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Effectiveness of Written Indemnity Agreements In The District of Columbiaby D. Stephenson Schwinn, Esq. and David B. Stratton, Esq. Please review our disclaimer before proceeding.An indemnity agreement is an "insured contract" under the standard Broad Form CGL policy. Such agreements are widely used in the construction and property management industries. Properly worded, such agreements can operate not only to protect the indemnitee from vicarious liability, but also to shift liability for its own negligence to the indemnitor. It should be noted that some states prohibit such agreements, or regard them unenforceable as against public policy. But at present, the District of Columbia is not one of them. Our experience has shown that the effect of these agreements is not always fully appreciated. Parties to such contracts, and their insurers, are advised to ensure that the potential risks and benefits of these agreements are well recognized. Introduction It is well settled that parties to a contract may agree upon an indemnification clause which operates to shift liability for bodily injury and property damage from one part to the other. Generally, such contracts are enforceable in the absence of a statutory prohibition. See Annot., Liability of Subcontractor Upon Bond Or Other Agreement Indemnifying General Contractor Against Liability For Damage To Person or Property, 68 A.L.R. 3d 7, 23 (1976). Indemnity agreements have long been accepted and enforced as legitimate means by which the business community allocates losses. Allocation of the risk of injury in a construction setting, for example, is commonplace and serves societal interests in promoting economic efficiency by limiting unnecessary costs for duplicative insurance coverages. Where the parties to the agreement are sophisticated commercial entities which negotiated on a level playing field, it is unlikely that a court would find public policy considerations compelling it to release a subcontractor from its contractual obligation to indemnify. See, e.g., MacGlashing v. Dunlop Equipment Co., Inc., 89 F.3d 932 (1st Cir. 1996); Kelly v. Dimeo, Inc., 581 N.E. 2d 1316 (Mass. 1992).
In the District of Columbia, so long as the language of the indemnification clause is sufficiently broad and clear, the parties' intent will be effectuated. See W.M. Schlosser Co., Inc. v. Maryland Drywall Co., Inc., 673 A.2d 647, 653 (D.C. 1996); Rivers & Bryan, Inc. v. HBE Corp., 628 A.2d 631, 635-36 (D.C. 1993); Bland v. L'Enfant Plaza North, Inc., 473 F.2d 156, 157 (D.C. Cir. 1972); Moses-Ecco Co. v. Roscoe-Ajax Corp., 320 F.2d 685, 687-88 (D.C. Cir. 1963); Potomac Plaza Terraces, Inc. v. Q.S.C. Products, Inc., 868 F.Supp. 346, 354 (D.D.C. 1994). The terms of an indemnity agreement "may be so broad and comprehensive that although it contains no express stipulation indemnifying against a party's own negligence, it accomplishes the same purpose." Princemont Constr. Corp. v. B&O RR Co., 131 A.2d 877, 878 (D.C. Mun. App. 1957); W.M. Schlosser Co., 673 A.2d at 653; Rivers & Bryan, Inc., 628 A.2d at 636; see also Mead v. National Railroad Passenger Corp., 676 F.Supp. 92, 96 (D. Md. 1987) (applying D.C. law). The presumption in such cases is that if the parties had intended some limitation of the all-embracing language, it would be expressly stated. See W.M. Schlosser Co., Inc., 673 A.2d at 654. In W.M. Schlosser Co., Inc. v. Maryland Drywall Co., Inc., 673 A.2d 647, 653 (D.C.App. 1996), the general contractor was entitled to indemnification for injury resulting in part from its negligence based upon the following contractual language:
Id. at 653. The subcontractor maintained that the Agreement did not specifically indicate by its terms that it, Maryland Drywall, would agree to indemnify the general contractor, W.M. Sclosser Co., for the general's own negligence. Id. at 653. The Court held for the contractor, finding that the language of the contract was sufficiently clear that the subcontractor would be held liable for the negligence of both parties. Id. In Bland v. L'Enfant Plaza North, Inc., 473 F.2d 156 (D.C. Cir. 1972), the general contractor was entitled to indemnification for injury resulting from its sole negligence based upon the following contractual language:
Id. at 157. [Emphasis added.] The subcontractor there argued that this clause should not be construed to require indemnification for injuries resulting from the general contractor's own sole negligence. The court ruled against the subcontractor, reasoning that to exclude such losses, "would be to adopt an interpretation which would largely strip the clause of any meaning", because the general contractor was the only other party in a position to create losses arising from the performance of the contract. Id.; See also Princemont Const. Corp. v. B&O RR Co., 131 A.2d 877 (D.C. 1957) (while agreement contained no express stipulation indemnifying against party's own negligence, the language was so broad and comprehensive that it accomplished the same purpose and the Court refused to exclude losses arising from indemnitee's sole negligence because it would render provision meaningless and confer little or no benefit on indemnitee). Insurance Requirement Shows Parties' Intent To Allocate Risk Contracts containing indemnity clauses frequently also require the indemnitor to procure insurance naming the indemnitee as an insured. This is a strong indication of the parties' intent to shift the risks, and the business costs of liability exposure, to the indemnitor. See Eastern Airlines, Inc. v. Insurance Company of North America, 758 F.2d 132, 134 (3d Cir. 1985) (provisions requiring procurement of insurance manifest an intent to shift the risk); Willey v. Minnesota Mining & Manufacturing Co., 755 F.2d 315, 324 (3d Cir. 1985) (insurance clause is evidence of parties' intent to place liability as close as possible to party ultimately responsible for the injury). Underwriters frequently employ site and operations limitations to identify the scope of the insured undertaking, i.e., the indemnitee is an additional insured for claims arising out of the operations of the named insured on a particular project. Consideration should be given to additional stipulations, excluding unintended exposures (such as environmental claims), or limiting coverage to vicarious liability arising solely from the alleged negligence of the named insured. The Breadth of the Agreement Establishes the Parties' Intent Disputes over the effect of written indemnity agreements frequently center on the issue whether the agreement clearly shows an intent by the parties that the indemnitor will be protected from its own negligence. While the law in many jurisdictions permits a party to exculpate itself by contract from the legal consequences of its negligence, such an agreement must be "spelled out with such clarity that the intent to negate the usual consequences of tortious conduct is made plain." Maiatico v. Hot Shoppes, Inc., 287 F.2d 349, 350-351 (D.C. Cir. 1961); see also W.M. Schlosser Co., Inc. v. Maryland Drywall Co., Inc., 673 A.2d 647, 653 (D.C. 1996); and Rivers & Bryan, Inc. v. HBE Corp., 628 A.2d 631, 635-36 (D.C. 1993). Similarly, the Supreme Court in United States v. Seckinger, 397 U.S. 203, 90 S.Ct. 880, 25 L.Ed. 224 (1970), declared that in order to permit an indemnitee to recover for his own negligence, the reviewing Court must be "firmly convinced that such an interpretation reflects the intention of the parties." Id. at 211, 90 S.Ct. at 885; see also W.M. Schlosser Co., Inc., 673 A.2d at 653. The Supreme Court recognized in Seckinger that while some courts require that the contract specifically cover the indemnitee's negligence, that is not the universal rule and the Court did not adopt any such mandatory rule of construction. See U.S. v. Seckinger, supra, 397 U.S. at 211, n. 15. It is well settled in the District of Columbia that to permit an indemnitee to recover for loss despite his own negligence, "the reviewing court must be `firmly convinced that such an interpretation reflects the intention of the parties,'" W.M. Schlosser Co., Inc., 673 A.2d at 653 (quoting United States v. Seckinger, 397 U.S. 202, 211 (1970); District of Columbia v. Royal, 465 A.2d 367, 368 (D.C. 1983); Moses-Ecco Co. v. Roscoe-Ajax Corp., 115 U.S. App. D.C. 366, 368, 320 F.2d 685, 687 (1963)). While the intent of the parties to a contract is generally a question of fact for the jury, the court may determine the issue of intent if the relevant provisions of the contract are unambiguous and "so straightforward that they can be read in but one way," Vulcan Arbor Hill Corp. v. Reich, 81 F.3d 1110, 1122-23 (D.C. Cir. 1996); Davis v. Chevy Chase Financial Ltd., 215 U.S. App. D.C. 117, 126-27, 667 F.2d 160, 169-70 (1981). See also Finard & Co., Inc. v. Capitol 801 Corp., 749 F.Supp. 15 (D.D.C. 1990). As to indemnification contracts, "[n]o particular form or words are needed" to conclude that the contracting parties intended to waive the legal effect of the indemnitee's negligence. W.M. Schlosser Co., Inc., 673 A.2d at 654 (quoting Moses-Ecco v. Roscoe-Ajax Corp., supra, 115 U.S. App. D.C. at 369, 320 F.2d at 688). Moreover, if the pertinent language in the agreement is sufficiently broad, the reviewing court may conclude that the contracting parties intended to include losses incurred as a result of the indemnitee's negligence as well as the indemnitor's. Id.; Princemont Const. Corp. v. Baltimore & Ohio R. Co., 131 A.2d 877 (D.C. 1957). Where the parties have used broad language, the courts presume that if they intended to limit the indemnification liability, they would have specifically included language to that effect. Subtle Differences In Wording Can Have Big Results District of Columbia Courts have analyzed the language of indemnity agreements closely for all-inclusive language, and sometimes the results can turn on the inclusion of a few words. See e.g., W.M. Schlosser Co., Inc., 673 A.2d at 653 (where subcontractor agreed to indemnify general contractor for "any and all claims...arising out of...or in connection with the execution of the work," subcontractor was required to fully indemnify negligent general contractor); Bland v. L'Enfant Plaza North, Inc., 154 U.S.App. D.C. 26, 473 F.2d 156 (1972) (where subcontractor agreed to indemnify general contractor for losses imposed by law "whether or not" due to any negligence on the part of the subcontractor, subcontractor was required to fully indemnify general contractor although latter was sole negligent party); and Moses-Ecco Co. v. Roscoe-Ajax Corp., supra (where subcontractor agreed to indemnify general contractor for "any and all loss" arising from the performance of the contract incurred as a result of any brought by employee of either party, subcontractor was required to fully indemnify general contractor who was sole negligent party.) On the other hand, in District of Columbia v. Royal, 465 A.2d 367 (D.C. 1983), the Court found that the indemnification agreement before it, which merely provided that the contractor indemnify the District against "any liability" arising from an act or omission on the part of the contractor, was not so broad as to evidence an intent to indemnify the District for its own negligence. Similarly, the indemnification agreement at issue in District of Columbia v. C. F. & B., 442 F.Supp. 251 (D.D.C. 1977), which was construed against the indemnitee, also lacked the kind of all-inclusive language, such as "whether or not" or "in whole or in part," which courts have relied upon in concluding that an indemnitee's negligence is covered under the clause. Indemnity Clauses Upheld In Other Jurisdictions In United States v. Hollis, 424 F.2d 188, 191 (4th Cir. 1970), a dry dock was found liable to indemnify the United States for an injury sustained by a dry dock employee while performing work under contract to overhaul a naval vessel. Although the hazard -- oil spilled on the deck of the ship -- was found to have been created by the United States, the dry dock nevertheless was held liable to indemnify the United States based upon the contributory negligence of its employee, the plaintiff. Rejecting the dry dock's argument that the provision was not sufficiently clear under Seckinger to hold it liable where the indemnitee is at fault for the condition causing the injury, the Court said:
Id. at 191. The Fourth Circuit concluded that operative language contained in the contract is sufficiently clear to pass the Seckinger test and required indemnification even though the injury was due in part to the negligence of the indemnitee. (It is well settled in most jurisdictions that when the third party's claim against the employer is for indemnity pursuant to an express contractual provision, the exclusivity provisions of workers' compensation laws do not bar the indemnification. Myco, Inc. v. Super Concrete Co., Inc., 565 A.2d 293, 297 (D.C. 1989)). Elsewhere, courts faced with "in whole or in part" indemnification clauses have held that they must be interpreted as indicative of the parties' intent that the indemnitee would be indemnified even in the presence of its own concurrent negligence. See e.g. Edward E. Gillen Co. v. United States, 825 F.2d 1155 (7th Cir. 1987); Harbenski v. Upper Peninsula Power Company, et al., 325 N.W.2d, 785, 790 (Mich. App. 1982); Airlines, Inc. v. Insurance Company of North America, 758 F.2d 132, 135 (3d Cir. 1985) (requiring indemnification); Kelly v. Dimeo, 31 Mass. App. Ct. 626, 581 N.E.2d 1316, 1317-1318 (Mass. App. 1992) (this type of indemnification clause is valid and enforceable, even where indemnitee is found to be concurrently negligent); Binswanger Glass Co. v. Beers Construction Co., 141 Ga.App. 715, 234 S.E.2d 363 (Ga. App. 1977) (indemnification required where concurrent negligence exists). In litigation in the Superior Court of the District of Columbia, the Court upheld a written indemnity clause and required the subcontractor to indemnify the general contractor fully, including its attorney's fees, costs, and a ten percent mark-up, even though a jury had found that the general contractor and subcontractor were concurrently negligent. The indemnification clause read:
Conclusion Underwriters should be vigilant to avoid or account for potential hidden exposures under contractual liability coverage. Conversely, when the insured is in a position of relative bargaining strength, effective use of indemnity agreements and insurance requirements can be a powerful risk management tool. Contractual indemnity obligations should be routinely explored in the earliest phase of the claims review process. Substantial savings may be achieved through stringent and persistent demands upon indemnitors and their contractual liability carriers. |
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