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Traffic management blame stresses importance of indemnification provision

Article September 26, 2003
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Contractors: Do you know the extent of your indemnity to others
or the extent your subcontractors are indemnifying you? In a recent decision,
the Supreme Court of Pennsylvania held that an indemnification provision in a
construction subcontract did not provide the DOT and prime contractor with
indemnity for their own negligence. 

The Pennsylvania Department of Transportation entered into a
contract with T.H. Green Electric Co. to remove large overhead signs from I-95.
Green subcontracted with Custom Tower Structures (CTS) to perform part of the
work. CTS assumed responsibility for traffic management. CTS's contract
contained an indemnity clause, which provided that CTS agreed to indemnify and
hold harmless DOT and Green:

". . . from and against claims, damages, losses and
expenses, including but not limited to attorney's fees, arising out of or
resulting from the performance of the Subcontractor's Work under this
Subcontract . . . but only to the extent caused in whole or in part by
negligent acts or omissions of the Subcontractor, the Subcontractor's Sub Subcontractors,
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 party indemnified hereunder."

Performance of the sign removal work caused stoppage of
traffic on I-95. Jason Greer was rear-ended while sitting at such a stoppage
and brought a negligence action against the DOT, Green and CTS. Under its
subcontract, CTS was responsible for "Maintenance and Protection of
Traffic During Construction."

Green and the DOT, however, both retained certain
supervisory responsibilities over traffic management. The trial court found
that there was ample evidence to support the imposition of direct liability on
all three parties. As a result, the jury returned a verdict against all three
for $2.5 million. 

Carefully word it

In determining whether the indemnification provision
provided indemnity to the DOT and Green for their own negligence, the Supreme
Court of Pennsylvania looked to its prior decisions in Ruzzi v. Butler
Petroleum Co. and Perry v. Payne.

In those cases the court had found that the parties must use
clear and unequivocal language to demonstrate that it is their intent that the
scope of the indemnity agreement is to cover losses due to the indemnitee's own
negligence.

Because assuming liability for the negligence of an
indemnified party exposes the indemnitor to such uncertain and indefinite
liability, such intention must be expressly and unambiguously stated in the
indemnity provision. 

The court stated that because CTS's contract provided that
the DOT and Green were indemnified for damages "only to the extent"
caused by the negligence of CTS, CTS was only responsible for indemnifying the
DOT and Green for that portion of the damages attributed to CTS's negligence.

The indemnification language did not clearly express an
intent by the parties that CTS was to indemnify the DOT or Green for damages
due to their own negligence.

The court noted that other courts who had considered virtually
identical indemnification language reached the same conclusion, that the
indemnification provision does not provide indemnity for damages attributable
to the indemnitee's negligence.

The court further stated that the second part of the
indemnity provision, which provided that the indemnity clause will apply
"regardless of whether or not such claim, damage, loss or expense is
caused in part by a party indemnified hereunder" merely clarified that any
contributory negligence by the DOT or Green would not bar their indemnification
for damages due to CTS's negligence.

Indemnification clauses are found in virtually every
construction contract. The question is who is indemnified and to what extent.

As this case clearly demonstrates, courts are unwilling to infer
that one party to the contract has assumed the responsibilities associated with
indemnifying the other party for its own negligence absent clear and
unambiguous language.

If the language of the contract raises doubt as to the
parties' intent, the court will likely find that indemnification for the other
party's own negligence was never intended. 

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