Builders and Contractors Exchange
Weekly Bulletin: 08 June 2007
Indemnity Obligations -- The Iceburg To Your Titanic
By: Sadiq Gill
In today’s modern era of contracting, much time and attention is paid to specific contractual provisions such as ‘pay when paid’ clauses, liquidated damages clauses and provisions dealing with dispute resolution or joinder. Often, however, persons reviewing contracts overlook the standard and many times over broad indemnity clause.
The typical indemnity clause has the indemnitor indemnifying and holding the other party to the contract harmless from any and all damages arising in whole or in part from the indemnitor’s actions and or inactions. ‘Damages’ subject to indemnity include all attorneys fees, litigation costs and any and all other damages or costs attributable to the event for which indemnity is sought. The indemnity obligation is often triggered at the instance of a claim or issue as opposed to a final adjudication or determination.
Often written in virtually incomprehensible legalese, these clauses in effect require the contractor or subcontractor to financially stand behind and back stop virtually all financial losses or claims that may arise on a project and which may arise from the work performed by the contractor or subcontractor. Thus, the clauses are too broad, have virtually no limitation and expose contractors and subcontractors to immense financial risk to claims and costs associated with claims.
My recommendation is to read through these clauses with a fine tooth comb. Limit the indemnity obligation to matters which either you accept as an issue for which you may be responsible and for which you have sole responsibility. Thus, if an issue arises where you have some but not one hundred percent accountability, you do not want to be in a position of being required to indemnify or provide a defense. Furthermore, limit the indemnity obligation to actual costs associated with the issue itself excluding attorneys’ fees, claim costs and any and all other consequential (indirect) damage.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.