Construction and Commercial Real Estate Law

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Indemnity provisions are often the subject of great scrutiny in construction contracts. Pennsylvania’s continued scrutiny and negotiation of indemnity provisions is due in part to the Commonwealth being one of the last states to enact legislation restricting the scope of indemnity obligations. However, this summer a billed in the Pennsylvania Legislature was to limit indemnity obligations, and therefore much of the negotiation involved with limiting their reach. The bill seeks to expand the existing Pennsylvania anti-indemnity statute enacted back in 1970. The existing statute proscribes the indemnification of design professionals for claims arising from the preparation of design or other documents and/or direction, or failure to give direction. The bill amends that existing law to now make void as against public policy any indemnity provision whereby a contractor, subcontractor or supplier is required to indemnity another contractor, subcontractor or supplier for personal injury or property damage caused in whole or in part by the indemnified party. If enacted, will in essence, eliminate what is commonly referred to as “broad form” indemnity provisions in construction contracts. Broad form indemnity means the indemnifying party is indemnifying the other party to the contract even for injury arising from that other party’s own acts and/or omissions. This will be a significant risk management benefit for downstream contractors and suppliers. While the bill does reduce an indemnifying party’s exposure, it should be noted the bill, as written, arguably does not prevent an indemnity obligation for claims arising from a breach of contract. So, if a party breaches the contract, and is obligated to indemnify the other party for damages, the bill, as written would not proscribe such an arrangement Often times, incidents causing injury to persons or property can be attributed to a breach of some safety or security requirement of the contract. Therefore, the bill, as written, opens up a potential ‘end run’ around the intended protections of the new bill, until the Court’s interpret the law to say otherwise. To be fully effective, the bill should be modified include the heavy and burdensome obligations that come with indemnity for breach of contract are also void and contrary to public policy.

Until such time as the bill is acted upon, contractors should ensure they are reading their indemnity provisions carefully and properly obtaining adequate insurance coverages. Until this bill is enacted into law, parties attempting to avoid indemnity obligations will need to rely upon the existing case law where Court’s narrowly construe indemnity obligations, or enforce them based upon the parties intended meaning. Under these principals, the indemnifying party presently is obligated to cover another party’s negligence only if the parties clearly and unambiguously expressed the intent to do so in their indemnifying agreement. This bill would eliminate the need to rely upon contract interpretation and protracted litigation to avoid the application of such broad form indemnity obligations.