Construction contracts frequently contain indemnification provisions. These clauses are often the subject of litigation because they seek to transfer or assign liability arising from identified claims from one party to another. New Jersey and New York courts generally enforce these clauses provided they comply with each state’s governing law.
Contractual Indemnification Defined: A contractual indemnification provision – also known as a “hold harmless” clause – seeks to shift certain risk and liability from one party to another. Such clauses identify: (i) the nature of the claims subject to indemnification; (ii) the scope of matters from which those claims must arise; and (iii) the extent of the parties’ respective responsibilities for such claims. A common example is where a subcontract requires a subcontractor to indemnify a contractor for any claims brought by a third-party against the contractor arising from the subcontractor’s work.
New Jersey’s Take: Properly drafted indemnification clauses are generally enforceable under New Jersey law. To be enforceable, the clause must sufficiently detail the nature of the claims subject to indemnification (e.g., property damage, personal injury) and the scope of matters from which those claims must arise (e.g., subcontractor’s work). The clause must also specify the extent of the indemnitor’s responsibilities (e.g., duty to defend, reimbursement of attorney’s fees). Ambiguous clauses – which courts have defined as being reasonably susceptible to at least two (2) different interpretations – should be avoided and will be construed against the indemnitee. Stated differently, vague clauses are susceptible to non-enforcement or insufficient enforcement. Contractors should ensure that their contracts do not contain or incorporate by reference any inconsistent indemnification provisions, which may create ambiguity.
In addition, pursuant to N.J.S.A. § 2A:40A-1, an indemnitee cannot obtain contractual indemnification for claims arising from the indemnitee’s sole negligence. New Jersey courts will enforce indemnification clauses that unequivocally require indemnification for the indemnitee’s negligence provided the indemnitee is not the only negligent party. In addition, there is authority suggesting that New Jersey courts will enforce an agreement requiring an indemnitor to indemnify the indemnitee’s grossly negligent or willful acts. Notwithstanding, to prevent an indemnification provision from extending beyond statutory and legal limits, a “savings clause” – such as “to the fullest extent permitted by law” – should be included in the language of the indemnification provision.
Notably, the often-used indemnification clause from the American Institute of Architects (“AIA”) standard contract form has been held by a New Jersey court to be too imprecise to extend an indemnification obligation to claims arising from the indemnitee’s own negligence. The New Jersey Appellate Division has held, however, that the following indemnification language is sufficient to extend the indemnification obligation to claims arising from the indemnitee’s own negligence:
Subcontractor shall indemnify and hold Contractor, its agents, officers and employees, harmless . . . regardless of whether such claim is caused in whole or in part by any act or omission of Subcontractor, or its employees or agents or any other person, and regardless of whether it is caused in part by Contractor.
New York’s Take: New York courts strictly construe contractual indemnification clauses to avoid reading into such clauses any duties not intended by the parties. Thus, like New Jersey, New York contractors should ensure that their indemnification clauses explicitly and clearly state the indemnitor’s obligations.
Unlike New Jersey, New York courts refuse to enforce, as a matter of public policy, any agreement requiring an indemnitor to indemnify an indemnitee for the indemnitee’s own grossly negligent or willful behavior. By way of further distinction, New York law – specifically NYS Gen. Oblig. Law § 5-322.1 – provides that an indemnification clause is void and unenforceable if it requires an indemnitor to indemnify an indemnitee for the indemnitee’s own negligent acts. In fact, New York courts have refused to enforce general indemnification provisions that do not explicitly omit an indemnitee’s own negligence from the indemnity obligation. To avoid such an outcome, contractors should be mindful to exclude an “indemnitee’s negligent acts” from the scope of the indemnitor’s obligations in an indemnification provision. New York contractors should also be sure to include a “savings clause” in their indemnification provisions. “Savings clauses” have been held sufficient to preserve the enforceability of an otherwise unenforceable indemnification agreement.
New York is also unique in that it has passed certain laws – specifically NY Labor Law §§ 200, 240 & 241 – which, among other things, confer strict liability on contractors and their agents for certain work-place, safety-related injuries. Despite these statutes’ strict liability mandates, New York courts have held that contractors can be indemnified from liability under these statutes provided the contractor is: (i) only strictly liable under the Labor Law and; (ii) determined to be free of any independent negligence. Stated differently, New York contractors can still be indemnified from liability under the Labor Law if the contractor was not actually negligent. Notably, because the Labor Law can confer strict liability on a general contractor even in the absence of actual negligence, indemnification provisions should explicitly require indemnification from all claims arising from the subcontract work irrespective of any finding of the subcontractor’s actual negligence.
Takeaway: Contractors should ensure that their contractual indemnification clause contains an unequivocal and unambiguous expression of the nature and scope of the indemnification obligation and the responsibilities of the indemnitor. In addition, the language must be carefully crafted to maximize protection without exceeding the limits imposed by law.