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⚖️ Indemnification Clauses

Indemnification clauses can transfer enormous risk to your company. Understanding them is essential before signing any contract.

Key Principle

Indemnification can make you liable for things you didn't cause. Read every indemnity clause carefully and negotiate when possible.

What Is Indemnification?​

Indemnification is a contractual promise to compensate another party for losses. In construction:

  • You agree to "hold harmless" another party
  • You pay for claims, even if you didn't cause them
  • You may defend lawsuits on their behalf

Basic Structure​

"Contractor agrees to indemnify, defend, and hold harmless Owner from any and all claims arising out of Contractor's work."

Three key obligations:

  1. Indemnify - Pay for losses
  2. Defend - Provide legal defense
  3. Hold harmless - No claims against them

Types of Indemnification​

Type 1: Broad Form (Most Dangerous)​

What it says:

"Contractor shall indemnify Owner for ALL claims arising out of the work, regardless of fault."

What it means:

  • You're liable even if Owner caused it
  • You cover their negligence
  • Maximum risk to you

Example: Owner's employee trips on their own equipment and falls. Under broad form indemnity, you could be liable.

AVOID THIS WHENEVER POSSIBLE

Type 2: Intermediate Form (Common)​

What it says:

"Contractor shall indemnify Owner except for claims arising from Owner's sole negligence."

What it means:

  • You cover claims you caused
  • You cover claims where fault is shared
  • Owner only excluded if 100% their fault

Example: Worker injured due to both your unsafe practice AND owner's failure to warn. You cover the entire claim.

NEGOTIATE TO LIMIT

Type 3: Limited/Comparative Form (Fairest)​

What it says:

"Contractor shall indemnify Owner only for claims caused by Contractor's negligence, to the extent of Contractor's fault."

What it means:

  • You cover claims you caused
  • Proportional to your fault
  • Doesn't cover owner's negligence

Example: If you're 30% at fault, you pay 30% of the claim.

THIS IS REASONABLE

Anti-Indemnity Statutes​

Many states have laws limiting broad indemnification:

States with Restrictions​

StateRestriction Type
CaliforniaNo indemnity for indemnitee's negligence
TexasBroad form void on construction contracts
ColoradoBroad form void
New YorkLimited restrictions
FloridaBroad form void

Check your state's laws! Overly broad indemnity may be unenforceable.

What the Laws Do​

  • Void broad form indemnity
  • Limit to contractor's negligence only
  • May require insurance backing
  • Public policy protections

Key Indemnification Language​

Watch For These Phrases​

"To the fullest extent permitted by law"

  • Maximum indemnification allowed
  • If state limits broad form, this becomes intermediate

"Arising out of"

  • Very broad trigger
  • Any connection to your work

"Caused by"

  • Narrower trigger
  • Requires causation

"Resulting from"

  • Similar to "caused by"
  • More limited

"Including but not limited to"

  • Expands the scope
  • List is not exhaustive

Better Language to Request​

❌ "All claims arising out of or connected with" ✅ "Claims caused by Contractor's negligent acts or omissions"

❌ "Regardless of fault or negligence" ✅ "To the extent caused by Contractor's fault"

❌ "Any and all losses whatsoever" ✅ "Losses resulting from Contractor's breach or negligence"

Negotiating Indemnification​

What to Request​

  1. Limit to your negligence

    • "Caused by Contractor's negligent acts"
    • Proportional to your fault

  2. Carve out owner's negligence

    • "Except for claims arising from Owner's negligence"
    • Even partial negligence

  3. Insurance limits as cap

    • "Indemnification shall be limited to insurance proceeds"
    • Or specific dollar cap

  4. Mutual indemnification

    • Owner also indemnifies you
    • Fair for both parties

When You Have Leverage​

  • Before signing (most leverage)
  • When scope changes significantly
  • When you have unique capabilities
  • On negotiated contracts

When You Have Less Leverage​

  • Competitive bid situations
  • Large owners with standard contracts
  • When you really need the work
  • Government contracts

Insurance Considerations​

Additional Insured​

Often paired with indemnification:

  • Owner becomes additional insured on your policy
  • Your insurance defends them
  • Transfers risk to your insurer

Indemnification Beyond Insurance​

Danger: You could be liable beyond insurance limits

  • Personal/company assets at risk
  • Negotiate insurance cap

Request language:

"Contractor's indemnification obligation shall not exceed the limits of insurance required by this Contract."

Risk Management Strategies​

Before Signing​

  1. Read every indemnity clause carefully
  2. Understand your state's laws on anti-indemnity
  3. Request modification to unreasonable terms
  4. Price the risk if you can't modify
  5. Consult attorney for significant contracts

If You Can't Negotiate​

  • Confirm you have adequate insurance
  • Document everything during project
  • Follow contract requirements precisely
  • Price risk into your bid
  • Consider declining the work

Downstream (Your Subcontracts)​

  • Include indemnification from your subs
  • Match or exceed what you're giving upstream
  • Don't create a gap in coverage
  • Flow down insurance requirements

Common Mistakes​

1. Not Reading the Clause​

Problem: Signed without understanding Solution: Read and understand every indemnity clause

2. Assuming Insurance Covers It​

Problem: Indemnity can exceed insurance Solution: Negotiate insurance caps or know your exposure

3. Not Flowing Down​

Problem: You're liable but sub isn't Solution: Include matching indemnity in subcontracts

4. Ignoring State Law​

Problem: Assuming broad indemnity is enforceable Solution: Know your state's anti-indemnity statutes

5. Not Pricing the Risk​

Problem: Accepting risk without compensation Solution: If you can't negotiate it out, price it in

Sample Negotiation Request​

When you receive a broad form indemnification clause:

"We request modification of Section X (Indemnification) to read:

'Contractor shall indemnify and hold harmless Owner from claims, damages, and expenses arising from Contractor's negligent acts, errors, or omissions in the performance of the Work, but only to the extent caused by Contractor and not resulting from the negligence of Owner or others.'

This revision aligns with [State] anti-indemnity statute and fairly allocates risk between the parties."