Recent legal revisions in construction contractual law dramatically benefits subcontractors. It’s no small secret that general contractors are known for writing risk transfer clauses into their contracts that are one-sided. More specifically, these clauses often have blanket indemnity (i.e. compensation) agreements whereby the subcontractor agrees to reimburse the general contractor for any loss arising from the contractor’s own negligence.
Through recent decisions, the Nevada Supreme Court has made it much more difficult to shift the risk for a contractor’s own negligent acts. Now, for a general contractor to receive to be indemnified for its own negligence that intent must be clearly set forth in the agreement in express and explicit language. In other words, a clause providing for indemnification “for any and all liability” can no longer entitle a contractor to reparation for its own negligence.
Here’s a simple example using a fictional scenario:
ABC Company (ABC) is a general contractor who hires subcontractor XYZ Company (XYZ) to perform all necessary plumbing services for its 15-unit apartment complex. Late one night, an employee of ABC turns on a sink and leaves it running. The next morning, it’s discovered the sink has caused severe flooding in three units, thus, causing thousands of dollars in damage.
Though ABC is at fault, they task XYZ with paying for the soiled materials. ABC pulls the contract to reveal the following language in the indemnity clause: “[XYZ] shall defend, indemnify and hold harmless [ABC] for any and all damages, losses, liabilities, fines, penalties, costs and all other expenses reasonably incurred by [ABC]”.
Seems like XYZ is in trouble, right? Think again. Because there was no express or explicit reference to negligence, this clause would be deemed insufficient to require indemnification for negligence. ABC would have to pay for its own damages.
Indemnity provisions are often complex and now require even more scrutiny. The best advice is to retain a competent lawyer who clearly understands the recent clarifications of the Nevada law regarding indemnity for negligence. At the very least, if you’re drafting your own contract and indemnification for negligence is contemplated, make sure the contract explicitly and expressly sets forth the intent of the parties that such indemnity is indeed intended.