Contact Form

Close X

Contact

  • This field is for validation purposes and should be left unchanged.

102 South Tejon Street, Suite 900 • Colorado Springs, Colorado 80903

Indemnification – Let the Punishment Fit the Crime

Author: Karl A. Berg, Jr., Esq.

During the most recent legislative session the bill which received most of the builders’ attention was the “Homeowner Protection Act of 2007.” However, the General Assembly also enacted legislation regarding indemnification provisions contained in construction contracts, both commercial and residential.  This column will discuss the new indemnification statute and its impact on construction contracts.

Indemnity provisions require one party to hold someone else harmless from any damages suffered by that person as a result of the first party’s negligent acts, errors or omissions. Indemnity provisions are a common feature in design and construction contracts.  For instance, if a subcontractor fails to properly perform its work and the contractor is sued by the owner as a result of the subcontractor’s defective work, an indemnification agreement would require the subcontractor to reimburse, or pay, the contractor any amounts the contractor was required to pay the owner as a result of the subcontractor’s poor work.  Thus, indemnification provisions shift the loss from a party who was obligated to pay (typically based on a contractual obligation) to the party actually responsible for the loss.

While most people do not have any difficulty with the notion that a party who actually causes a loss should pay it, in the construction setting indemnification provisions have been the source of anxiety and conflict for many years.  The problem with indemnification provisions is that in many instances the provisions no longer merely provide that one party will reimburse another for the damages caused by the party.  Instead, many indemnification provisions require that a party indemnify someone else even if the party being indemnified partially caused the damage.  These broad indemnity provisions require an innocent party to pay damages caused by someone else. Predictably, these provisions have been frowned upon by the Courts and have been rarely enforced.

It is the “unfairness” of requiring someone to pay for damages caused by someone else that the new statute addresses.  The new statute explicitly provides that indemnification provisions in construction agreements which require a party to indemnify another party against damages caused by the other person’s own negligence are void and unenforceable.  However, indemnification provisions which only require a party to indemnify another party for any damage actually caused by the negligent party remain valid and enforceable.  Thus, the statute does not bar all indemnification provisions.  The statute applies to contracts and subcontracts, including design agreements.  The statute applies to all construction contracts entered into after July 1, 2007. Based upon Colorado Courts’ historic reluctance and/or refusal to enforce indemnification provisions which indemnify parties against their own negligence, the impact of the new statute should be minimal.  However, those drafting contracts and subcontracts should nevertheless review and revise the indemnification provisions in their construction agreements so as to insure they comply with the new statute.

Some in the construction industry will lament the new anti-indemnity statute and suggest that builders’ liability has been increased.  However, in light of the largely illusory protection broad indemnification provisions have provided in the past, the new statute should create more certainty at the time of contracting and reduce the frequent conflicts between owners, designers, contractors, and subcontractors created by unfair and often uninsurable indemnification provisions.  Further, holding parties responsible for their own negligence rather than shifting that liability to another party is more equitable to all involved in the construction process.

The foregoing article is published in the September 2007 issue of On the Level with HBA, a supplement to the Colorado Springs Business Journal.

©2007 Karl A. Berg, Jr.   Karl Berg is a Colorado Springs construction lawyer and a partner at Mulliken Weiner Berg & Jolivet P.C.  He can be contacted at kberg@mullikenlaw.com or 719-635-8750.

Disclaimer: The materials on this website are provided for informational purposes only. They do not constitute legal advice nor do they necessarily reflect the opinions of Mulliken Weiner Berg & Jolivet P.C. or any of its attorneys or clients. There is no implicit guarantee that this information is correct, complete, or up to date.

This website is not intended to create an attorney-client relationship between you and Mulliken Weiner Berg & Jolivet P.C. You should not act or rely on any information in this website without seeking the advice of an attorney.

Please be advised that any response to this web page does not create an attorney-client relationship and, therefore, no attorney-client privilege is attached by this communication. Furthermore, any information you transmit to us will not be treated as confidential. Please do not send us any information regarding any current or potential legal matter(s) absent a written statement confirming our engagement by you as your legal counsel.

In some jurisdictions, this website may be considered advertising. The hiring of a lawyer is an important decision that should not be based solely upon written information about qualifications and experience. Mulliken Weiner Berg & Jolivet P.C. has made every effort to comply with all known legal and ethical requirements in providing this website. We do not desire to represent clients based upon their review of any portions of this website that do not comply with legal or ethical requirements in your jurisdiction.

This site may contain hyperlinks to websites operated by parties independent from Mulliken Weiner Berg & Jolivet P.C. Such hyperlinks are provided for your reference only. Mulliken Weiner Berg & Jolivet P.C. does not control such websites and is not responsible for their content.  Mulliken Weiner Berg & Jolivet P.C.'s inclusion of hyperlinks to such websites does not imply any endorsement of the materials on such websites or any association with their content. Your access and use of such sites, including information, material, products, and services therein, shall be solely at your own risk.

Nothing contained in this website is intended to compare our services to the services of any other law firm or lawyer or to imply specialization or certification by any organization not previously approved by the Colorado State Bar Board of Legal Specialization.

The Mulliken Weiner Berg & Jolivet P.C. law firm is responsible for the content of this website and our principal office is located at 102 S. Tejon, Suite 900, Colorado Springs, CO.

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

Mulliken Weiner Berg & Jolivet P.C.
102 South Tejon Street, Suite 900
Colorado Springs, Colorado, 80903 USA
719.635.8750