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Sept. 26, 2003

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. 

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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