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Indemnification Considerations in Construction Contracts

Sometimes referred to as “hold harmless” provisions, the indemnification section of a design or construction contract can have profound legal consequences.  The concept of indemnification is not complicated—indemnification is an agreement to assume a specific liability, potential or actual, of another party in the event of a loss.  It involves shifting risk from one party to another—essentially as insurance.  When a contractor or design professional indemnifies a client, she or he assumes some or all of the client’s potential or actual legal liabilities, which may include attorneys’ fees and other defense costs.

Parties to construction contracts cannot, however, indemnify other parties for their own negligence.  Section 11-4.1 of the Code of Virginia, while a little-known statute since its enactment in 1973, has recently become a significant issue for contractors and developers.   Now, regardless of the actual cause of damages, an indemnification provision in a construction contract that indemnifies a party from its own negligence, is void and unenforceable.  A new Virginia Supreme Court decision issued in November 2016 (Hensel Phelps v. Thompson Masonry) affirmed the Court’s earlier holding from 2010 in Uniwest v. Amtech, confirming that these provisions are still at issue in construction contracts.  Because many form contracts do not appreciate this distinction, it is important to review these provisions before execution.

"...regardless of the actual cause of damages, an indemnification provision in a construction contract that indemnifies a party from its own negligence is void and unenforceable..."

When presented with a provision that requires you to indemnify or “hold your client harmless,” the best solution may be to ask for the provision to be deleted.  This will probably not work (although it should not discourage you from asking).  Another solution is to ask the client to indemnify you in the same way the client wants to be indemnified.  This will give the client something to think about, and may help in negotiating a mutual indemnification provision that is fair to both sides.  In any event, you should not agree to indemnify your client for the client’s own negligence (which, depending on state law, may not even be enforceable), and you should always check with your insurance consultant to determine whether a specific indemnification provision is covered.

- See more at: http://www.hf-law.com/construction-law-blog/indemnification-considerations-in-construction-contracts#sthash.WwekogCF.dpuf

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