Construction Hotsheet -Breaking Developments in Construction Law 09.05.2006 Be Clear and Concise or Pay the Price When It Comes to Indemnity Clauses Indemnification provisions are some of the most important paragraphs of any construction contract. Indemnification provisions allocate risks of unintended adverse consequences between the parties. Recently, the Washington Court of Appeals in MacLean Townhomes, LLC v. P.J. Interprize, Inc., reminded us of the traps that can befall parties when indemnity provisions are not clearly written. MacLean Townhomes, as developer and general contractor for a condominium project, retained subcontractor P.J. Interprize to perform work. Following completion of the project, the homeowners association sued MacLean for breach of contract, alleging construction defects. MacLean settled with the homeowners and, pursuant to the indemnity clause in the MacLean/Interprize contract, brought an indemnity claim against P.J. Interprize. The indemnity clause provided: SUBCONTRACTOR shall defend, indemnify, and hold CONTRACTOR harmless from any and all claims, demands, losses and liabilities to or by third-parties arising from, resulting from, or connected with, services performed or to be performed under this Subcontract by SUBCONTRACTOR or SUBCONTRACTOR’S agents, employees, sub tier Subcontractors, and suppliers to the fullest extent permitted by law and subject to the limitations provided below: SUBCONTRACTOR’S duty to indemnify CONTRACTOR shall not apply to liability from damages arising out of bodily injury to persons or damages to the property caused by, or resulting from, the sole negligence of CONTRACTOR, or CONTRACTOR’S agent or employees. SUBCONTRACTOR’S duty to indemnify CONTRACTOR for liability for damages arising out of bodily injury to persons or damages to property caused by or resulting 1 from the concurrent negligence of CONTRACTOR or CONTRACTOR’S agents or employees shall apply only to the extent of negligence of SUBCONTRACTOR or SUBCONTRACTOR’S agents, employees, and sub tier Subcontractors and suppliers. Interprize sought and was granted dismissal of MacLean’s indemnity claim, arguing that the language of the indemnity clause limited its scope to third-party tort claims (claims based on negligence such as personal injury) and excluded breach of contract claims such as those MacLean settled with the homeowners association. MacLean appealed the decision. The Court of Appeals reversed the trial court and held that the indemnity clause was not limited to tort claims but also covered breach of contract and any other claims arising out of Interprize’s performance under the contract. If Interprize wanted to limit the indemnity to tort claims, the Court of Appeals said that Interprize should have inserted the word “tort” between “all” and “claims” in the first sentence. While MacLean does not change existing case law in Washington regarding enforceability of indemnity clauses, it does underscore the importance of clear and concise contract drafting. Say what you mean. Use words that are not susceptible to multiple meanings. If presented to a court for interpretation, an ambiguous clause will, at best, be construed in your favor after you have incurred attorneys’ fees and costs to obtain the court’s holding. At worst, the ambiguous clause will be construed against you; you will have to pay your attorneys and, depending on your contract, the fees of your opponent. The short lesson that may be drawn from MacLean regarding contract drafting: be clear and concise or pay the price. For more information, please contact the Construction Practice Group at Lane Powell: 206.223.7000 Seattle 503.778.2134 Portland lppc@lanepowell.com www.lanepowell.com We provide the Construction Hotsheet as a service to our clients, colleagues and friends. It is intended to be a source of general information, not an opinion or legal advice on any specific situation, and does not create an attorney-client relationship with our readers. If you would like more information regarding whether we may assist you in any particular matter, please contact one of our lawyers, using care not to provide us any confidential information until we have notified you in writing that there are no conflicts of interest and that we have agreed to represent you on the specific matter that is the subject of your inquiry. © 2006 Lane Powell PC Seattle - Portland - Anchorage - Olympia – Tacoma – London 2