Indemnity Contract Clauses - What You Need To Know!

As a subcontractor, you are likely to have faced the dilemma of signing an indemnity provision as part of a contract with a general contractor. Generally, indemnification is a claim to shift payments or liability. For example, where a general contractor is facing a claim that allegedly arises from the negligence of the subcontractor, the general contractor may raise a claim against the subcontractor to indemnify any damages paid. Indemnification provisions can expose subcontractors to risks that are not typically contemplated and must be read carefully. However, the existence of an express indemnity provision may actually reduce the subcontractor's liability if entered into cautiously because the North Carolina Court of Appeals has held that there can be no implied contractual liability where there is an express contract between the parties in reference to the same subject matter. What does this really mean?

First, an implied-in-law contract arises when neither party signs an express contract provision for indemnity. In these cases, an obligation has been discharged from one party to a second party. If the second party performs negligently causing liability upon the first party, it may be determined that the actively negligent party may be found to have made an implied promise to indemnify the first party. In other words, both the general contractor and the subcontractor could both be liable in damages to the injured third person for the joint wrong. As between themselves, however, the primary liability for the damages rests upon the primary negligent party.

Express indemnification occurs when there is an express agreement between the parties to the contract. Subcontractors must read express provisions for indemnity carefully. In Speedway v. Tindall, 672 S.E.2d 691 (N.C. App. 2009), which resulted in a favorable outcome to the subcontractor, the indemnification provision covered only injuries occurring during the performance of the subcontractor's (Tindall's) work. Tindall constructed a pedestrian bridge for Speedway that eventually collapsed injuring over 100 pedestrians. Speedway sought indemnification from Tindall, but because there was an express provision covering indemnification only during the time period in which Tindall was actually working, the bridge collapse which occurred years after Tindall had finished construction did not entitle Speedway to any implied indemnification outside the contract. Therefore, express provisions for indemnification which are limited in scope, and time limitations, may be beneficial to subcontractors.

Always read contract provisions very carefully!

For more information on this issue or any other construction-related topic, please contact Todd Jones with Anderson Jones, PLLC Attorneys at Law at (919) 277-2541 or by email today!