Construction industry agreements have traditionally included broadly written indemnification clauses. Everyone has seen them. If anything goes wrong, if any liability is incurred, Party A will be indemnified and held harmless by Party B to the maximum extent permitted by law. Party A will be fully reimbursed, including attorney fees.
While it is easy to pass these clauses off as a bunch of “legal boilerplate,” that would be a mistake. Indemnification clauses can have devastating liability consequences. And, they are frequently imposed by a party in a superior bargaining position. They are presented as part of the “standard” terms and conditions – take it or leave it.
As a result of this problem, a number of state legislatures have enacted statutes limiting the enforceability of indemnification clauses in construction industry contracts. One such state is Florida. Contracts “between an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman, or any combination thereof … shall be void and unenforceable unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract.”
Recently an equipment supplier, which had not included a monetary limitation in the indemnification clause on the back side of its work order, argued that the Florida statute was intended to protect only project owners in their agreements with the listed parties. A court rejected that contention. The statute applies to agreements between or among “any combination thereof.” The supplier’s indemnification clause was unenforceable.
Other cases this week considered whether a contractor’s default was excused by impossibility of performance and whether a prime contractor accepted a subcontractor’s price quotation within a reasonable time after contract award. Performance was not impossible, as evidenced by the replacement contractor’s prompt completion of the work. And, while the contractor did not tender a subcontract form until eight weeks after contract award, the conduct of the parties may have indicated mutual assent.