Protecting Owners With Robust Indemnification Clauses

Melissa Billig, Kenneth Block, Brandon Reiner, Stuart Rosen and Hillel Sussman | Tannenbaum Helpern Syracuse & Hirschtritt

Lately, it seems as though the most contentious legal issue in construction contracting revolves around indemnification clauses and the interrelated waiver of consequential damages. Owners customarily seek full defense and indemnification from contractors for all claims of third parties and carve out third-party claims from waivers of consequential damages. Invariably, however, contractors seek to limit indemnification to insurable claims and seek broad waivers of consequential damages. In this blog, we present the owner’s argument for broad defense and indemnification and the related carve-outs from waivers of consequential damages which are necessary to preserve the owner’s rights to defense and indemnification.

The most common indemnification provisions sought by an owner are for the defense and indemnification of third-party claims asserted against the owner; legal fees for the successful enforcement of the indemnification; and indemnification for all third-party claims, including economic loss, arising from the activities of the contractor.

Defense and indemnification go hand in hand. However, surprisingly, the typical indemnification provision in an AIA form agreement (for example, AIA Document A201 – General Conditions of the Contract for Construction) provides indemnification, but not defense of claims brought against the owner caused by the negligent acts and omissions of the contractor resulting in personal injury, bodily injury or property damage. This AIA provision is problematic for owners: it does not provide a defense of claims due to the activities of the contractor and deals only with the contractor’s negligence, not breach of contract or statutory liability along with other triggers of the indemnity. For these reasons, when using AIA forms, the defense of claims should be included in the indemnification and the requirement that negligence be alleged in order to trigger the indemnity should be removed.

Another commonly missed point in indemnification provisions is the omission of legal fees for the enforcement of the indemnity. In the absence of a prevailing party clause in the underlying contract, an owner successfully suing the contractor to enforce the indemnification cannot recover the legal fees incurred in enforcing the indemnity. A provision allowing attorney fees for successful enforcement should be included in the indemnification.

Also problematic in many indemnifications is the limitation of the indemnity to personal injury, bodily injury or property damage. It is also quite conceivable that the contractor is responsible for claims of third parties for monetary damages or economic loss, such as claims of subcontractors, suppliers, neighbors, purchasers or governmental agencies. The indemnification should cover such claims. It is to be expected that contractors will push back against an indemnification for monetary damage for the reason that such a claim is not insurable; however, it is our view that, regardless of the availability of insurance, if a claim is brought by a third-party, which arises from the contractor’s breach of contract or wrongful act, the contractor should defend and indemnify the owner for such a claim.

Finally, it should be noted that, in order to provide complete indemnification protection to the owner regarding claims of third parties, owners should be careful not to give up the indemnity protection under a guise of a waiver of consequential damages, often requested by contractors, but which might include economic loss. For this reason, if we agree to a waiver of consequential damages, we provide carve-outs to the waiver for: claims of third parties; claims covered by the contractor’s insurance; or claims arising from gross negligence or willful misconduct. Once again, the contractor may push back on the carve-out; however, in order for the owner to receive the full benefit of a robust indemnification, these carve-outs should be included in the waiver of consequential damages.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

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