It has become increasingly common for those in the construction industry to encounter indemnity provisions in their contracts. Indemnity provisions are agreements where one party (the promisor) agrees to protect and hold harmless the other party (the promisee) from liability arising from certain risk.
These provisions can shift the risk of liability from a negligent party (the promisee) to an innocent party (the promisor) and therefore have been criticized as being unfair.
Ohio has a statute, Ohio Revised Code 2305.31, which provides that an indemnity provision in a construction contract that purports to indemnify and hold harmless a party from personal injury or property damage arising from his own negligence is void as against public policy and unenforceable.
This statute has been interpreted to mean that the promisor (i.e., subcontractor) cannot be required to indemnify the promisee (i.e., general contractor) for the promisee’s own negligence. It has also been interpreted to prohibit the shifting of liability arising from the negligence of the promisee, regardless of whether the promisee (i.e., general contractor) is one percent negligent or 100 percent negligent.
Accordingly, Ohio construction contracts, regardless of how they are written, generally cannot require one party to indemnify another for the other party’s negligence, in whole or in part. This means that the risk of liability remains with the negligent party or parties, as if such an indemnity provision never existed.
However, a Court of Appeals case out of Dayton determined that “hold harmless” language was enforceable in some aspects. The court ruled in this case that the contractor pay the owner’s attorney’s fees and expenses (but not the damages for the injured employee) incurred by the owner in defending a claim asserted by the contractor’s injured employee.
This case appears to carve out an exception to the general unenforceability of such provisions under Ohio Law, but a different Court of Appeals case from another part of the state held otherwise.
The Dayton case means that while a contractor should be protected against an injured employee’s direct claims under worker’s compensation, if the injured employee sued or threatened to sue the owner, the contractor may be liable (at a minimum) for the owner’s attorney’s fees and costs.
In view of this case, it is important for subcontractors and contractors to closely scrutinize their contracts and modify the indemnification provisions appropriately.
Some owners or contractors are now requiring contractors or subcontractors to post insurance covering the contractor’s or owner’s negligence – in essence to insure indirectly what is unenforceable by contract.
A Court of Appeals case out of Cleveland found that indemnification clauses that obligate the contractor or subcontractor to purchase a liability insurance policy to insure against the owner’s negligence are void, as well as any agreement to indemnify the owner for attorney’s fees and costs.
In any event, the complexity of indemnity provisions and insurance coverage mandates that contractors and subcontractors closely review these provisions with their attorneys and insurance consultants.
Once a contract is negotiated, we recommend that the contractor or subcontractor e-mail a copy of the insurance and indemnity provisions in the contract to their insurance agents and request the precise type of policy necessary to cover this risk.