Our recent blog post explained the importance of indemnification provisions in construction contracts. A 2018 federal case has clarified just how carefully they must be drafted in order to have any meaning.
For background, section 11-4.1 of the Virginia Code is sometimes known as the “Anti-Indemnity Statute.” Under 11-4.1, any indemnification provision in a construction contract that obligates the contractor to indemnify another party to the contract for that other party’s negligence is unenforceable.
In the recent case, Travelers Indem. Co. v. Lessard Design, Inc., No. 1:17-cv-1401 (E.D. Va. June 12, 2018), Judge Ellis for the Eastern District of Virginia considered the Anti-Indemnity Statute in a very different context.
In an earlier case, Humphreys – an out-of-state architect, had sued Lessard – a Virginia architect, and PDT– the builder. In that copyright case, Humphreys claimed that Lessard and PDT designed and built a Virginia project that was similar to Humphreys’ Minnesota project. Travelers bore the cost of defending PDT in that case. Lessard eventually won on summary judgment, but that was not the end of the saga.
After the initial case, Travelers, as subrogee to PDT, later sued Lessard to recover the attorney’s fees it incurred in the initial case under a theory of indemnification under Lessard’s contract with the Virginia owner. The indemnification provision in that Owner-Architect contract obligated Lessard to indemnify the owner and PDT from any losses related to Lessard’s services on the Virginia project.
The Court ruled that the Owner-Architect contract attempted to obligate Lessard to indemnify PDT for the Owner’s and PDT’s own negligence. The Court recognized that the contract did not actually say that – rather, the contract simply said that the Architect would indemnify the Owner and PDT for “all losses.” But because the contract did not expressly create an exception in the event the Owner or builder caused the losses, the Court found that it violated Section 11-4.1. Under this reading, the Court barred Travelers, as subrogee to PDT, from recovering against Lessard.
The Court also ruled an architecture contract can be a “construction contract” and an architect can be a “contractor.” The Court decided this because an architect can supervise and administer construction. The Court issued this ruling even though the losses were incurred under a copyright claim and were not for personal injury or property damage.
This new ruling is very important and requires parties to construction contracts to again review them. Do your construction or design professional contracts expressly carve out losses caused by the indemnified parties from any indemnification obligation? Under Travelers v. Lessard, a failure to do so could mean that the entire indemnification provision is void.
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