Indemnity provisions in construction contracts are not mere boilerplate that can be overlooked. During the contracting process, indemnity clauses require careful thought, negotiation and drafting. And when an accident occurs or another problem arises, the parties should thoroughly review the indemnity language of their contract. That is the main lesson of a recent Barnes & Thornburg appellate victory.
The general contractor (General) on a hospital expansion project in Wisconsin hired our client (Sub) to supply and erect scaffolding. A scaffold plank broke, causing a mason employed by General to fall about seven feet and suffer serious leg injury. He sued Sub for negligence and strict product liability under Wisconsin law. But the situation was more complicated than might appear, both factually and legally.
The factual investigation and litigation discovery revealed that a General employee had erected red scaffolding adjacent to the Sub’s grey scaffolding where the accident occurred. The General’s employee testified that he decked the red scaffold frame with planks he grabbed from a Sub pallet. Another General employee took planks from the red scaffolding and moved them onto the grey Sub frame, which was previously undecked because Sub was only supposed to deck the upper levels. Whether the plank that broke was originally supplied to the site by Sub, General, or another subcontractor or supplier was never determined.
Legally, Sub pursued two strategies. First, recognizing the risk that a jury would find it liable to a sympathetic plaintiff, Sub settled with the plaintiff. Second, Sub filed a third-party claim against General for reimbursement of the settlement and all of Sub’s attorneys’ fees. Sub relied on Section 4.8 of The Associated General Contractors of America Document No. 650 that the parties used for their contract:
4.8 USE OF CONTRACTOR’S EQUIPMENT [General], its agents, employees or suppliers shall use the Contractor’s equipment only with the express written permission of the Contractor’s designated representative and in accordance with the Contractor’s terms and conditions for such use. If [General] or any of its agents, employees or suppliers utilize any of the Contractor’s equipment, including machinery, tools, scaffolding, hoists, lifts or similar items owned, leased or under the control of the Contractor, [General] shall defend, indemnify and be liable to the Contractor as provided in Article 9 for any loss or damage (including bodily injury or death) which may arise from such use, except to the extent that such loss or damage is caused by the negligence of the Contractor’s employees operating the Contractor’s equipment.
Another indemnity section was essentially the same but ran from Sub in favor of General. Both referred to Article 9, which included further indemnity language as well as provisions dealing with insurance and waivers of subrogation. The parties extensively modified the AGC form, crossing out several sections and adding several exhibits and a rider. In fact, the indemnity sections of Article 9 were crossed out. One of the exhibits added a third indemnity provision that generally required Sub to defend and indemnify General for anything caused by Sub’s negligence. That general indemnity expressly stated that Sub’s obligations were not limited to by workers compensation laws.
On cross-motions for summary judgment, the trial court ruled against Sub and in favor of General. The court contrasted Section 4.8 with the general indemnity by Sub regarding its negligence. First, the court found that the parties intended for Sub to retain liability for its own negligence in all circumstances. Therefore, the court held that Section 4.8 did not indemnify Sub for its own negligence or for strict liability, which the court believed was a form of negligence. Second, because the general indemnity by Sub regarding its negligence included an express waiver of workers compensation limitations, Section 4.8 could not implicitly waive General’s workers compensation immunity as a defense to Sub’s indemnification claim.
The appellate court reversed, awarding Sub full indemnification for the settlement with the plaintiff, the attorneys’ fees incurred in defending against the plaintiff’s lawsuit, and the attorneys’ fees incurred in pursuing the indemnity from General. The appellate court focused on the concluding phrase of Section 4.8 and saw no evidence that the accident was caused by the negligence of Sub’s employees “operating” Sub’s equipment even if Sub supplied the plank that broke: “For what could it mean to ‘operate’ a wooden plank other than to lay, move, or remove it, which was not done by any employee of Sub.” The court further held that Section 4.8 waived General’s workers compensation immunity because the indemnity would be “seriously incomplete without such a waiver.” Finally, the court concluded that the word “defend” meant General had to pay all of Sub’s attorneys’ fees, including those incurred in enforcing the indemnity.
This case underscores the importance of paying careful attention to the indemnity provisions of a construction contract. (The same is true of insurance provisions, which were also considered by the courts in interpreting the indemnities.) In editing some of the indemnity language in the form contract and adding another indemnity in an exhibit, the parties here definitely thought about these issues. And when an unfortunate accident occurred, Sub analyzed and pursued its indemnification rights and was ultimately vindicated. Every company involved in a construction project – owner, developer, general contractor, subcontractor, supplier – whether it is giving or receiving indemnification in a particular section of the contract, should think carefully about the circumstances and understand precisely how that indemnity applies. It should not be disregarded as boilerplate.