Whether it is a claim for defective workmanship or personal injury, contractors are routine participants in the litigation arena. In an effort to avoid the costs associated with litigation, contractors often rely upon the indemnity clause. Indemnity clauses can be one valuable tool in avoiding the costs associated with litigation. However, if not properly written, an indemnity clause can actually increase the cost of litigation.
An indemnity clause is simply a contractual provision by which one party assumes liability for certain risks. Although an indemnity clause will not protect a contractor from being brought into a lawsuit, it can insulate a contractor from the costs associated with that lawsuit. The scope of an indemnity clause depends upon its terms. A court in Arkansas will ordinarily apply the terms of the agreement. If, however, a contractor wishes to protect itself from claims of its own negligence, the provision must be clear, unequivocal, and certain. As the Arkansas Supreme Court has stated, it must be written in “unmistakable terms.”
The Arkansas Supreme Court has relied upon this clear-and-unequivocal standard in denying claims for indemnity. For instance, in Arkansas Kraft Corporation v. Boyed Sanders Construction, the owner of property entered into a contract that included an indemnity clause. During the project, a third-person sustained injuries. This person filed a lawsuit, alleging negligence on the part of both the owner and the contractor. Ultimately, a jury apportioned fault to each of them. The owner sought indemnity from the contractor, relying upon an indemnity provision that provided, in part: “. . . Seller shall indemnify and hold Buyer harmless against any and all liabilities or claims for injuries or damages . . . arising out of such work.”
The Arkansas Supreme Court held that this provision did not clearly and unequivocally set out the contractor’s intention to indemnify the owner for its own negligence. The indemnity claim was, therefore, denied.
In Weaver-Bailey Contractors, Inc. v. Fiske-Carter Construction Co., a general contractor, Construction Advisors, subcontracted the excavation, foundation and concrete work on a construction project to Fiske-Carter Construction. In turn, Fiske-Carter subcontracted the concrete work to Weaver-Bailey Contractors. A person was injured, and Fiske-Carter assumed the costs of litigation from Construction Advisors pursuant to an indemnity clause. Fiske-Carter then sought indemnity from Weaver-Bailey Contractors pursuant to a second indemnity clause that required Weaver-Bailey Contractors to “save Fiske-Carter Construction Company harmless from and against any and all costs . . . or claims for damages . . . on account of any injury to persons . . . arising or resulting from the work provided for or performed, or from any act, omission, or negligence of Weaver-Bailey . . . .”
The Arkansas Supreme Court held that this language was insufficient because it did not clearly and unequivocally obligate Weaver-Bailey Contractors to assume losses imposed by an independent indemnity agreement with Construction Advisors. The court recognized that this risk could be assumed by contract but noted the indemnity agreement did not provide specific words such as: “directly or indirectly on account of injuries . . . arising or resulting from the work performed or provided, including liabilities imposed by separate indemnity agreements”.
Finally, in Pickens-Bond Construction Co. v. NLR Electric Co., the Arkansas Supreme Court held that an indemnity provision that shifted risk for “damage or injury from whatever cause” was broad enough to cover any claims of concurrent negligence on the part of the contractor but held that more specific language would be required to indemnify the contractor for claims based on its sole negligence.
The first documented construction laws can be found in Hammurabi’s Code of Laws. Then, “[i]f a builder has built a house for a man, and has not made his work sound, and the house he build has fallen and caused the death of its owner, that builder shall be put to death.”
Today, the costs of litigation can similarly force a contractor’s business into an early grave. It is important, therefore, for contractors to work with their lawyers to draft indemnity clauses to meet the needs of a particular project. A contractor should also work with its insurance agent and lawyer to ensure the subcontractor has taken the necessary steps to obtain insurance covering the contractor in accordance with the indemnity clause. With the right indemnity clause, the contractor has taken the first step necessary to avoid the proverbial ax.
Rick Behring, Jr. is a member of the firm’s Insurance Coverage Law Practice Group with experience in construction law issues. He can be reached at rick.behring@barberlawfirm.com.
