The Ulitmate Survival Strategy: The Limitation Of Liability Clause

13th Annual Construction Law Conference
February 17 & 18, 2000
Houston, Texas

Richard L. Reed
Coats|Rose
1020 NE Loop 410
Suite 800
San Antonio, Texas 78209
rreed@coatsrose.com

By Richard L. Reed

I. WHAT IS A CONTRACTUAL LIMITATION OF LIABILITY?

A contractual limitation of liability establishes the maximum amount of liability that one party to a contract expects to ever have to bear to the other party. It is usually expressed as a monetary limit on damages, with any excess damages being waived.

Liability limitation clauses are distinguishable from indemnity clauses. A liability limitation confines liability as between the parties themselves, whereas an indemnity clause speaks to the duty of one party to protect the other from liability to a third party. This is discussed in greater detail in part IV of this paper, below.

Courts sometimes refer to liability limitations as “liquidated damage clauses,” since they contractually establish a liquidated sum of damages as the maximum amount of liability one party may recover from the other. However, they are not time dependent clauses that impose a daily rate of damages for each day of delay. Rather, limitations of liability operate more like a coverage limit in an insurance policy. Once the limit is exhausted, it is intended to extinguish all risk of further liability.

This paper will address the drafting of a general limitation of liability. At the end of the paper are also a few suggestions on drafting consequential damage waivers and liquidated damage for delay clauses, both of which are special types of liability limitation clauses.

II. WHO NEEDS A LIMITATION OF LIABILITY MORE:
OWNER OR CONTRACTOR?

As between the two, the Contractor usually has the greater interest in obtaining a limitation of liability. The Owner’s facility is usually a very substantial asset, which is at risk of destruction by a Contractor’s mishap. A Contractor usually does not have extensive capital investment in property, plant, equipment, and inventory. The Contractor’s financial ability to sustain a major loss may be far less than the value of the Owner’s facility, particularly an industrial facility worth several hundred million dollars. Thus, it is the Contractor who is typically at risk of catastrophic financial failure, and this paper will focus primarily on the limitation of liability from the Contractor’s viewpoint. However, there are some ways Owners can limit their liability to Contractors, which will be covered first.

III. LIMITING THE OWNER’S LIABILITY

The Owner almost inherently limits its liability to the Contractor to the contracted sum plus, perhaps, the reasonable or quantum meruit value of any services the Contractor performs outside the scope of the contract. Thus, the Owner is usually not too concerned with limiting its liability to the Contractor.

An Owner may seek a waiver of the Contractor’s consequential damages, aside from granting a waiver of liability for the Owner’s consequential damages. The Contractor typically does not own an industrial facility that generates large daily revenue, but the Contractor can suffer a loss of business opportunity as a result of the Owner’s breach or other misconduct. While a loss of business opportunity may be speculative, the exposure is real. A prudent Contractor should readily agree to give an Owner such a waiver if Contractor expects to get a waiver from the Owner.

While the Contractor’s assets employed on the Owner’s jobsite are typically of very limited value, the Owner can seek the Contractor’s waiver of liability for loss or damage to its construction equipment and tools. The clause should also include a waiver of any insurer’s subrogation rights.

An Owner may seek a Contractor’s waiver of damages caused by the Owner’s delay or disruption of the Contractor’s work. “No damage for delay” clauses are, in effect, limitations of liability. While these clauses can be effective, they have been narrowly construed, and the courts have recognized numerous exceptions to their enforceability.

An Owner could be exposed to liability for intentional misconduct, bad faith, or fraud, but such liability presumably cannot be limited as a matter of public policy. This point has been clearly recognized in the construction of no damage for delay clauses.

However, in Sedona Contracting v. Ford, Powell & Carson , a bidder released a school district from liability for tortuous interference with business relations under the following clause, notwithstanding the argument it violated public policy:

“By submitting a bid, each bidder agrees to waive any claim it has or my [sic] have against the Owner [NEISD], the Architect/Engineer, and their respective employees, arising out of or in connection with the administration, evaluation, or recommendation of any bid; waiver of any requirements under the Bid Documents; or the Contract Documents; acceptance or rejection of any bids; and award of the Contract.”

The Sedona court held:
“. . . we conclude that Sedona’s participation in the bidding process effectively served as consent, and opened the door to the possibility of an intentional tort. Where public policy is not negated, consent can constitute a defense against an intentional tort. [Citation omitted]”

Thus, it appears by this case drafters of liability limitations could attempt to limit liability even for intentional misconduct. However, the better reasoning would appear to lie with cases that recognize fraud as an exception to the enforcement of no damage for delay clauses.

IV. BEFORE DRAFTING A LIMITATION OF LIABILITY,
CONSIDER REQUIREMENTS FOR ENFORCEABILITY

The drafter of a limitation of liability clause should be familiar with state statutes and common law that may affect the enforceability of the clause. As previously mentioned, it is important to recognize the distinction between a limitation of liability and an indemnity agreement. Many states have anti-indemnity statutes in the construction context that typically prohibit one party from requiring that its liability for negligence be assumed by the other as a condition of the contract. These statutes are founded on a public policy objective to ensure that both parties to the contract remain vigilant in the protection of construction workers and the general public. As this is the underlying premise, most courts presented with the question have held anti-indemnity statutes do not prohibit parties to a construction contract from limiting their liabilities to one another, as they prefer.

Alaska, Florida and Pennsylvania are the only jurisdictions where courts seem to have disregarded the distinction between a limitation of liability and an indemnity clause. In City of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d 1271, LEXIS 39 (Alaska. 1994), the Alaska Supreme Court refused to enforce the following limitation of liability based on that state’s anti-indemnity statute:

“. . . Owner agrees to limit the engineer’s liability to the Owner and to all construction contractors, subcontractors, material suppliers, and all others associated with the Project, due to the Engineer’s sole negligent acts, errors, or omissions, such that the total aggregate liability of the Engineer to all those named shall not exceed Fifty Thousand Dollars ($50,000) or the Engineer’s total compensation for services rendered on the portion(s) of the Project resulting in the negligent acts, errors, or omissions, whichever is greater.”

The Alaska anti-indemnity statute states:

“A provision, clause, covenant, or agreement contained in, collateral to, or affecting a construction contract that purports to indemnify the promisee against liability for damages for (1) death or bodily injury to persons, (2) injury to property, (3) design defects or (4) other loss, damage or expense arising under (1), (2), or (3) of this section from the sole negligence or willful misconduct of the promisee or the promisee’s agents, servants or independent contractors who are directly responsible to the promisee, is against public policy and is void and unenforceable; however, this provision does not affect the validity of an insurance contract workers’ compensation, or agreement issued by an insurer subject to the provisions of AS 21, or a provision, clause, covenant, or agreement of indemnification respecting the handling, containment or cleanup of oil or hazardous substances as defined in AS 46.”

CH2M Hill argued eloquently the distinction between an indemnity agreement and a limitation of liability:

“Each has a different purpose and is operative under different facts. Indemnity provides protection against third party claims, i.e. claims by strangers to the contract. Limitations of liability allow contracting parties to allocate risks, define remedies, and limit liabilities between themselves.”

CH2M Hill received amicus support from the Consulting Engineers of Alaska, whose argument was quoted by the Court as follows:

“ . . . indemnity involves the recovery of money paid to a third party; limitation of liability merely involves the contractual allocation of risk between two parties in privity to a predetermined sum.”

Astonishingly, the Court held the Alaska anti-indemnity statute precluded enforcement of the limitation of liability clauses. The Court relied on a general statement in the legislative history of the statute and a hollow presumption that the legislature “did not intend to allow exemption” of limitation of liability clauses from the statute, since it made no express exception for limitation of liability clauses!

In Florida Power & Light Co. v. Mid-Valley, Inc., 763 F.2d 1316, LEXIS 30785, (11th Cir. 1985), the Federal Court of Appeals construed Florida law to allow enforcement of the following consequential damages waiver clause:

“Engineer’s liability to Owner for any indemnity commitments or for any damages arising in any way out of the performance of this contract is limited to [contractually specified] insurance coverages and amounts. In no event shall Engineer be liable for any indirect, special or consequential loss or damage arising out of the performance of services hereunder including, but not limited to loss of use, loss of profit, or business interruption whether caused by negligence of Engineer, or otherwise, and Owner shall indemnify and hold Engineer harmless from any such damages or liability.”

However, the Court treated the clause as an indemnity provision, without distinguishing it as being more in the nature of a limitation of liability. Apparently the Court overlooked this distinction, concluding the clause met the clear and unequivocal test applied to the construction of indemnity agreements in Florida. The significance of this case, however, lies in the fact that Florida has an anti-indemnity statute that says:

“Any portion of any agreement or contract for, or in connection with, any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance …wherein any party referred to herein obtains indemnification from liability for damages to persons or property caused in whole or in part by any act, omission, or default of that party arising from the contract or its performance shall be void and unenforceable unless:

(1) The contract contains a monetary limitation on the extent of the indemnification and shall be a part of the project specifications or bid documents, if any, or

(2) The person indemnified by the contract gives a specific consideration to the indemnitor for the indemnification that shall be provided for in his contract and section of the project specifications or bid documents, if any.”

Thus, a drafter of a construction contract governed by Florida law must be extremely careful to have both limitation of liability and consequential damage waiver clauses supported by a special statement of consideration.

In Lincoln Pulp & Paper Co. v. Dravo Corp., 436 F. Supp. 262, LEXIS 14559; 22 U.C.C. Rep. Serv. (Callaghan) 407 (1977), a Federal district court, applying the law of Pennsylvania held that the limitation of liability clause was unenforceable for failure to state in clear and unequivocal language that the limitation covered damages resulting from Dravo’s own negligence. Thus, Pennsylvania law favors the enforcement of a liability limitation as long as it states clearly the limitation covers damages caused by the protected party’s negligence.

The risk of a Court failing to distinguish a limitation clause from an indemnity clause is not so much a concern in Texas, where the courts seem to understand the distinction. In CBI NA-CON, Inc. v. UOP Inc., 961 S.W. 2d 336, LEXIS 4066, 97:32 Tex. Civ. Op. Serv. 7 (Tex. App. Houston 1st Dist. 1997, review denied), the first case in Texas to consider enforceability of a limitation of liability clause in a construction contract context, the court held an engineer may by contract limit its own liability to the engineer’s customer, notwithstanding Texas’ anti-indemnity statute, which applies to agreements that purport to indemnify an engineer from liability (i.e. to third parties) for the engineer’s own professional negligence.

In this case, Fina contracted with UOP to furnish the technology and design for a fluidized catalytic cracking unit. UOP limited its liability to Fina to reperforming its services if anything went wrong. Fina hired CBI to build the unit. The catalyst cooler failed in operation. Fina sued CBI for negligence, breach of contract, breach of warranty, and strict products liability to recover the cost to replace the catalyst cooler. CBI sought contribution from UOP, who in turn contended CBI’s claims arose out of a purely economic loss of FINA. The parties agreed that CBI’s rights against UOP could only be derivative of Fina’s rights against UOP. Thus, CBI’s case rested heavily on the presumption that Fina had a valid claim against UOP outside the contract that limited UOP’s liability to Fina. Thus, the case turned on whether Fina’s claims for common law negligence, breach of statutory warranty under the Uniform Commercial Code, and strict products liability were effectively precluded.

The Court first held Fina had only asserted economic injury to the subject matter of its contract with UOP, and thus rejected CBI’s argument that Fina had a claim for injury in tort, that was unaffected by UOP’s contractual limitation of liability. The Court then ruled the Texas anti-indemnity statute does not preclude an engineer from obtaining a contractual limit of its tort liability to the other party to the contract.

The Court looked to the language of the contract, and construed it to effectively limit common law causes of action outside the contract, thus precluding CBI’s contribution claim. The limitation clause said:

“UOP’s total liability in the event of any breach of the foregoing warranty, or otherwise for any losses, damages, claims or demands arising out of the work and services performed under this agreement, shall be limited to reperforming, at UOP’s expense, that portion of the work and services for which such breach or otherwise has occurred and provided that any such claim or demand shall be made in writing to UOP prior to the terminating of this agreement with respect to such Unit.”

CBI contended this clause should be unenforceable for failure to meet the “clear and unequivocal” test. The Court held this test (and presumably the more rigorous express negligence rule more recently applied to indemnity agreements ) does not apply to the enforcement of a limitation of liability:

“The cases [CBI] cited above are distinguishable from this case, because they involve instances where one party is seeking indemnification for its own negligence, rather than limiting its liability to others. Neither this case nor the Fina/UOP contract involves the rule of law applied in [these cases]. Under the Fina/UOP contract, UOP attempted only to limit its liability for an alleged breach of its duty, not to get indemnity or reimbursement from Fina.”

Other Texas cases have enforced limitations of liability. In Allright v. Elledge, 515 S.W.2d 266, LEXIS 303; 17 Tex. Sup. J. 414; 15 U.C.C. Rep. Serv. (Callaghan) 1122 (1974), the Texas Supreme Court held a limitation of a parking lot owner’s liability for loss of individuals’ automobiles can be binding, although the lack of bargaining power of the individual dictates that the limitation must be called to the individual’s attention, and limitations in the context of a bailment agreement will be strictly construed. In Valero Energy Corp. v. M.W. Kellogg Constr. Co., 866 S.W.2d 252, LEXIS 3131, (Tex. App. – Corpus Christi, 1993, writ denied), the Court found the following liability limitation clause effective against liability arising out of gross negligence. The limitation clause, as quoted by the Court, read as follows:

“6.8 OWNER shall release, defend, indemnify and hold harmless CONTRACTOR, its subcontractors and affiliates and their employees performing services under this Agreement against all claims, liabilities, loss or expense . . . arising out of or in connection with this Agreement or the Work to be performed hereunder, including losses attributable to CONTRACTOR’s negligence, to the extent CONTRACTOR is not compensated by insurance carried under this ARTICLE. . . . .

6.9 Neither CONTRACTOR nor its affiliates nor its subcontractors or vendors, either individually or jointly shall be liable to Owner or its affiliates, irrespective of whether alleged to be due to negligence or otherwise, for loss of anticipated profits or interest, for loss by reason of Plant shutdown or non-operation of the Plant or other equipment, for loss of catalysts or chemicals or for any consequential or special loss or damage arising from any reason whatsoever.”

The Court held:

“. . .Valero and Kellogg are sophisticated entities, replete with learned counsel and a familiarity with the oil refinery industry. They negotiated their working relationship over the course of almost three years, with Kellogg submitting several proposals for Valero’s review. During the negotiation process, Kellogg began performing services ultimately included under the retroactive contract. Work was begun on October 14, 1980; the contract was signed, after some $15 million worth of goods and services had been conveyed to Valero, on May 28, 1982. Valero, having a bargaining power equal to Kellogg’s, agreed to the exculpatory clause in this contract. Valero possessed the resources necessary to ascertain and understand the rights it held on the date of the signing of the contract, and those it would hold in the future. Nevertheless, Valero, of its own accord, negotiated those rights away.

The waiver and indemnity provision absolving Kellogg of all liability sounding in products liability and gross negligence does not offend public policy.”

The Court went on to find that the limitation of liability was even effective to protect Kellogg’s subcontractor.

Thus, Texas appears willing to enforce clearly drafted limitations of liability in construction contracts between sophisticated parties. Nevertheless, the drafter should be conscious of the possibility a court may consider such factors as: unconscionability and overreaching due to inequality of bargaining power , clarity of the clause , the adequacy of disclosure through the use of conspicuous print , and public policy arguments.

V. THE BASIC LIMITATION OF LIABILITY IS NOT ENOUGH

A basic limitation of liability clause might look something like this:

“Contractor’s maximum aggregate liability to Owner shall
not exceed the sum of $X.”

Unfortunately, this does not adequately protect the Contractor’s interest. It does not delineate the theories of liability covered by the limitation, it does not limit the liability of others aligned with the Contractor, or cover liability to others who are related to the Owner, and it does not have a provision that will make certain it survives the termination of the contract. These and other aspects of drafting the clause are addressed below.

VI. IDENTIFY ALL THEORIES OF LIABILITY TO
WHICH THE LIMITATION CLAUSE APPLIES

Most clients would believe a basic limitation of “all” liability is ironclad. Consider, however, that Texas courts will decline to enforce an Owner’s no damage for delay clause as to “ . . . delay not within the specifically enumerated delays to which the ‘no damage’ clause applies.”

Thus, a liability limitation clause should specifically enumerate the theories of liability to which it applies. Otherwise, a court may narrowly construe the clause to be inapplicable to unspecified theories of liability. Consider that a litigant may claim: that the parties did not intend the limitation to apply to physical damage, as opposed to purely economic loss; or that it covered only liability for breach of the contract, and not liability for negligence or other torts , or that it does not apply to warranty liability or that the limitation does not apply to liability to an Owner arising out of failure to perform statutory duties.

To resolve these questions, the drafter should consider adding the following:

This limitation of liability applies to all liability arising from the Contractor’s activities and obligations related to the Contract, including but not limited to, duty arising in contract, warranty, statute and tort (WHETHER SUCH OCCURRENCE ARISES OUT OF CONTRACTOR’S SOLE OR CONCURRENT NEGLIGENCE OR BREACH OF ANY STANDARD OF STRICT LIABILITY).

Note that, with respect to tort liability, conspicuous language is used to overcome any doubt that the express negligence rule might be applied to render the limitation void as to liability resulting from the Contractor’s own negligence. However, to guard against the unfortunate result in City of Dillingham v. CH2M Hill Northwest, Inc., it is better to say the Owner will “limit” rather than “indemnify” the Contractor against liability to the Owner.

VII. CONSIDER THIRD PARTIES SHARING CONTRACTOR’S INTEREST

There are often other parties who have a legitimate interest in being protected by the limitation of a Contractor’s liability in a construction contract. These include:

Affiliates – The limitation of liability should be extended to protect affiliates “in all directions, i.e. both parent, subsidiary, and parallel affiliates.”

Shareholders, Directors, Officers, Employees – These individuals often act as representatives of the Contractor in the negotiation and execution of the Contract. They should be protected under the limitation of liability as third party beneficiaries.

Joint Venture or LLC Members – If the Contractor is a joint venture entity or a limited liability company, the limitation should cover both the entity and its members.

Subcontractors and Vendors – Subcontractors and vendors often require limitations of their liability. In this situation, the subcontractor and vendor often realize a limitation of their liability to the Contractor does not protect them against liability to the Owner, since the Owner is not a party to the subcontract. Depending on their negotiating power, this may lead the subcontractor or vendor to demand indemnity from the Contractor against liability to the Owner. Having the Owner agree to extend the protection of the Contractor’s limitation of its liability to the Contractor’s subcontractors and vendors may avert all of this.

Insurers – The Contractor’s insurers should be protected as third party beneficiaries if the construction contract requires the Contractor to name the Owner as an additional insured on the Contractor’s commercial general liability insurance policy and provide waivers of its insurers’ subrogation rights. A large loss paid by an insurer to indemnify the Owner as an additional insured against a third party claim can lead to dilution or exhaustion of coverage and increased premium charges at renewal time.

Note that when an Owner is an additional insured on the Contractor’s policy, it covers the Owner against third party liability claims up to the Contractor’s policy limits, independently of the Contract. This can happen even though the construction contract limits the Contractor’s and its insurer’s maximum liability to a sum less than the policy limits. Therefore, the policy should have a manuscript endorsement clearly limiting the additional insured’s recovery to the limits of the named-insured’s (Contractor’s) obligations, as stated in the contract. The policy and the contract should also use parallel language providing that the Owner’s right as an additional insured pertains only to liability “caused by” rather than “arising out of” the Contractor’s operations as the named insured.

To protect others aligned with the Contractor’s interests, the limitation of liability clause should include the italicized words:

The total liability of Contractor, including its affiliates, and their stockholders, directors, officers, employees, members, insurers, subcontractors, vendors and agents (“Contractor”) to Owner . . . . shall not exceed . . . .

VIII. GUARD AGAINST THIRD PARTIES
SHARING ANY INTEREST IN OWNER’S PROPERTY

It is important to remember that a contractual limitation of liability only protects against liability to a signatory party. No limitation of a Contractor’s liability to the Owner is going to be binding on a third party, unless the Owner binds the third party, with the authority to do so. Third parties who may have an interest in the Owner’s property include the Owner’s affiliates, co-owners, tenants, vendors, insurers, and lenders. Protection against this risk of liability to non-signatory third parties who may own an interest in the Owner’s property at the time of contract, or in the future, should be managed either through a representation by the Owner that there are, and will be, no third parties having any interest in the Owner’s property during the term of the contract, or that the Owner has, and is exercising, valid authority to bind any such third parties. The following italicized wording helps manage the risk of liability to third parties:

The total liability of Contractor, including its affiliates, and their stockholders, directors, officers, employees, members, insurers, subcontractors, vendors and agents (“Contractor”) to Owner, Owner’s affiliates, insurers, and any third parties referred to below (collectively referred to in this section as “Owner”) shall be limited to actual damages not to exceed . . .Owner represents that it is (i) the sole owner of the Work, the land constituting the site of the Owner’s plant and facilities where Contractor’s Work will be performed, and any inventory or other personalty stored thereon (collectively “Property”), or (ii) authorized to bind and does bind (or will bind prior to the occurrence of any loss or damage thereto) all persons or entities currently having, or acquiring in the future, any legal or equitable interest in the Property, to the indemnities, releases and limitations of liability set forth in this Contract.

To further manage the risk of liability to third parties, include a special indemnity provision in the limitation of liability. This indemnity can be structured by adding the italicized wording below:

If Owner fails to bind to this limitation any third party having, or hereafter acquiring, any interest in Owner’s property, Owner agrees to indemnify, defend and hold Contractor harmless from and against such liability to the extent that it would cause Contractor’s total liability in connection with this Contract to exceed the limit of liability stated above.

IX. DISTINGUISH BETWEEN LIABLITY FOR LOSS OR DAMAGE
TO THE OWNER’S PLANT, AND LOSS OR DAMAGE TO “THE WORK”

The parties to a construction contract should decide how to manage the risk of loss or damage to (i) the owner’s collateral property, and (ii) the work in progress, and the equipment and materials to be installed (“the Work.”). The risk of loss to “the Work” is typically managed with Builders’ Risk insurance purchased by one of the parties for the interests of Owner and all contractors on the site. In such case, the limitation of liability clause can exclude liability for risk of loss to the Work, to the extent covered by the Builders’ Risk Insurance.

The limitation should apply to collateral property damage as well. Owners typically insure the risk of damage to their collateral property under a property insurance policy. Each Owner determines how much of this risk it will self-insure through a deductible charge or self-insured retention limit, as part of its insurance program. Depending on the level of its self-insured risk, an Owner may agree to totally rely on its own insurance program for protection against the risk of loss or damage to the Owner’s collateral property, relieving the Contractor of this risk entirely. If so, the limitation of liability clause should reflect that the Owner also would have its property insurer waive subrogation rights against the Contractor.

The following language excludes liability covered by Builders’ Risk insurance, but otherwise waives all liability for property damage:

Contractor shall have no liability to Owner for any loss, cost or expense resulting from loss of or damage to property (excluding loss or damage to Work paid by Builders’ Risk Insurance required under this Contract). Owner waives all rights of recovery that it may have now or in the future and shall likewise require each insurer of Owner’s property to waive all subrogation rights against Contractor for any such loss, cost or expense.

On the other hand, an Owner’s deductible or self-insured retention limit may be low enough to enable the parties to cover collateral property damage within the monetary amount of the limitation. In this case, the foregoing clause could be revised to exclude from the limitation clause only loss or damage paid by Builders’ Risk insurance:

“This limitation of liability does not apply to loss or damage to Work paid by Builders’ Risk Insurance required under this Contract.”

X. MAKE THE LIMITATION APPLY TO WORK
PERFORMED FOR OTHERS AT THE OWNER’S SITE

Occasionally, the Contractor may be asked by the Owner to assist a third party in performing work at the Owner’s facility. Contractors who are customer-service oriented are happy to agree to provide such incidental services to an Owner’s collateral contractors and vendors. However, this exposes the Contractor to a risk of unlimited liability for two reasons. First, the Contractor’s limitation of liability agreement with the Owner does not bind third parties. Second, the limitation may only apply to liability arising out of work done under the construction contract between the Owner and the Contractor. Work done for a third party may not be covered.

A Contractor may also perform certain work for the Owner before the Contract is actually executed. To avoid any question that the contract will cover such liability, the limitation of liability, if not the contract as a whole, should apply retroactively to the beginning of the work.

These concerns can be resolved by further adapting the limitation clause as follows:

This limitation of liability applies to all liability arising from the Contractor’s activities and obligations related to the Contract, and any separate agreement with a third party to perform services for Owner’s benefit at the site of the Work hereunder, including but not limited to, duty arising in contract, warranty, statute and tort (WHETHER SUCH OCCURRENCE ARISES OUT OF CONTRACTOR’S SOLE OR CONCURRENT NEGLIGENCE OR BREACH OF ANY STANDARD OF STRICT LIABILITY).

The following is an alternative approach to extend to a collateral contract the benefit of both liability limitations and other clauses favorable to the Contractor:

If Contractor agrees to perform work or services relating to the maintaining, improving, or repairing of Owner’s property pursuant to a separate contract with a third party who Owner has approved or authorized to enter into such contract with Contractor, then any limitation on or exculpation from liability, including any indemnity or other right protecting Contractor from liability under this Contract, shall apply concurrently to Contractor’s liability arising out of this Contract and any such separate Contract.

XI. AVOID INADVERTENT CONFLICTS WITH OTHER CONTRACT CLAUSES

A construction contract may establish special limits of certain types of liability. These special limits may be less than the general limitation of liability. Examples of clauses which may limit the Contractor’s liability more narrowly include clauses that set a special limit on, or otherwise waive or indemnify against, liability associated with:

– the obligation to indemnify the Owner against third party claims
– warranty liability
– liability for damage to Owner’s property
– liability for loss or damage to the Work
– liquidated damages for delay
– performance guarantees
– liability arising out of escape of Owner pollutants

To avoid a conflict between the general liability limitation and another more narrow limitation, begin the general limitation clause with the following italicized phrase:

Unless otherwise more narrowly limited, and notwithstanding any other provision in this Contract, the total liability of Contractor, . . . . shall be limited to . . . .

XII. THE LIMITATION OF LIABILITY CLAUSE MUST
SURVIVE THE CONTRACT

The contract should make it clear that the protection of the limitation clause does not expire upon completion or termination of the contract. A typical, simple survival clause follows:

This limitation will survive the Contract.

XIII. THE FINISHED PRODUCT

Attachment 1 to this paper combines all of the recommended provisions into a single general limitation of liability clause.

XIV. TIPS ON SPECIAL TYPES OF LIABILITY LIMITATIONS

Consequential Damage Waivers

A common form of liability limitation is the waiver of consequential damages. Today, consequential damage waivers are usually included in most Owner construction contract forms. The waiver is generally used to extinguish a party’s liability exposure for the other party’s “indirect, special, and consequential damages.” Such waivers are usually intended to eliminate liability for profits, revenue, production shortfall, and other such damages due to an interruption of business. Business interruption losses can be measured in millions of dollars per day, a risk that is inordinately disproportionate to the Contractor’s potential reward. This may result from even minor mishaps and short delays in completion. Waivers should particularize the types of business interruption losses intended to be waived, and be coupled with a waiver of insurance subrogation rights, since Owners typically manage the risk of such losses with business interruption insurance.

The following consequential damages waiver clause contains italicized wording designed to meet these concerns:

“Owner waives, and will require its insurers to waive rights of subrogation with respect to, all liability for Owner’s consequential, special, indirect or incidental damages. These damages include, but are not limited to, loss of use, loss of business opportunity, loss of product or output, loss of profit or revenue, cost of capital, and claims of others not a party to the Contract.”

Liquidated Damages for Delay

Clauses that establish a daily rate of liquidated damages for delay are a form of limitation of liability. When negotiating such clauses, the parties should consider whether the Contractor’s exposure to liquidated damages should include damages the Owner can recover from business interruption insurance. If the Contractor is to be excused to this extent, the clause should be revised along the following lines:

Owner insurance policies covering loss of profits, revenue, extended debt service, or other loss resulting from delay in startup will be endorsed to provide that amounts recoverable thereunder will be credited against any liquidated damages which would otherwise be due to Owner from Contractor hereunder.

ATTACHMENT 1:
GENERAL LIMITATION OF LIABILITY

Unless otherwise more narrowly limited, and not withstanding any other provision in this Contract, the total liability of Contractor, including its affiliates, and their stockholders, directors, officers, employees, members, insurers, subcontractors, vendors and agents (“Contractor”) to Owner, Owner’s affiliates, insurers, and any third parties referred to below (collectively referred to in this section as “Owner”) shall be limited to actual damages not to exceed the lesser of (i) the contract value of the Work, or (ii) $__________ in the aggregate. This limitation of liability applies to all liability arising from the Contractor’s activities and obligations related to the Contract, and any separate agreement with a third party to perform services for Owner’s benefit at the site of the Work hereunder, including but not limited to, duty arising in contract, warranty, statute and tort (WHETHER SUCH OCCURRENCE ARISES OUT OF CONTRACTOR’S SOLE OR CONCURRENT NEGLIGENCE OR BREACH OF ANY STANDARD OF STRICT LIABILITY). This limitation will survive the Contract.

Owner represents that it is (i) the sole owner of the Work, the land constituting the site of the Owner’s plant and facilities where Contractor’s Work will be performed, and any inventory or other personalty stored thereon (collectively “Property”), or (ii) authorized to bind and does bind (or will bind prior to the occurrence of any loss or damage thereto) all persons or entities currently having, or acquiring in the future any legal or equitable interest in the Property, to the indemnities, releases and limitations of liability set forth in this Contract. If Owner fails to bind to this limitation any third party having, or hereafter acquiring, any interest in Owner’s property, Owner agrees to indemnify, defend and hold Contractor harmless from and against such liability to the extent that it would cause Contractor’s total liability to exceed the limit of liability stated above.

Contractor shall have no liability to Owner for any loss, cost or expense resulting from loss of or damage to property (excluding loss or damage to Work paid by Builders’ Risk Insurance required under this Contract). Owner waives all rights of recovery that it may have now or in the future and shall likewise require each insurer of Owner’s property to waive all subrogation rights against Contractor for any such loss, cost or expense.

ATTACHMENT 2:
LISTING OF STATE ANTI-INDEMNITY STATUTES
RELATING TO CONSTRUCTION CONTRACTS

ALASKA

Alaska Stat. § 45.45.900 (1999)
Sec. 45.45.900. Indemnification agreements against public policy

A provision, clause, covenant, or agreement contained in, collateral to, or affecting a construction contract that purports to indemnify the promisee against liability for damages for (1) death or bodily injury to persons, (2) injury to property, (3) design defects or (4) other loss, damage or expense arising under (1), (2), or (3) of this section from the sole negligence or willful misconduct of the promisee or the promisee’s agents, servants or independent contractors who are directly responsible to the promisee, is against public policy and is void and unenforceable; however, this provision does not affect the validity of an insurance contract workers’ compensation, or agreement issued by an insurer subject to the provisions of AS 21, or a provision, clause, covenant, or agreement of indemnification respecting the handling, containment or cleanup of oil or hazardous substances as defined in AS 46.

ARIZONA

A.R.S. § 32-1159 (1999)
§ 32-1159. Indemnity agreements in construction and architect-engineer contracts void; definitions

A. A covenant, clause or understanding in, collateral to or affecting a construction contract or architect-engineer professional service contract that purports to indemnify, to hold harmless or to defend the promisee from or against liability for loss or damage resulting from the sole negligence of the promisee or the promisee’s agents, employees or indemnitee is against the public policy of this state and is void.

B. Notwithstanding subsection A, a contractor who is responsible for the performance of a construction contract may fully indemnify a person for whose account the construction contract is not being performed and who, as an accommodation, enters into an agreement with the contractor that permits the contractor to enter on or adjacent to its property to perform the construction contract for others.

C. This section applies to all contracts entered into between private parties. This section does not apply to:

1. Agreements to which this state or a political subdivision of this state is a party, including intergovernmental agreements and agreements governed by sections 34-226 and 41-2586.

2. Agreements entered into by agricultural improvement districts under title 48, chapter 17.

D. In this section:

1. “Architect-engineer professional service contract” means a written or oral agreement relating to the design, design-build, construction administration, study, evaluation or other professional services furnished in connection with any actual or proposed construction, alteration, repair, maintenance, moving, demolition or excavation of any structure, street or roadway, appurtenance or other development or improvement to land.

2. “Construction contract” means a written or oral agreement relating to the construction, alteration, repair, maintenance, moving, demolition or excavation or other development or improvement to land.

A.R.S. § 41-2586 (1999)
§ 41-2586. Indemnity agreements in construction and architect-engineer contracts void; definitions

A. A covenant, clause or understanding in, collateral to or affecting a construction contract or subcontract or architect-engineer professional service contract or subcontract that purports to indemnify, to hold harmless or to defend the promisee of, from or against liability for loss or damage resulting from the negligence of the promisee or the promisee’s agents, employees or indemnitee is against the public policy of this state and is void.

B. Notwithstanding subsection A, a contractor who is responsible for the performance of a construction contract or subcontract may fully indemnify a person, firm, corporation, state or other agency for whose account the construction contract or subcontract is not being performed and who, as an accommodation, enters into an agreement with the contractor that permits the contractor to enter on or adjacent to its property to perform the construction contract or subcontract for others.

C. In this section:

1. “Architect-engineer professional service contract or subcontract” means a written or oral agreement relating to the design, construction administration, study, evaluation or other professional services furnished in connection with any actual or proposed construction, alteration, repair, maintenance, moving, demolition or excavation of a structure, street or roadway, appurtenance or other development or improvement to land.

2. “Construction contract or subcontract” means a written or oral agreement relating to the construction, alteration, repair, maintenance, moving, demolition or excavation or other development or improvement to land.

CALIFORNIA

Cal Civ Code § 1668 (1999)
§ 1668. Certain contracts unlawful

All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.

Cal Civ Code § 2782 (1999)
§ 2782. Construction contracts; Agreements indemnifying promisee or relieving public agency from liability as void

(a) Except as provided in Sections 2782.1, 2782.2, 2782.5, and 2782.6, provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction contract and which purport to indemnify the promisee against liability for damages for death or bodily injury to persons, injury to property, or any other loss, damage or expense arising from the sole negligence or willful misconduct of the promisee or the promisee’s agents, servants or independent contractors who are directly responsible to such promisee, or for defects in design furnished by such persons, are against public policy and are void and unenforceable; provided, however, that this provision shall not affect the validity of any insurance contract, workers’ compensation or agreement issued by an admitted insurer as defined by the Insurance Code.

(b) Except as provided in Sections 2782.1, 2782.2, and 2782.5, provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction contract with a public agency which purport to impose on the contractor, or relieve the public agency from, liability for the active negligence of the public agency shall be void and unenforceable.

CONNETICUT

Conn. Gen. Stat. § 52-572k (1999)
Sec. 52-572k. Hold harmless clause against public policy in certain construction contracts.

(a) Any covenant, promise, agreement or understanding entered into in connection with or collateral to a contract or agreement relative to the construction, alteration, repair or maintenance of any building, structure or appurtenances thereto including moving, demolition and excavating connected therewith, that purports to indemnify or hold harmless the promisee against liability for damage arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of such promisee, his agents or employees, is against public policy and void, provided this section shall not affect the validity of any insurance contract, workers’ compensation agreement or other agreement issued by a licensed insurer.

(b) The provisions of this section shall apply to covenants, promises, agreements or understandings entered into on or after the thirtieth day next succeeding October 1, 1977.

FLORIDA

Florida Stat. § 725.06 (1999)
§ 725.06 Construction contracts; limitation on indemnification

Any portion of any agreement or contract for, or in connection with, any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance, including moving and excavating connected with it, or any guarantee of, or in connection with, any of them, between an owner of real property and an architect, engineer, general contractor, subcontractor, subsubcontractor, or materialman, or between any combination thereof, wherein any party referred to herein obtains indemnification from liability for damages to persons or property caused in whole or in part by any act, omission, or default of that party arising from the contract or its performance shall be void and unenforceable unless:

(1) The contract contains a monetary limitation on the extent of the indemnification and shall be a part of the project specifications or bid documents, if any, or

(2) The person indemnified by the contract gives a specific consideration to the indemnitor for the indemnification that shall be provided for in his contract and section of the project specifications or bid documents, if any.

GEORGIA

O.C.G.A. § 13-8-2 (1999)
§ 13-8-2. Contracts contravening public policy generally

(a) A contract which is against the policy of the law cannot be enforced. Contracts deemed contrary to public policy include but are not limited to:

(1) Contracts tending to corrupt legislation or the judiciary;

(2) Contracts in general restraint of trade, as distinguished from contracts in partial restraint of trade as provided for in Code Section 13-8-2.1;

(3) Contracts to evade or oppose the revenue laws of another country;

(4) Wagering contracts;

(5) Contracts of maintenance or champerty.

(b) A covenant, promise, agreement, or understanding in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair, or maintenance of a building structure, appurtenances, and appliances, including moving, demolition, and excavating connected therewith, purporting to indemnify or hold harmless the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee, his agents or employees, or indemnitee is against public policy and is void and unenforceable, provided that this subsection shall not affect the validity of any insurance contract, workers’ compensation, or agreement issued by an admitted insurer.

ILLINOIS

CHAPTER 740. CIVIL LIABILITIES
CONSTRUCTION CONTRACT INDEMNIFICATION FOR NEGLIGENCE ACT
740 ILCS 35/1 (1999)
[Prior to 1/1/93 cited as: Ill. Rev. Stat., Ch. 29, para. 61]
§ 740 ILCS 35/1. [Agreements to indemnify or hold harmless]

Sec. 1. With respect to contracts or agreements, either public or private, for the construction, alteration, repair or maintenance of a building, structure, highway bridge, viaducts or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise or agreement to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable.

INDIANA

Burns Ind. Code Ann. § 26-2-5-1 (1999)
§ 26-2-5-1. Agreements of indemnification void – Exception

All provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction or design contract except those pertaining to highway contracts, which purport to indemnify the promisee against liability for:

(1) Death or bodily injury to persons;

(2) Injury to property;

(3) Design defects; or

(4) Any other loss, damage or expense arising under either (1), (2) or (3); from the sole negligence or willful misconduct of the promisee or the promisee’s agents, servants or independent contractors who are directly responsible to the promisee, are against public policy and are void and unenforceable.

MARYLAND

Md. COURTS AND JUDICIAL PROCEEDINGS Code Ann. § 5-401 (1999)
§ 5-401. Certain construction industry indemnity agreements prohibited

A covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement relating to the construction, alteration, repair, or maintenance of a building, structure, appurtenance or appliance, including moving, demolition and excavating connected with it, purporting to indemnify the promisee against liability for damages arising out of bodily injury to any person or damage to property caused by or resulting from the sole negligence of the promisee or indemnitee, his agents or employees, is against public policy and is void and unenforceable. This section does not affect the validity of any insurance contract, workers’ compensation, or any other agreement issued by an insurer.

MASSACHUSETTS

Mass. Ann. Laws ch. 106, § 2-316A (1999)
§ 2-316A. Limitation on Exclusion or Modification of Warranties.

(1) The provisions of section 2-316 shall not apply to the extent provided in this section.

(2) Any language, oral or written, used by a seller or manufacturer of consumer goods and services, which attempts to exclude or modify any implied warranties of merchantability and fitness for a particular purpose or to exclude or modify the consumer’s remedies for breach of those warranties, shall be unenforceable.

(3) Any language, oral or written, used by a manufacturer of consumer goods, which attempts to limit or modify a consumer’s remedies for breach of such manufacturer’s express warranties, shall be unenforceable, unless such manufacturer maintains facilities within the commonwealth sufficient to provide reasonable and expeditious performance of the warranty obligations.

(4) Any language, oral or written, used by a seller or manufacturer of goods and services, which attempts to exclude or modify any implied warranties of merchantability and fitness for a particular purpose or to exclude or modify remedies for breach of those warranties, shall be unenforceable with respect to injury to the person. This subsection does not affect the validity under other law of an agreement between a seller or manufacturer of goods and services and a buyer that is an organization (see Section 1-201(28)), allocating, as between them, the risk of damages from or providing indemnity for breaches of those warranties with respect to injury to the person.

(5) The provisions of this section may not be disclaimed or waived by agreement.

Mass. Ann. Laws ch. 149, § 29C (1999)
§ 29C. Indemnification by Subcontractor Provision Void.

Any provision for or in connection with a contract for construction, reconstruction, installation, alteration, remodeling, repair, demolition or maintenance work, including without limitation, excavation, backfilling or grading, on any building or structure, whether underground or above ground, or on any real property, including without limitation any road, bridge, tunnel, sewer, water or other utility line, which requires a subcontractor to indemnify any party for injury to persons or damage to property not caused by the subcontractor or its employees, agents or subcontractors, shall be void.

MICHIGAN

MSA § 26.1146(1) (1999)
§ 26.1146(1). Construction industry indemnity agreements; invalidity.

Sec. 1. A covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement relative to the construction, alteration, repair or maintenance of a building, structure, appurtenance and appliance, including moving, demolition and excavating connected therewith, purporting to indemnify the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee or indemnitee, his agents or employees, is against public policy and is void and unenforceable.

MISSISSIPPI

Miss. Code Ann. § 31-5-41 (1999)
§ 31-5-41. “Hold harmless” clauses in construction contracts are void; exceptions

With respect to all public or private contracts or agreements, for the construction, alteration, repair or maintenance of buildings, structures, highway bridges, viaducts, water, sewer or gas distribution systems, or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise and/or agreement contained therein to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable.

This section does not apply to construction bonds or insurance contracts or agreements.

MISSOURI

§ 434.100 R.S.Mo. (1999)
§ 434.100. Construction contracts–hold harmless provisions are void and unenforceable, exceptions–construction work defined–effective date

1. Except as provided in subsection 2 of this section, in any contract or agreement for public or private construction work, a party’s covenant, promise or agreement to indemnify or hold harmless another person from that person’s own negligence or wrong doing is void as against public policy and wholly unenforceable.

2. The provisions of subsection 1 of this section shall not apply to:

(1) A party’s covenant, promise or agreement to indemnify or hold harmless another person from the party’s own negligence or wrong doing or the negligence or wrong doing of the party’s subcontractors and suppliers of any tier;

(2) A party’s promise to cause another person or entity to be covered as an insured or additional insured in an insurance contract;

(3) A contract or agreement between state agencies or political subdivisions or between such governmental agencies;

(4) A contract or agreement between a private person and such governmental entities for the use or operation of public property or a public facility;

(5) A contract or agreement with the owner of the public property for the construction, use, maintenance or operation of a private facility when it is located on such public property;

(6) A permit, authorization or contract with such governmental entities for the movement of property on the public highways, roads or streets of this state or any political subdivision;

(7) Construction bonds, or insurance contracts or agreements;

(8) An agreement containing a party’s promise to indemnify, defend or hold harmless another person, if the agreement also requires the party to obtain specified limits of insurance to insure the indemnity obligation and the party had the opportunity to recover the cost of the required insurance in its contract price; provided, however, that in such case the party’s liability under the indemnity obligation shall be limited to the coverage and limits of the required insurance; or

(9) Railroads regulated by the Federal Railroad Administration.

3. For the purposes of this section, “construction work” shall include, but not be limited to, the construction, alteration, maintenance or repair of any building, structure, highway, bridge, viaduct, or pipeline, or demolition, moving or excavation connected therewith, and shall include the furnishing of surveying, design, engineering, planning or management services, or labor, materials or equipment, in connection with such work.

4. The provisions of this section shall apply only to contracts or agreements entered into after the effective date of this section.

MONTANA

Mont. Code Anno., § 28-2-702 (1999)
28-2-702 Contracts which violate policy of the law – exemption from responsibility.

All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, for willful injury to the person or property of another, or for violation of law, whether willful or negligent, are against the policy of the law.

NEW YORK

NY CLS Gen Oblig § 5-322.1 (1999)
§ 5-322.1. Agreements exempting owners and contractors from liability for negligence void and unenforceable; certain cases

1. A covenant, promise, agreement or understanding in, or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair or maintenance of a building, structure, appurtenances and appliances including moving, demolition and excavating connected therewith, purporting to indemnify or hold harmless the promisee against liability for damage arising out of bodily injury to persons or damage to property contributed to, caused by or resulting from the negligence of the promisee, his agents or employees, or indemnitee, whether such negligence be in whole or in part, is against public policy and is void and unenforceable; provided that this section shall not affect the validity of any insurance contract, workers’ compensation agreement or other agreement issued by an admitted insurer. This subdivision shall not preclude a promisee requiring indemnification for damages arising out of bodily injury to persons or damage to property caused by or resulting from the negligence of a party other than the promisee, whether or not the [fig 1] promisor is partially negligent.

2. The provisions of this section shall only apply to covenants, promises, agreements or understandings in, or in connection with or collateral to a contract or agreement, as enumerated in subdivision one hereof, entered into on or after the thirtieth day next succeeding the date on which it shall have become a law.

NORTH DAKOTA (See Maxim 34, below)

N.D. Cent. Code, § 31-11-05 (1999)
§ 31-11-05. Maxims of jurisprudence – How to be used and applied – List

The maxims of jurisprudence set forth in this section are not intended to qualify any of the provisions of the laws of this state, but to aid in their just application:

1. When the reason of a rule ceases so should the rule itself.

2. When the reason is the same the rule should be the same.

3. A person must not change that person’s purpose to the injury of another.

4. Anyone may waive the advantage of a law intended solely for that person’s benefit, but a law established for a public reason cannot be contravened by a private agreement.

5. One must so use one’s own rights as not to infringe upon the rights of another.

6. One who consents to an act is not wronged by it.

7. Acquiescence in error takes away the right of objecting to it.

8. A person cannot take advantage of that person’s own wrong.

9. A person who fraudulently has dispossessed himself or herself of a thing may be treated as if the person still had possession.

10. A person who can and does not forbid that which is done on that person’s behalf is deemed to have bidden it.

11. No one should suffer by the act of another.

12. One who takes the benefit must bear the burden.

13. One who grants a thing is presumed to grant also whatever is essential to its use.

14. For every wrong there is a remedy.

15. Between those who are equally in the right or equally in the wrong the law does not interpose.

16. Between rights otherwise equal the earliest is preferred.

17. No person is responsible for that which no person can control.

18. The law helps the vigilant before those who sleep on their rights.

19. The law respects form less than substance.

20. That which ought to have been done is to be regarded as done in favor of one to whom and against one from whom performance is due.

21. That which does not appear to exist is to be regarded as if it did not exist.

22. The law never requires impossibilities.

23. The law neither does nor requires idle acts.

24. The law disregards trifles.

25. Particular expressions qualify those which are general.

26. Contemporaneous exposition is in general the best.

27. The greater contains the less.

28. Superfluity does not vitiate.

29. That is certain which can be made certain.

30. Time does not confirm a void act.

31. The incident follows the principal, not the principal the incident.

32. An interpretation which gives effect is preferred to one which makes void.

33. Interpretation must be reasonable.

34. When one of two innocent persons must suffer by the act of a third, the one by whose negligence it happened must be the sufferer.

OHIO

ORC Ann. 2305.31 (Anderson 1999)
§ 2305.31 Indemnify promisee against damage liability.

A covenant, promise, agreement, or understanding in, or in connection with or collateral to, a contract or agreement relative to the design, planning, construction, alteration, repair, or maintenance of a building, structure, highway, road, appurtenance, and appliance, including moving, demolition, and excavating connected therewith, pursuant to which contract or agreement the promisee, or its independent contractors, agents or employees has hired the promisor to perform work, purporting to indemnify the promisee, its independent contractors, agents, employees, or indemnities against liability for damages arising out of bodily injury to persons or damage to property initiated or proximately caused by or resulting from the negligence of the promisee, its independent contractors, agents, employees, or indemnities is against public policy and is void. Nothing in this section shall prohibit any person from purchasing insurance from an insurance company authorized to do business in the state of Ohio for his own protection or from purchasing a construction bond.

PUERTO RICO

31 L.P.R.A. § 3372 (1996)

§ 3372. Permissible clauses and conditions

The contracting parties may make the agreement and establish the clauses and conditions which they may deem advisable, provided they are not in contravention of law, morals, or public order.

RHODE ISLAND

R.I. Gen. Laws § 6-34-1 (1999)
§ 6-34-1. Construction indemnity agreements

(a) A covenant, promise, agreement, or understanding in, or in connection with or collateral to, a contract or agreement relative to the design, planning, construction, alteration, repair, or maintenance of a building, structure, highway, road, appurtenance, and appliance, including moving, demolition, and excavating connected therewith, pursuant to which contract or agreement the promisee or the promisee’s independent contractors, agents, or employees, has hired the promisor to perform work, purporting to indemnify the promisee, the promisee’s independent contractors, agents, employees, or indemnitees against liability for damages arising out of bodily injury to persons or damage to property proximately caused by or resulting from the negligence of the promisee, the promisee’s independent contractors, agents, employees, or indemnitees, is against public policy and is void; provided that this section shall not affect the validity of any insurance contract, worker’s compensation agreement, or an agreement issued by an insurer.

(b) Nothing in this section shall prohibit any person from purchasing insurance for his own protection or from purchasing a construction bond.

SOUTH CAROLINA

S.C. Code Ann. § 32-2-10 (1998)
§ 32-2-10. Hold harmless clauses in certain construction contracts void as against public policy.

Notwithstanding any other provision of law, a promise or agreement in connection with the design, planning, construction, alteration, repair or maintenance of a building, structure, highway, road, appurtenance or appliance, including moving, demolition and excavating, purporting to indemnify the promisee, its independent contractors, agents, employees, or indemnitees against liability for damages arising out of bodily injury or property damage proximately caused by or resulting from the sole negligence of the promisee, its independent contractors, agents, employees, or indemnitees is against public policy and unenforceable. Nothing contained in this section shall affect a promise or agreement whereby the promisor shall indemnify or hold harmless the promisee or the promisee’s independent contractors, agents, employees or indemnitees against liability for damages resulting from the negligence, in whole or in part, of the promisor, its agents or employees. The provisions of this section shall not affect any insurance contract or workers’ compensation agreements; nor shall it apply to any electric utility, electric cooperative, common carriers by rail and their corporate affiliates or the South Carolina Public Service Authority.

SOUTH DAKOTA

S.D. Codified Laws § 56-3-16 (1999)
§ 56-3-16. Indemnification of architect or engineer for own errors prohibited in construction contract

Construction contracts, plans and specifications which contain indemnification provisions shall include the following provision:

The obligations of the contractor shall not extend to the liability of the architect or engineer, his agents or employees arising out of:

(1) The preparation or approval of maps, drawings, opinions, reports, surveys, change orders, designs or specifications, or

(2) The giving of or the failure to give directions or instructions by the architect, or engineer, his agents or employees provided such giving or failure to give is the primary cause of the injury or damage.

S.D. Codified Laws § 56-3-17 (1999)
§ 56-3-17. Conflicting provision in construction contract unlawful and unenforceable

Any indemnification provision in a construction contract in conflict with § 56-3-16 shall be unlawful and unenforceable.

TENNESSEE

Tenn. Code Ann. § 62-6-123 (1999)
62-6-123. Indemnify or hold harmless agreement invalid

A covenant promise, agreement or understanding in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair or maintenance of a building, structure, appurtenance and appliance, including moving, demolition and excavating connected therewith, purporting to indemnify or hold harmless the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee, the promisee’s agents or employees, or indemnitee, is against public policy and is void and unenforceable.

TEXAS
Tex. Civ. Prac. & Rem. Code § 130.002 (1999)
§ 130.002 Covenant or Promise Void and Unenforceable

A covenant or promise in, in connection with, or collateral to a construction contract is void and unenforceable if the covenant or promise provides for a contractor who is to perform the work that is the subject of the construction contract to indemnify or hold harmless a registered architect, registered engineer or an agent, servant, or employee of a registered architect or registered engineer from liability for damage that:

(1) is caused by or results from:

(A) defects in plans, designs, or specifications prepared, approved, or used by the architect or engineer; or

(B) negligence of the architect or engineer in the rendition or conduct of professional duties called for or arising out of the construction contract and the plans, designs, or specifications that are a part of the construction contract; and

(2) arises from:

(A) personal injury or death;

(B) property injury; or

(C) any other expense that arises from personal injury, death, or property injury.

UTAH

Utah Code Ann. § 13-8-1 (1999)
§ 13-8-1. Construction industry — Agreements to indemnify

(1) For purposes of this section:

(a) “Construction contract” means a contract or agreement relative to the design, construction, alteration, repair, or maintenance of a building, structure, highway, appurtenance, appliance, or other improvement to real property, including moving, demolition, or excavating, connected to the construction contract between:

(i) a construction manager;

(ii) a general contractor;

(iii) a subcontractor;

(iv) a sub-subcontractor;

(v) a supplier; or

(vi) any combination of persons listed in Subsections (1)(a)(i) through (v).

(b) “Indemnification provision” means a covenant, promise, agreement or understanding in, in connection with, or collateral to a construction contract requiring the promisor to insure, hold harmless, indemnify, or defend the promisee or others against liability if:

(i) the damages arise out of:

(A) bodily injury to a person;

(B) damage to property; or

(C) economic loss; and

(ii) the damages are caused by or resulting from the fault of the promisee, indemnitee, others, or their agents or employees.

(2) Except as provided in Subsection (3), an indemnification provision in a construction contract is against public policy and is void and unenforceable.

(3) When an indemnification provision is included in a contract related to a construction project between an owner and party listed in Subsection (1)(a), in any action for damages described in Subsection (1)(b)(i), the fault of the owner shall be apportioned among the parties listed in Subsection (1)(a) pro rata based on the proportional share of fault of each of the parties listed in Subsection (1)(a), if:

(a) the damages are caused in part by the owner; and

(b) the cause of the damages defined in Subsection (1)(b)(i) did not arise at the time and during the phase of the project when the owner was operating as a party defined in Subsection (1)(a).

(4) This section may not be construed to affect or impair the obligations of contracts or agreements, that are in existence at the time this section or any amendment to this section becomes effective.

VIRGINIA

Va. Code Ann. § 11-4.1 (1999)
§ 11-4.1. Certain indemnification provisions in construction contracts declared void

Any provision contained in any contract relating to the construction, alteration, repair or maintenance of a building, structure or appurtenance thereto, including moving, demolition and excavation connected therewith, or any provision contained in any contract relating to the construction of projects other than buildings by which the contractor performing such work purports to indemnify or hold harmless another party to the contract against liability for damage arising out of bodily injury to persons or damage to property suffered in the course of performance of the contract, caused by or resulting solely from the negligence of such other party or his agents or employees, is against public policy and is void and unenforceable. This section applies to such contracts between contractors and any public body, as defined in § 11-37.

This section shall not affect the validity of any insurance contract, workers’ compensation, or any agreement issued by an admitted insurer.

WASHINGTON

Rev. Code Wash. (ARCW) § 4.24.115 (1999)
§ 4.24.115. Validity of agreement to indemnify against liability for negligence relative to construction, alteration, improvement, etc., of structure or improvement attached to real estate

A covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement relative to the construction, alteration, repair, addition to, subtraction from, improvement to, or maintenance of, any building, highway, road, railroad, excavation, or other structure, project, development, or improvement attached to real estate, including moving and demolition in connection therewith, purporting to indemnify against liability for damages arising out of bodily injury to persons or damage to property:

(1) Caused by or resulting from the sole negligence of the indemnitee, his agents or employees is against public policy and is void and unenforceable;

(2) Caused by or resulting from the concurrent negligence of (a) the indemnitee or the indemnitee’s agents or employees, and (b) the indemnitor or the indemnitor’s agents or employees, is valid and enforceable only to the extent of the indemnitor’s negligence and only if the agreement specifically and expressly provides therefor, and may waive the indemnitor’s immunity under industrial insurance, Title 51 RCW, only if the agreement specifically and expressly provides therefor and the waiver was mutually negotiated by the parties. This subsection applies to agreements entered into after June 11, 1986.

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New Orleans, Louisiana 70130
Phone: 504.299.3070
Fax: 504.299.3071
Toll Free: 888.435.8214

Cincinnati

PNC Center
201 E. 5th Street
Suite 1810
Cincinnati, OH 45202