Most construction contracts include an indemnification clause. This is a provision stating that one party to the contract agrees to pay for the losses incurred by another party. The party agreeing to pay is called the indemnitor and the party paying is called the indemnitee.
Indemnification clauses are especially crucial in construction contracts because the complexity and many moving parts of construction projects means there are several risks. Construction defects, delays, injuries and breaches of contract can cause one party to experience significant losses.
Types of indemnification clauses
There are various forms of indemnification clauses. Each form comes with its own benefits and drawbacks, depending on the situation.
Broad form indemnification clauses state the indemnitor is responsible for all losses, no matter who is at fault. This type of clause shifts much of the burden to the indemnitor and may not always be a good option if you are the indemnitor.
An intermediate form indemnification clause states that the indemnitor is responsible for losses although the indemnity might be partially at fault for the problem.
Although this narrows liability for an indemnitor, it might not be as fair an option as a limited form indemnification clause, which states that the indemnitor is only responsible for losses to the extent of their own fault.
Generally, indemnification clauses are negotiated between both parties to ensure the terms are fair to each.
Indemnification clauses serve several purposes
Indemnification clauses protect the indemnitee from being forced to pay for costs associated with the actions or mistakes of the indemnitor. They also help clarify expectations for everyone involved so there should be no question who is responsible for losses if they occur.
Disagreements over the meaning of language in an indemnification clause is a common cause of construction disputes in Florida construction projects. Before signing a construction contract, it is important to understand the meaning of the indemnification clause to reduce your company’s risk exposure.
