Indemnification: I Do Not Think That Word Means What You Think It Means

I’ve been reading contracts again.  The AIA A201-2007, General Conditions of the Contract for Construction, has an Indemnification article in it.

Article 3.18 “Indemnification” starts like this:  “To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage loss or expense is caused in part by a part indemnified hereunder. “

I’m not an attorney, but I’m pretty sure that this clause means that if a passerby is injured on a jobsite, because of something that the Contractor did, if the Owner and Architect get sued for that passerby’s damages, and they have to pay the injured person, the money for the damages attributable to the Contractor will ultimately come from the Contractor, instead of from the Owner and Architect.

I looked at the AIA Document Commentary for this document for some further insight.  It says “The contractor’s obligation to indemnify is triggered by an act or omission of the contractor or one of the contractor’s agents or employees, and covers the indemnitee’s loss only to the extent that it was caused by such act or omission.  This is comparative fault language: for example, if the indemnitee and all other third parties are found to be 20 percent responsible, the contractor’s obligation to indemnify would extend to 80 percent of the loss.”

The indemnitor is the Contractor, and the indemnitiees are the Owner, Architect, etc.  What this says is that if the Owner or Architect is partially responsible for the damages, the Contractor wouldn’t have to pay for the part of the damages that the Owner or Architect is responsible for.

That all sounds fair to me, but, of course, I’m not an attorney, and I do consider myself to be impartial.  It sounds fair to me that each member of the team should be required to pay for damages caused by himself, and only for damages caused by himself.

I have come across several Contracts for Construction and General Conditions of the Contract for Construction which have a similar indemnification clause – identical, actually, except that the Architect and the Architect’s consultants are not included.  I have worked on at least one project in which the Owner used AIA A201 as the General Conditions, but, through the Supplementary Conditions, deleted “Architect, and Architect’s consultants” from the indemnification clause.

I got into a discussion with someone over lunch today about this particular situation.  I asked “How does it help the Owner to exclude the Architect from the Contractor’s indemnity?”  I did not get a good answer.

Here’s how I interpret this phenomenon:  Owners who do this (strike the Architect from the protection of a Contractor’s indemnity) mistakenly believe that excluding the Architect from this indemnification clause will help to protect the Owner’s interests. 

There’s a benefit to an Owner to require that the Contractor pay for damages caused by the Contractor

There’s a benefit to an Owner to require that the Owner not have to pay for damages caused by the Contractor

But leaving the Architect exposed to liability for damages caused by the Contractor provides no benefit to the Owner.

The Owner can always sue the Architect.  This indemnification clause doesn’t prevent that.  Any third party can always sue the Architect.  This indemnification clause doesn’t prevent that.  If an indemnification clause such as this includes the Architect, it only means that if the Architect gets sued by some passerby, for damages caused by the Contractor, the Contractor will have to cover the Architect’s costs for attorney fees and any damages awarded to the person who brought suit against the Architect.

Owners, please don’t do the extra work of striking the Architect from the AIA A201 indemnity clause.  It doesn’t help you, and it could really hurt the Architect.

4 thoughts on “Indemnification: I Do Not Think That Word Means What You Think It Means

  1. A follow up to my post:

    This weekend I talked to my sister, who is an attorney. She came up with a scenario in which striking the Architect from the Contractor’s indemnification actually could help the Owner.

    Using the example above of a passerby’s being injured due to something the Contractor did wrong, if it’s a COLOSSAL mistake by the Contractor, and the Owner, Architect and Contractor all get sued by the injured passerby, the Contractor’s insurance policy might have high enough limits to cover all of the damages owed by the Contractor, but not all of the damages owed by the Owner and the Architect for the Contractor’s mistake. So, SOME of the damages owed by the Owner for the Contractor’s mistake, and SOME of the damages owed by the Architect for the Contractor’s mistake would be paid by the Contractor’s insurance.

    But, in a case like this, if the Architect hadn’t been included in this indemnification, there MIGHT have been enough money left in the policy to cover all of the damages owed by the Owner for the Contractor’s mistake. The Architect, of course, would have been “thrown under the bus” in this scenario, and would have been left to pay for the Contractor’s mistake, when the Owner didn’t have to.

    Architects, read your contracts, and understand what they mean.

    • Liz,

      Glad you put up this post to demonstrate that the nature of the intersection of contracts, insurance coverages and indemnifications can be quite complex (in your scenario you can also add complications resulting from choosing alternative dispute resolution methods). I’m still not sure I understand the example you provided but it serves the purpose here. As you gathered from your sister, reading a contract is not the same thing as understanding it.

      Frankly, most architects think they know what their contracts mean, but they are rarely aware of the risk management positions of the owner, contractors, subcontractors, insurance and surety companies and the deep AIA form-contract biases.

      For example, and closer to the world of specifiers, wouldn’t an architect be in breach of his contract if he provided less than 100% of specifications and be responsible for the damages caused to the owner or others for such incomplete performance?

      See, http://www.irmi.com/sf/insurance-continuing-education/cris for an example of what if really needed to get a more global view of the problem.

      • Thanks! It is complicated. I’m trying to learn more, but at the same time, trying to tell people about the things that they need to know (even though I don’t know everything about these things.) And thanks for the link.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s