Indemnity provisions are a common feature in construction contracts. These clauses essentially act as risk-transfer devices, wherein one party, the indemnitor, agrees to defend, indemnify, or hold harmless another party, the indemnitee, for acts or omissions relating to a construction project. In other words, the contractor-indemnitor agrees to reimburse the project owner-indemnitee for losses resulting from a claim brought by a third party. In the context of construction contracts, project owners often include indemnity provisions to shift as much risk as possible to the general contractor and architect. The general contractor and architect, in turn, shift this risk down to their subcontractors and suppliers, thereby creating a chain of indemnification stretching from the project owner to the individual subcontractors.
Given the nature of this one-way stream of liability and the inequalities of bargaining power among owners, architects, contractors, and subcontractors, it should come as no surprise that project owners sometimes include overly broad indemnity provisions where an indemnitor assumes the risk for the indemnitee’s own negligence. To combat this, state legislatures have passed a variety of anti-indemnification statutes to void such indemnification arrangements as being against public policy. In fact, a vast majority of the states have enacted some form of legislation governing indemnity clauses relating to construction contracts.
The purpose of these anti-indemnity statutes is simple: to incentivize project owners (and general contractor-indemnitees) to take full responsibility for their actions and not simply foist their liability onto hapless subcontractor-indemnitors. Legislatures and courts across the country almost universally agree that this is an important public policy issue, especially in the construction context where negligent performance could pose serious risks to onsite workers and even the general public. Anti-indemnity statutes therefore override the parties’ freedom to contract and compel indemnitees to perform contracts with the upmost care by holding them responsible for their actions.
While each of the statutes aims to prohibit indemnification for losses caused by the negligence of the indemnitee, the scope and impact of these statutes vary widely from one jurisdiction to the next. Of the states that have formal anti-indemnity statutes, a division exists between those states that prohibit an indemnitor from indemnifying an indemnitee for the indemnitee’s sole negligence and states that prohibit an indemnitor from indemnifying an indemnitee for any of the indemnitee’s own negligence, sole or partial. To further complicate matters, states that may have similar statutes often have subtle differences that ultimately affect the scope and applicability of indemnity clauses. This effect can be illustrated by comparing the nearly identical anti-indemnity laws in Virginia and Maryland. Although the two statutes are similar in appearance, their application in practice differs based on the particular language chosen by the legislature and the subsequent case law interpreting it.
Virginia’s anti-indemnity statute is contained in § 11-4.1 of the Virginia Code:
Any provision contained in any contract relating to [ ] construction . . . by which the contractor performing such work purports to indemnify or hold harmless another party to the contract against liability for damage arising out of bodily injury to persons or damage to property suffered in the course of performance of the contract, caused by or resulting solely from the negligence of such other party or his agents or employees, is against public policy and is void and unenforceable.
Originally, § 11-4.1 was viewed as a sole negligence statute by most commentators, meaning that it would not apply to indemnity clauses that indemnified a party against a combination of the indemnitee and indemnitor’s concurrent negligence. The decision in Uniwest Constr., Inc. v. Amtech Elevator Servs., Inc., 699 S.E.2d 223, 230 (Va. 2010), opinion withdrawn in part on reh’g, 714 S.E.2d 560 (2011), however, clarified the scope of § 11-4.1 by holding that if an indemnification clause could possibly indemnify a contractor for its own negligence, even if its negligence was not the sole cause, then that clause was void under § 11-4.1. Specifically, because the phrases “caused by” and “resulting solely from” were disjunctive in the statute’s language, the court interpreted the statute as voiding any indemnification provision that attempts to impose damage caused by the negligence of the indemnitee upon the indemnitor, regardless of the indemnitor’s degree of fault.
While Maryland’s anti-indemnity statute is similar in appearance to that of Virginia, Maryland courts have arrived at a different conclusion in its application. Pursuant to § 5-401 of the Maryland Code:
A [construction contract] . . . purporting to indemnify the promisee against liability for damages arising out of bodily injury to any person or damage to property caused by or resulting from the sole negligence of the promisee or indemnitee, or the agents or employees of the promisee or indemnitee, is against public policy and is void and unenforceable.
At first glance, the two code provisions appear to be largely the same. Both Virginia and Maryland courts hold that any indemnity provision in a construction contract which purports to indemnify the indemnitee against liability for damages caused by the indemnitee’s sole negligence is rendered void and unenforceable by law. See Uniwest, 699 S.E.2d at 230; Heat & Power Corp. v. Air Prod. & Chemicals, Inc., 578 A.2d 1202, 1206 (Md. 1990). In either Virginia or Maryland, a contractor-indemnitor will not be held liable for the negligence or wrongful acts of a project owner-indemnitee when the project owner-indemnitee is solely responsible.
Maryland and Virginia courts have come to different conclusions, however, when the contractor-indemnitor and project owner-indemnitee are concurrently liable. Unlike Virginia, Maryland courts explain that their statute does not contain the disjunctive language found in Virginia’s anti-indemnity law. Thus, in Maryland, where “a particular contract provision or sentence can properly be construed as reflecting two agreements, one providing for indemnity if the [indemnitee] is solely negligent and one providing for indemnity if the [indemnitee] and [indemnitor] are concurrently negligent, only the former agreement is voided by the statute.” Heat & Power, 578 A.2d at 1206. Accordingly Maryland courts will only void those indemnity clauses that indemnify the project owner-indemnitee for its sole negligence.
Virginia and Maryland law demonstrates how two very similar anti-indemnification statutes can yield opposite results. Courts in either state have essentially concluded that Virginia’s “caused by or resulting solely from the negligence” statutory language is materially different from Maryland’s “caused by or resulting from the sole negligence” wording. In practice, this seemingly insignificant variation in wording signifies that a contractor in Virginia will never be held liable for the negligence of the project owner, no matter the degree of the contractor’s involvement, while a contractor in Maryland can only escape liability if the contractor is able to show that it was completely without fault for the project owner’s negligence. Thus, if a Maryland court determines that the contractor contributed to the negligence in any amount, the indemnity provision will be considered valid. That being said, it is unclear how Maryland courts would proceed under this rationale—although the indemnity clause would not be stricken, Maryland courts have not specifically addressed how liability would be apportioned between the indemnitor and indemnitee when both are concurrently responsible for the delay or damage in question.
To successfully navigate anti-indemnity provisions in construction contracts, contractors must know more than whether their jurisdiction has an anti-indemnity statute—contractors must understand how the courts in their jurisdiction typically interpret and apply anti-indemnity laws in order to properly avail themselves of this statutory protection. Even seemingly identical statutes can have significant distinctions involving minute details, such as the disjunctive use of the word “sole.” Therefore, contractors should seek legal advice when dealing with indemnity provisions because the particular wording of the anti-indemnity statute and the applicable state law will almost certainly impact the enforceability of the indemnity clause.