Indemnity Provisions in Construction Contracts
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Many times the party with the most leverage in contract negotiations forces the “weaker” party to hold it harmless or indemnify it for anything that goes wrong in connection with the contract, even problems caused by the “stronger” party’s own negligence. Indemnity is a risk shifting mechanism and essentially comes in two forms: common law and contractual. This article focuses on contractual indemnity provisions in construction contacts.
Generally, parties are free to contract for various rights, remedies, and obligations. Under Florida law, contracts of indemnity that attempt to indemnify a party against its own wrongful acts are viewed with disfavor in Florida. Charles Poe Masonry, Inc. v. Spring Lock Scaffolding Rental Equip. Co., 374 So. 2d 487 (Fla. 1979). Contracts to indemnify for an indemnitee’s own wrongful acts must be expressed in clear and unequivocal terms to be enforceable. H&H Painting & Waterproofing Co. v. Mechanic Masters, Inc., 923 So. 2d 1227 (Fla. 4th DCA 2006). Despite Florida courts’ dislike of these indemnity provisions, there are ways to ensure enforceability. When it comes to construction contracts and indemnity, parties must be knowledgeable of and comply with Florida Statute Section 725.06. See 725.06, Fla. Stat.
Section 725.06 of the Florida Statutes applies to any contract related to the construction, alteration, repair or demolition of a building, structure, appurtenance or appliance. It also applies to contracts between owners, contractors, architects, engineers, subcontractors, sub-sub contractors, or materialmen, and any combination of them. The statute applies when any of these parties “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.”
In order to hold the indemnitee responsible for damages caused by the indemnitor, the indemnity provision must include:
- a monetary limitation on the extent of the indemnification that has a reasonable commercial relationship to the contract; and
- the indemnity provision is part of the project specifications or bid documents, if any.
While this statute allows for indemnity for another’s negligence, it prohibits indemnity for damages resulting from the indemnitee’s own gross negligence or willful, wanton, or intentional misconduct. 725.06, Fla. Stat. The statute also forbids indemnity provisions whereby one party indemnifies the other for punitive damages or statutory violations caused by the responsible party. 725.06, Fla. Stat.
If the contracting parties fail to follow the requirements of Section 725.06 of the Florida Statutes, the indemnity provision will be void and unenforceable. Thus, parties must give careful consideration when drafting an indemnity provision, as an overly broad provision can render important, risk shifting provisions of the contract void.