Most construction and design contracts have indemnification clauses. Normally, contractors or design professionals are required to “indemnify” owners for certain losses, but sometimes contracts require owners to indemnify contractors and design professionals. Construction professionals often assume that all indemnification provisions are created equal and carry the same legal rights and obligations, but this could not be further from the truth. You should carefully study the exact language of any indemnification clause that you are asked to sign, and discuss the implications with your legal advisor. A recent case in New Hampshire illustrates this point.
The case of Penta Corporation v. Town of Newport, N.H. v. AECOM Technical Services, involved the Town of Newport, New Hampshire’s wastewater treatment facility, which discharged treated wastewater into the Sugar River. In 2007, the U.S. Environmental Protection Agency (EPA) issued a permit authorizing the Town to discharge treated wastewater into the Sugar River, albeit with certain effluent limitations. Two years later, the EPA issued an Administrative Order finding that the Town had violated the terms of the 2007 permit by exceeding the effluent limits. As a result, the Town hired engineering firm AECOM to complete the engineering design services necessary to upgrade the Town’s treatment plant in order to satisfy the requirements of the EPA’s Administrative Order.
The Preliminary Design Contract between the Town and AECOM contained an indemnification provision requiring AECOM to
indemnify, exonerate, protect, defend, hold harmless and reimburse the Town. . . from and against any and all damages (including without limitation, claims predicated upon theories of negligence, fault, breach of warranty, products liability or strict liability) litigation . . . , suits . . . including attorneys’ and experts’ fees . . . which may at any time be imposed upon . . . the Town of Newport which are in any way related to the Engineer’s performance under this Agreement . . . .”
The Town subsequently hired Penta Corporation, a general contractor, to construct the treatment plant improvements that AECOM designed. Construction began but trouble ensued, and the Town stopped paying Penta. Penta sued the Town, alleging that it had completed construction according to AECOM’s plans and specifications, and was entitled to payment of the balance of its contract price. The Town sent a letter to AECOM demanding that AECOM “defend and indemnify” the Town against Penta’s claims. AECOM refused, saying that its “duty to defend” could not be triggered until its negligence or breach of contract had actually been proven in court. The Town then sued AECOM and sought summary judgment on its claim for indemnification under the Town’s contract with AECOM.
The New Hampshire court reasoned that all courts must look to the “plain language” of the indemnification clause in the specific contract to determine exactly when the duty to defend a lawsuit against the other party actually arises. It examined the indemnification provision and found that the “duty to defend” applied to “claims, suits, and litigation that are asserted against the Town and which related to AECOM’s contract performance, including unproven allegations.” The court found that this specific indemnification language was broad enough to include even unproven allegations, meaning that AECOM’s duty to defend would necessarily arise before any factual finding that AECOM had actually been negligent. So AECOM was required to “indemnify and defend” the Town against Penta’s claims. The decision came down in May 2017, and although it has yet to be determined whether AECOM was actually negligent, AECOM is nonetheless on the hook to pay for the Town’s legal defense, because of the specific words found in the indemnification clause in its contract.
What are the “lessons to be learned” from the Penta case? First, all indemnification clauses are NOT created equal. Some, may require indemnification, but only after a finding of negligence. Others, as in Penta, may require a legal defense from the get-go. Still others will require both. Before you sign, read your contracts carefully, and speak to your legal advisor about the legal duties you are assuming. If you are an owner, contractor, or design professional, you will want to review the indemnification clause in your contract carefully to confirm exactly when the parties’ indemnification obligations arise.
As president of Hirschler and head of the firm's litigation section, Courtney knows how to lead people and projects to a successful outcome.
Leveraging deep experience in the construction industry, Courtney advises public and ...
Kelly’s practice focuses on construction law, commercial and product liability law, with an emphasis on dispute resolution—including mediation, arbitration, jury and bench trials in state and federal court. She routinely ...
Nate fully engages in each case and shoulders his clients’ needs. Communication, efficiency and careful judgment define his practice. In every case, he investigates competing claims to thoroughly understand their strengths ...
A professional engineer (P.E.) and an experienced lawyer, Webb began practicing at Hirschler following four years of work as a consulting engineer. His multidisciplinary practice focuses on general business and corporate law ...
SubscribeSubscribe to Hirschler by Email
- The Death of “Pay-When-Paid” in Virginia: Truth or Rumor?
- A New Trap for Unwary Contractors: Holding Payment on One Project for Claims in Another
- What Employers Need To Know About the OSHA Emergency Temporary Standard on COVID-19 Vaccination and Testing
- Kelly Bundy Appointed to the Virginia Safety and Health Codes Board
- Jaime Wisegarver Outlines Labor Department Guidance on Travel Time Pay in Construction Executive
- New Defense to Joint Liability Available to Contractors
- What Employers Need to Know About Virginia’s New Overtime Wage Act
- OSHA Increases Amounts of Civil Penalties for 2021
- Have Force Majeure Defenses Based on COVID-19 Been Successful This Year?
- Kelly Bundy and Liz Burneson Publish Article on Joint Employer Status in Construction Executive
- Government Contracts
- Dispute Resolution
- Occupational Safety and Health Act (OSHA)
- COVID-19, Coronavirus Outbreak
- Department of Labor (DOL)
- Little Miller Act
- Workforce Development
- Miller Act
- Mechanic's Liens
- Department of Professional and Occupational Regulation (DPOR)
- Fair Labor Standards Act
- Lien Waivers
- Force Majeure
- Joint Checks
- Unjust Enrichment
- Virginia Employment Commission (VEC)
- Virginia Workers' Compensation Commission
- Uniform Statewide Building Code
- Change Orders
- May 2022
- March 2022
- November 2021
- August 2021
- June 2021
- April 2021
- January 2021
- October 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- November 2019
- August 2019
- June 2019
- April 2019
- February 2019
- January 2019
- December 2018
- October 2018
- September 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- November 2017
- October 2017
- September 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016