You’ll see the words “defend, indemnify and hold harmless” in many construction contracts. That’s an indemnity clause – and it can be toxic for contractors. I’ll explain.
- Exclude indemnification for design errors. Those are clearly not your problem.
- Cap indemnity at your insurance policy limits. Without this cap, you could be liable for any amount, even if not covered by insurance.
- Limit your liability as an employer to coverage under workers compensation law. Workers comp insurance insulates you from suit by an employee injured on the job. But nothing prevents an injured employee from suing the property owner. If your contract requires indemnity for the owner’s losses, you could once again be liable for injury to your employee.
- Add the owner as an additional insured on your liability policy. This is restricted in some states. But it’s a good way to avoid indemnity claims by an owner.
- Require indemnity by your subs. If the owner makes you responsible for every loss, OK. Two can play that game. Put a similar indemnity clause in your subcontracts. That makes subs liable for your losses, regardless of the cause. Obviously, this makes no sense. But it’s common on large industrial and commercial jobs – where allowed by state law.