by Bryant H. Byrnes
Say a GC signs a contract to build a fence for a homeowner.
After the job is done, the homeowner hits the fence with his
car but does not repair the damage. A couple of weeks later the
fence falls on a neighbor who is walking down the sidewalk. Who
is liable for the neighbor's injury?
Most people would say the homeowner is liable — but that
doesn't mean the contractor can't be drawn into an expensive
legal battle. If he built the fence properly, his level of
exposure will depend on whether the construction contract
contains an indemnity clause and what the clause says.
What Is Indemnification?
An indemnification clause (also called a hold-harmless clause)
allocates risk between the parties to a contract. Its purpose
is to clearly state which party is responsible for which risk.
If one party (the indemnitor) causes a problem and another
party (the indemnitee) gets drawn into it, the first party
agrees to be responsible for the problem on behalf of
In construction contracts, the contractor typically indemnifies
the customer for the contractor's defective work. In
subcontracts, it is common for the subcontractor to indemnify
the contractor for the subcontractor's defective work.
Contracts can also be written so that the customer indemnifies
the contractor for problems caused by the customer.
Indemnification is necessary because in today's world people
don't restrict themselves to suing the responsible party
— they sue anyone who could possibly pay.
The attorney for the neighbor who was injured by the falling
fence will tell him to sue not only the homeowner but also the
contractor, the sub who painted the fence, and maybe even the
lumberyard that supplied material for it. That way, if the
homeowner can't pay or the court says he is not liable, those
other people may be able to pay.
Owner Indemnifies Contractor
So how might an indemnification clause help the contractor who
is being sued for something caused by the negligence of the
The contracts I prepare for clients often contain the following
provision: "Owner shall defend, indemnify, and hold harmless
the Contractor, and its subcontractors, from and against any
and all claims, demands, causes of action, damages,
liabilities, losses, and expenses arising from the project
and/or the contract to the extent caused by the fault of Owner
or its consultants, design professionals, or agents."
If the contractor who built the fence has this provision in the
contract and is named in a lawsuit by the injured neighbor, he
can "tender" the defense of the lawsuit to the homeowner. The
homeowner (or his insurer) must then handle the lawsuit on
behalf of both, pay for the attorney, and pay all
Tendering a defense puts the indemnitor (in this case the
homeowner) on notice that he is contractually obligated to pay
the attorney fees and any damages that the indemnitee (in this
case the contractor) is forced to pay as a result of the
Sub Indemnifies Contractor
A second example involves a subcontract between a general
contractor and a roofing subcontractor. The sub makes a mistake
installing the roof, the roof leaks, and the owner sues the
roofing sub and the general contractor.
Who pays the legal fees and any damages that result from this
lawsuit? The subcontractor does, if the subcontract contains an
indemnity clause in which the sub agrees to indemnify the
contractor. In that case the contractor makes a tender to the
sub, and the sub is obligated to handle the lawsuit on behalf
of both and pay all damages and attorney fees.
Here's an example of such an indemnity clause: "Subcontractor
shall defend, indemnify, and hold harmless the Contractor from
and against any and all claims, demands, causes of action,
damages, liabilities, losses, and expenses arising from the
project and/or the contract to the extent caused by the fault
of Subcontractor or its consultants, design professionals or
Sometimes innocent homeowners get drawn into lawsuits that
result from something that happened on their property during
construction — something they may have had nothing to do
with. To protect the homeowner, many contracts include the
following language (or something similar): "Contractor shall
defend, indemnify, and hold harmless the Owner, but not any
engineering or design professional, consultant, or other agent
of Owner, from and against all liability to any third party for
bodily injury, death, or tangible property damage caused by the
negligent acts or omissions of the Contractor."
This clause shields the homeowner from being sued for problems
caused by the negligence of the contractor. It specifically
excludes problems that result from faulty design work by the
owner's architect or engineer.
If you are sued or someone who you indemnified tenders his
defense to you because he is being sued, your insurance company
may pay the legal fees and any damages levied. But don't assume
that it will. Your insurance policy may contain fine print
requiring you to obtain certain assurances from the other
people involved in the project.
Your insurance company may expect you to get your subs and
clients to carry a certain type and amount of insurance. It may
also expect your contract to contain certain indemnification
provisions whereby the homeowner and subs indemnify you.
If you neglect to take care of these details, the terms of your
insurance policy could be voided, and when trouble comes you'll
be on your own. So work with a good insurance agent who
specializes in construction; get him to review the
indemnification parts of your contract documents to make sure
they comply with the terms of the policy.
In Every Single Contract
Every construction contract should contain provisions for
indemnification. If indemnification is not addressed and
someone decides to sue, innocent parties may be dragged into a
fight they shouldn't be part of. Even if they avoid paying
damages, they may still face large legal fees. But if these
innocent parties have been indemnified, then the person who
indemnified them will have to pay the lawyer and judgment or
In the absence of an express contractual agreement, many states
will "imply" indemnity — meaning that it's a statutory
right parties can sue to enforce. However, it's still better to
have an indemnification provision in the contract because an
explicit contractual requirement is usually easier to enforce
than a right implied by statute.
Consult With an Attorney
Indemnification is a slippery concept, and not every attorney
understands how it works in construction contracts. But legal
fees being what they are, you cannot afford not to address
indemnification in your contracts.
It pays to get this right, which is why I strongly advise
contractors to have their contracts reviewed by a lawyer who
specializes in construction law and is familiar with the laws
in his particular state.Bryant H. Byrnes is an
attorney in Oakland, Calif., who specializes in construction