#26: Indemnity Obligations
Indemnity is the obligation of one party (the “indemnitor”) to protect another party (the “indemnitee”) from claims and damages asserted by third parties. It can be either express (written into a contract) or implied (imposed by law as a matter of policy when a party who is free from fault is nevertheless held vicariously liable for the negligent acts or omissions of another).
Express indemnity provisions are common in construction contracts, particularly for tort claims. An example is Section 3.18.1 of the AIA form A201 (2007) General Conditions of the Contract for Construction: “[t]he Contractor shall indemnify and hold harmless the Owner . . . from and against claims, damages, losses and expenses . . . arising out of or resulting from the performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a subcontractor, or anyone directly or indirectly employed by or anyone for whose acts they may be liable.”
Providing indemnity “only to the extent caused by the negligent acts or omissions of the Contractor” or those for whom it is vicariously liable is an important limitation, making indemnity obligations proportionate to fault. If, for example, an Owner’s negligence was the partial or sole cause of a third party’s damages, this language would require Owner and Contractor to bear the liability in proportion to the negligence (if any) ascribed to each. But like any other clause in a form contract, this limitation is sometimes sought to be eliminated by the contracting parties. I have seen a number of construction contracts that require one party to indemnify another even from the consequences of the indemnitee’s own negligence. Such provisions were once enforceable in New Hampshire, at least where the parties had insurance to cover their indemnity obligations. Commercial Union Assurance Co. v. Brown Co., 120 N.H. 620 (1980), explained:
“Contracts which provide for indemnification of a party against his own future acts of negligence are generally not prohibited. See 41 Am.Jur.2d Indemnity § 9 (1968). This is especially true in the construction industry. See 27 A.L.R.3d 663 § 2 (1969). The courts have recognized that ‘Ordinarily the financial responsibility for the risk of injury during the course of a construction project is shifted in any event by the primary parties to their insurance carriers and the parties ought therefore to be free to determine how the insurance burdens will be distributed between them and who will pay for specific coverage for specific risks. The impact of the indemnity agreement between owner and contractor and contractor and subcontractor is therefore, in practical effect, the parties’ allocation between themselves of the total required insurance protection for the project.’ Doloughty v. Blanchard Const. Co., 139 N.J.Super. 110, 116, 352 A.2d 613, 616 (1976). The purpose of the indemnity agreement in the case before us was to allocate the insurance burdens of the parties; we do not see such an allocation as contravening public policy.”
In 2004 the New Hampshire Legislature changed this rule. RSA 338-A:2 now provides: “Any provision for or in connection with a contract for construction, reconstruction, installation, alteration, remodeling, repair, demolition, or maintenance work, including without limitation, excavation, backfilling or grading, on any building or structure, whether underground or above ground, or on any real property, including without limitation any road, bridge, tunnel, sewer, water, or other utility line, which requires any party to indemnify any person or entity for injury to persons or damage to property not caused by the party or its employees, agents, or subcontractors, shall be void.”
After this statutory change, indemnification for personal injury and property damage claims (precisely the claims typically covered by a Commercial General Liability policy) now tracks fault regardless of whether the indemnitor's liability can be sloughed off to an insurance carrier. But the statute does not address broader indemnity clauses which purport to shift liability for all claims, whether or not related to personal injury or property damage.