the subcontractor to indemnify the contractor even if the contractor was negligent. The court held that verbiage was too broad and conflicted with Virginia Code Sec. 11-4.1, which statutorily voids any provision contained in any contract relating to construction, alteration, repair or maintenance of a building, structure or appurtenance (including connected moving, demolition and excavation) if it contains language purporting to require one party to indemnify or hold harmless another party against liability for damage arising out of bodily injury or property damage caused by or resulting solely from the other party’s negligence.

So even though the facts didn’t give rise to a situation in that instance where the contractor was trying to hold the subcontractor liable for the contractor’s sole negligence, the court held the clause was nevertheless void in its entirety because it was contrary to the statue, and so there was no duty to defend or hold harmless under that provision. But the contractor wasn’t totally out of luck because it had been smart enough to include other flow-down language in the subcontract in the form of a general flow-down provision elsewhere in the subcontract, and the court held that flow-down provision established a more broad pass-through requirement to indemnify and hold harmless that nevertheless applied.

Major lessons learned: 1) overbroad indemnity / hold harmless clauses are void, regardless of whether the facts involve the sole negligence of the party seeking to enforce the provision, so avoid them; and 2) courts will construe contracts as the parties make them, so be careful what you include or accept in your contracts; and 3) the Virginia Code does have some provisions voiding otherwise agreed terms, but those public policy restrictions are not extensive and will not void other valid terms in the contract; and 4) those general flow down provisions can play important roles in the parties’ obligations owed to each other, so don’t ignore them or figure they’re just standard language without significant meaning.

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