How To Include Hold Harmless And Indemnity Provisions In Your Construction Contract In Indiana
June, 2007
by P. Scott Ritchie and Anthony P. Ulm
Introduction
Those involved in construction contracts with subcontractors and who wish to minimize their exposure for damages in the event an employee of the subcontractor becomes injured while working on the project, should consider the use of “hold harmless” and indemnity provisions in their contracts. These provisions can help minimize the risk of being named a third-party defendant in litigation or allow you to pursue a claim for indemnity against a third party in the event the employee of a subcontractor sustains an injury and then files a lawsuit. Under Indiana law, certain requirements must be met in order for these contract clauses to be enforceable.
“Hold Harmless” Language
A “hold harmless” clause in a construction contract should include basic language in order to protect the intended parties. For example, the clause should generally state that the promisor will hold harmless the promisee and its agents and employees from and against any claims, damages, causes of action, losses, and expenses that arise out of the performance of the work at the construction project that is caused in whole or in part by the promisor and/or any of his agents or employees, subcontractors, and independent contractors.
If you are a contractor, subcontractor, or engineering firm that is not a signatory to the construction contract, you must make sure that you are identified as a third-party beneficiary of the protections of the contract, including any “hold harmless” and indemnification clauses. Otherwise, a court may find that the clause does not apply to the party attempting to utilize its benefits and protections. Under Indiana law, in order to have third-party beneficiary status under a contract to which the prospective third-party beneficiary is not a party, the construction contract must indicate the following: “(1) a clear intent by the actual parties to the contract to benefit the third party; (2) a duty imposed on one of the contracting parties in favor of the third party; and (3) performance of the contract terms is necessary to render the third party a direct benefit intended by the parties to the contract. The intent to benefit the third party is the controlling factor and may be shown by specifically naming the third party or by other evidence.” Luhnow v. Horn, 760 N.E.2d 621, 628 (Ind. Ct. App. 2001). Therefore, in order to be considered a third party beneficiary under the contract, a party must ensure that the applicable construction contract has included language that clearly sets forth the above-noted criteria.
Indemnity Language
Many states have enacted “Anti Indemnity” statutes that prohibit a party involved in construction related activities from being indemnified for its own negligence by another party. For example, the Indiana code provides:
“All provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction or design contract except for those pertaining to highway contracts, which purport to indemnify the promisee against liability for:
(1) death or bodily injury to persons;
(2) injury to property;
(3) design defects; or
(4) any other loss, damage or expense arising under either (1), (2) or (3);from the sole negligence or willful misconduct of the promisee or the promisee’s agents, servants or independent contractors who are directly responsible to the promisee, are against public policy and are void and unenforceable.” I.C. 26-2-5-1.
Despite the language contained in I.C. 26-2-5-1, a party to a construction contract, which does not pertain to a highway contract, may still contract to indemnify itself against its own negligence if the other party willingly agrees to such indemnification. Moore Heating & Plumbing, Inc. v. Huber, Hunt & Nichols, 583 N.E.2d 142, 145 (Ind. Ct. App. 1991). How can this be so? The words “sole negligence” found in I.C. 26-2-5-1, are very important. That is, an indemnity clause that seeks to indemnify the promisee against at least some measure of negligence on the part of the promisor, is enforceable. Stated another way, an indemnity clause is unenforceable in Indiana if it operates to indemnify the promisee for its sole negligence. Id. at 148.
Attorneys’ Fees and Costs
A properly drafted indemnification provision should also include wording that clearly states that the promisee is entitled to its attorneys’ fees and costs which are incurred in connection with its defense, or prosecution, of a third-party action for indemnity. The courts in Indiana have clearly held that a party cannot be indemnified for its attorneys’ fees and costs unless specifically provided for in the indemnification clause. England v. Alicea, 827 N.E.2d 555, 559 (Ind. Ct. App. 2005). Accordingly, it is critical that the promisor to an indemnification clause include language stating that the promisee agrees to indemnify and hold harmless the promisor from and against attorneys’ fees and costs arising out of the subject litigation.
Conclusion
It is imperative that if a party or third-party beneficiary to a construction contract wishes to preserve its ability to pursue indemnification from a third party, or effectively defend itself from third-party liability through a hold harmless agreement, special attention must be directed to the language in its contract documents. Having effective and properly drafted hold harmless and indemnification clauses in the construction contract offers a party a sword and/or a shield in the event it is necessary to seek indemnification against a third party, or in the event a defense is needed against a claim for indemnity.
Should you have any questions regarding the requirements under Indiana law for drafting an indemnification clause for a construction project contract, please contact P. Scott Ritchie at (312) 606-7706.
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