Indemnity

Indemnity is a concept that causes most lawyers and judges to cringe, and causes some clients to cry. Why? Because it is a concept that has almost nothing to do with whether you did something wrong. Instead it usually has everything to do with whether you signed a contract or other legal document where an indemnity provision was lurking. "Lurking" means "to lie in wait in a place of concealment, especially for an evil purpose."

Indemnity provisions are a common component of construction contracts and they can wreak havoc on the profitability of a project. Therefore, you must know what your potential for havoc is before you sign any contract that includes an indemnity provision.

In California, if you sign a document, you are presumed to have read and understood it. Everyone knows that people sign documents without necessarily reading or understanding them. If you read every document while closing escrow, you would be reading for days. So there must be a certain level of trust when you deal with others. That trust can end up costing you a lot of money if there is an indemnity provision and you do not know what it means.

For example, on most projects where a subcontractor has bid through a general contractor, the subcontractor is asked to sign a standard pre-printed contract. They usually include (lurking somewhere) an indemnity provision that says you agree to indemnify, defend and hold harmless the general contractor for every related bit of property damage, personal injury or even death. The exact language used in that indemnity provision can make all the difference in the world. Depending on the wording, it may be void and unenforceable. On the other hand, a subcontractor may be held liable for all liability, including litigation costs and legal fees, due to the negligence of the general contractor, despite the complete innocence of the subcontractor.

Another example involves the owner of a property where construction is being performed who needs to obtain an additional loan, but the title insurer wants the contractor to indemnify them for any liens on the property. The contractor may agree due to the fact that the contractor feels he has control over any potential lien. However, what if the contractor is fired shortly after the loan documents are signed? The indemnity may include the duty to defend for every conceivable liability and expense. If it can be conceived, it will likely happen at some point in time, and you do not want to be on the hook when it happens.

However, all is not lost. There are many defenses to indemnity claims, and there is hope that the justice system will actually result in justice. That is where lawyers can be a valuable asset.

The BEST advice is to know what dangers lurk within the contract BEFORE you sign on the dotted line. At least then you will possess the knowledge to negotiate or refuse to sign documents that include a provision with an unfair purpose. That knowledge may make all the difference for your project.