CONTRACTORS CAN PREVENT UNLIMITED LIABILITY BY NARROWING INDEMNITY CONTRACT CLAUSES

In a case involving a Public entity, a General Contractor and a subcontractor/lien claimant, the issue of an indemnity clause revealed that the General Contractor may have unlimited liability to the Public Entity.  

In the case, the Public Entity argued that the General Contractor was liable for all the damages to the Public Entity as a result of the Subcontractor’s lien claim, since the General Contractor did obtain a payment bond.  However, the Public Entity’s contract with the General Contractor did not require the General Contractor to obtain a payment bond.  

However, the Contract provided for a very broad indemnity provision:

The Contractor shall indemnify, defend, keep and hold harmless the Public Entity, its agents, agaisnt all injuries, losses, claims, suits, costs, and expenses which may accrue agaisnt the Public Entity as a consequence of granting the Contract. 

The Court opined that this indemnity provision could expose the General Contractor liability for failing to get teh payment bond.  Accordingly, the General Contractor could be held liable for all of the Public Entity’s attorney fees and damages for any claims brought by the subcontractor/lien claimant.

While Illinois law, the Construction Contract Indemnification for Negligence Act, prevents a contractor from being liable for another person’s negligence, this only pertains to negligence claims, not to contract damages.  The Court opined that the failing to obtain a payment bond could be considered a breach of the contract, not negligence.  

In order to prevent liability a Contractor should limit the indemnity clause.  A Contractor can limit the indemnity clause by:

• narrowing the types of claims that can be asserted;

• the amount of damages that a contractor can be liable for;

• the parties that the Contractor has to indemnify; or 

• requiring certain types of insurance.