A recent appellate decision confirms that an indemnity in a construction equipment installment sales contract did not continue once final payment was made.  Thus, claims arising about one year later were not subject to the terms of the indemnity.  This reinforces the concept that parties should carefully consider whether it is appropriate to state that an indemnity will continue beyond the duration of the contract (or not).

The issue arose between a masonry subcontractor and the manufacturer of mast-climbing platforms, after two workers and a passerby were killed when a mast and platform toppled while being dismantled.  The Massachusetts Appeals Court had to decide whether an indemnity claim by the manufacturer against the masonry sub was properly dismissed.[1]  The pertinent sales contract clause stated:

Transfer of Risks and Insurance--The [masonry sub] hereby assumes entire risk of loss to the Equipment upon its reception. The [masonry sub] assumes all the risks and obligations of an absolute owner and commits to indemnify and guarantee the [manufacturer] for all loss or claims for damage caused to or by the Equipment....

Final payment under the installment sales contract had occurred a year or more before the accident.  As the clause noted above did not say or suggest that it survived termination or completion of the contract, the Appeals Court held that it did not.  Thus, the manufacturer could not rely on this clause as the basis for an indemnity claim against the masonry sub. And the court also noted that a clause entitled “Indemnification by the Buyer” was not, in fact, an indemnity, but rather a statement that the masonry sub would not hold the manufacturer responsible for certain claims.[2]  So while that clause DID explicitly survive expiration of the agreement, it was not really an indemnity, despite its title. 

The primary thrust of the decision was that the manufacturer could not obtain indemnity from the masonry sub in the absence of an express indemnity agreement, since the request for indemnity was being made against an employer who had paid worker’s compensation benefits to the estate of the deceased employee.  Massachusetts, similarly to many other states, does not allow common law indemnity claims as an end-run around the statutory bar (prohibiting employees from suing their employers) in its worker’s comp statute. 

The point is not to have a one-size-fits-all rule, but rather to note that the duration of an indemnity obligation should be considered at the time the contract is signed.  And if that obligation should continue after completion of the contract, make sure that intent is clear.[3]