Indemnification More Available Than You Might Think

by | Jun 1, 2021 | Contracts

Indemnification More Available Than You Might ThinkIndemnity is a term familiar to those in construction. Basically, indemnity shifts fault for damages or losses from one party to another. It is generally contractual, where one party agrees to assume responsibility by means of a written agreement, holding another harmless from the consequences of its actions or omissions. And for those contractual indemnification agreements to be enforceable, they generally have to be written very precisely with no ambiguous terms. However, what is not as well known is the legal fact that indemnity may also be available outside of any contract in what is called common law indemnity.

To be entitled to common law indemnity, one must show it is without fault while showing and shifting liability to another who is actually negligent or culpable.

Here’s an example. When a fire occurred inside a building, the owner sued both the general contractor and its painting subcontractor. The owner alleged that the contractor was negligent in performing its work and failing to properly supervise its subcontracted painter, who it asserted was negligent in storing its paints and solvents. Apparently, the painter placed one of its rags soaked with an oil based stain in a plastic bin left inside one of the areas being renovated. This was clearly contrary to the painter’s safety protocol which called for all oil and paint soaked rags to be rinsed and placed in a garbage bag and then removed and disposed of at the painter’s place of business. The rags left in the work space spontaneously ignited and started the fire.

These facts allowed the court to determine that the general contractor’s negligence was merely passive and therefore it was entitled to common law indemnification from the painter who was the party actively negligent party in this circumstance.

The painter went on the argue that because the general contractor had actually settled with the owner, its claim of common law indemnity could no longer be raised. Not so, said the court. Offers of settlement or actual settlements are not considered admissions against interest and do not rule out common law indemnity claims.

To be clear, common law indemnity is not a common place remedy, specifically because a party must be entirely faultless to attempt to shift any liability. And finding a situation where one can be seen to be totally without fault is generally rare. Especially within the setting of a construction project, where multiple disciplines are often working at the same place and at the same time, it is difficult to show that one hasn’t participated to some extent in the matter which has generated the claim.

Indemnification shall always be a critical element in construction. Contractors would therefore do well to understand the significance of any indemnity applicable to their potential exposures on a given job, be it contractual or common law.

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