MAKE SURE INDEMNIFICATION PROVISIONS CLEARLY REFLECT THE REQUIRED SCOPE OF THE INDEMNIFICATION

imagesIndemnification provisions are a vital component of construction contracts. Every construction contract (whether a prime contract, subcontract, professional services contract, etc.) should absolutely require that the party receiving compensation for performing a service to indemnify the party paying for that service (referred to as the indemnitee). No exception! Moreover, it is crucial that indemnification provisions are carefully drafted to not only comply with Florida law, but to eliminate any uncertainty regarding the scope of the indemnification. In other words, make sure the indemnification provision unequivocally reflects the scope of the indemnification that is sought and that the scope complies with Florida law.

 

In Florida, indemnification provisions for construction contracts are governed by Florida Statute s. 725.06, which is recited below. Also, please see http://www.floridaconstructionlegalupdates.com/buttoning-up-contractual-indemnification-language/ and http://www.floridaconstructionlegalupdates.com/the-scope-of-a-release-in-a-settlement-and-contractual-indemnification/ for more information on the application of this statute to ensure the indemnification provision, whether for a private or public project, complies with Florida law.

 

The recent Third District Court of Appeal decision in Royal Palm Hotel Property, LLC v. Deutsche Lufthansa Aktiengesellschaft, Inc., 2014 WL 444150 (Fla. 3d DCA 2014), albeit a non-construction dispute, exemplifies the significance of making sure the indemnification provision accurately reflects the scope of indemnification that the party receiving the indemnification (the indemnitee) truly wants or requires.

 

In this case, the indemnification provision read: “The Hotel agrees to indemnify and hold Lufthansa harmless from all liabilities, including damage to property or injury or death of persons, including Lufthansa property and Lufthansa personnel that may result from the negligence or wilful (sic) misconduct of the Hotel.”

 

The indemnification provision was between a hotel and an airline which had its employees stay at the hotel. In this personal injury action, the hotel was sued for negligence when a window fell out of a frame and injured a guest. Also, the airline was sued under the theory that it was vicariously liable for the negligence of its employee staying at the hotel. The issue was whether the hotel was required to indemnify the airline for the negligence of the airline and its employees staying at the hotel. However, a look at the indemnification clause above does not articulate that the hotel will be responsible for indemnifying and holding the airline harmless for the negligence of the airline or the airline’s employees. Rather, it says the hotel will indemnify the airline for its negligence or willful misconduct. This is a huge difference as the indemnification written is much narrower than the indemnification that the airline perhaps wanted.

 

Again, the airline was never sued for the hotel’s negligence. It was sued for the negligence of its employee staying at the hotel under a vicarious liability (respondeat superior) theory. While the airline prevailed in the underlying personal injury action, it wanted to recoup its defense costs against the hotel. The Third District construing the indemnification provision held that the provision was never kicked into effect because the hotel was not required to indemnify the airline for the negligence of the airline or its employee and the basis of the underlying claims against the airline related to the negligence of the airline’s employee.

 

The reason this case is worth discussing is because if an indemnitee wants an indemnification provision to cover its own negligence, the provision needs to clearly reflect this intent. Now, for construction contracts, an indemnitee should never negotiate an indemnification that covers it for its negligence without making sure the provision undoubtedly complies with Florida Statute s. 725.06. Otherwise, the indemnitee risks an unenforceable indemnification provision!  In a nutshell, s. 725.06 provides that if an indemnification provision is going to indemnify an indemnitee for its negligence, the contract must contain a “monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and its part of the project specifications or bid documents, if any.”

 

 

Section 725.06

(1) Any portion of any agreement or contract for or in connection with, or any guarantee of or in connection with, any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance, including moving and excavating associated therewith, between an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman or any combination thereof wherein any party referred to herein promises to indemnify or hold harmless the other party to the agreement, contract, or guarantee for liability for damages to persons or property caused in whole or in part by any act, omission, or default of the indemnitee arising from the contract or its performance, shall be void and unenforceable unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any. Notwithstanding the foregoing, the monetary limitation on the extent of the indemnification provided to the owner of real property by any party in privity of contract with such owner shall not be less than $1 million per occurrence, unless otherwise agreed by the parties. Indemnification provisions in any such agreements, contracts, or guarantees may not require that the indemnitor indemnify the indemnitee for damages to persons or property caused in whole or in part by any act, omission, or default of a party other than:

(a) The indemnitor;

(b) Any of the indemnitor’s contractors, subcontractors, sub-subcontractors, materialmen, or agents of any tier or their respective employees; or

(c) The indemnitee or its officers, directors, agents, or employees. However, such indemnification shall not include claims of, or damages resulting from, gross negligence, or willful, wanton or intentional misconduct of the indemnitee or its officers, directors, agents or employees, or for statutory violation or punitive damages except and to the extent the statutory violation or punitive damages are caused by or result from the acts or omissions of the indemnitor or any of the indemnitor’s contractors, subcontractors, sub-subcontractors, materialmen, or agents of any tier or their respective employees.

(2) A construction contract for a public agency or in connection with a public agency’s project may require a party to that contract to indemnify and hold harmless the other party to the contract, their officers and employees, from liabilities, damages, losses and costs, including, but not limited to, reasonable attorney’s fees, to the extent caused by the negligence, recklessness, or intentional wrongful misconduct of the indemnifying party and persons employed or utilized by the indemnifying party in the performance of the construction contract.

(3) Except as specifically provided in subsection (2), a construction contract for a public agency or in connection with a public agency’s project may not require one party to indemnify, defend, or hold harmless the other party, its employees, officers, directors, or agents from any liability, damage, loss, claim, action, or proceeding, and any such contract provision is void as against public policy of this state.

(4) This section does not affect any contracts, agreements, or guarantees entered into before the effective date of this section or any renewals thereof.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.