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Another Blow To Construction Indemnity Agreements In Virginia

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In Travelers Indemnity Company of Connecticut v. Lessard Design, Inc. (decided June 12, 2018), the Eastern District of Virginia invalidated an indemnity clause in a contract between an architect and a contractor on the basis it violated Va. Code § 11-4.1, which prohibits certain types of indemnity agreements in construction contracts. Lessard Design, Inc. (Lessard) contracted with PDT Builders LLC (PDT Builders), a subdivision of Penrose Group (Penrose), to prepare design plans and provide construction supervision and consulting services on a condominium project. Travelers was PDT Builders’ and Penrose’s commercial general liability insurance carrier.

Lessard, PDT Builders, Penrose, and Travelers were defendants in a prior lawsuit brought by a third party for copyright infringement related to Lessard’s design. After that lawsuit concluded, Travelers sued Lessard to recover the attorneys’ fees and costs it spent defending itself, PDT Builders, and Penrose against the copyright infringement claim. Travelers relied upon a provision in the contract between Lessard and PDT Builders, in which Lessard agreed to:

[i]ndemnify, defend and hold [PDT Builders and its affiliates, agents, employees, and officers] harmless from and against any and all losses, liabilities, expenses, claims, fines and penalties, costs and expenses, including, but not limited to reasonable attorneys’ fees and court costs relating to the services performed by [Lessard].

When Lessard refused to indemnify Travelers, Travelers sued. At issue in the case was whether Lessard could be required to indemnify Travelers in light of Virginia Code § 11-4.1, which prohibits:

[a]ny provision in any contract relating to the construction, alteration, repair or maintenance of a building [or other project] by which the contractor performing such work [agrees] to indemnify or hold harmless another party to the contract against liability for damage arising out of bodily injury to persons or damage to property . . . caused by or resulting solely from the negligence of [the] other party . . .

The Court considered whether § 11-4.1 applied to Lessard, in its role as architect. It found that in addition to Lessard’s design obligations, it also “ha[d] duties and responsibilities related to the ‘Construction Phase’ of the Builders, regularly visit the project site, guard against defects and deficiencies, and reject non-conforming work. Therefore, its contract was one “relating to construction” within the scope of § 11-4.1.

Next, the court found that because Lessard was “the party performing the contract” with PDT Builders, it was a “contractor” under § 11-4.1. The court refused to define the term “contractor” in § 11-4.1 so narrowly as to apply only to entities that actually perform construction. Instead, it found that “contractor” extends to anyone “including architects, who do other work relating to a contract for construction, repair, or other building-related services.” The court suggested, however, that if Lessard had simply sold a set of plans to PDT Builders without participating in the construction phase of the project, § 11-4.1 might not have applied. Had it found that § 11-4.1 did not apply, the court presumably could have reached the same result under Va. Code § 11-4.4, which is nearly identical to § 11-4.1, except that it pertains specifically to contracts with architects and professional engineers.

Lastly, the court found that the indemnity clause failed to exclude situations where Lessard might be forced to indemnify PDT Builders for damages caused solely by PDT Builders’ own negligence. Requiring Lessard to indemnify PDT Builders in these circumstances was “precisely the situation forbidden by § 11-4.1.” Relying on the Supreme Court of Virginia’s prior decision in Uniwest Construction, Inc. v. Amtech Elevator Services, Inc., the court refused to revise the indemnity clause to make it compliant with § 11-4.1. Instead, it struck the entire thing—leaving Travelers without any right to indemnity from Lessard.

Significantly, the court threw out the contract’s indemnity clause simply because, it could have, under different facts, required Lessard to indemnify Travelers for personal injury or property damages. However, in this case, Travelers was just trying to recover attorneys’ fees it spent in the prior litigation, which were not themselves, nor were they related to, personal injury or property damages. Furthermore, it was presumably Lessard’s design services (i.e., its design of the condominium), not its construction phase services, that gave rise to the prior copyright infringement suit and therefore the damages for which Travelers was seeking indemnity. Yet, the court relied upon Lessard’s construction phase services as justification for why § 11-4.1 applied. The court’s reliance upon nonexistent personal injury/property damages and Lessard’s unrelated construction phase services to invalidate the indemnity agreement in the parties’ contract demonstrates just how far courts will go to avoid imposing indemnity obligations in Virginia construction contracts. For more information, please contact the authoring attorney.

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