By: Thomas S. Tripodianos Published: April 2008

Indemnification

Question. Must Contractor indemnify Owner for damages allegedly sustained by a neighboring landowner, Neighbor, during Contractor's performance of excavation work on Owner’s property?

Answer. NO. At least not on the facts presented. The construction contract in question is an AIA Document A201/CM (1980). Owner entered into a contract with Contractor for the excavation, drainage, and sanitary work necessary to build a restaurant on property that Owner owned in New York. The contract price, as ultimately adjusted with additions and credits, was $167,401.

A Contractor employee was excavating on Owner’s property for the sewer line when his backhoe struck and damaged an underground power cable supplying electricity to Neighbor's adjacent property. Before beginning this work, a project superintendent employed by the construction manager and the owner representative's on the site, had notified “New York One Call” to ask for the electric line servicing Neighbor to be marked. Although this was done, an unidentified electrician at some point relocated the cable.

The excavator was working 10 to 15 feet from the flags put in place to mark the cable when he struck it. Further, after the accident it was discovered that “excess cable, in the form of a loop had been buried, at the time of the original cable installation.” Contractor agreed to pay for the materials necessary to repair the cable, and the electrician agreed to supply his labor. At the same time, the excess loop was removed.

Sometime thereafter, the project superintendent was supervising a Contractor employee, who was excavating in the same area in order to adjust the sewer's height. The ground gave way, dragging the cable toward the excavation site. The cable did not come into contact with the excavator's backhoe, but was damaged at the place where it had previously been repaired, apparently again disrupting electric service to Neighbor's property. Contractor once more paid for the materials necessary to fix the damage to the cable.

Owner paid Contractor $85,000 of the contract price, but withheld the $82,401 balance due, ostensibly because Owner was involved in a dispute with Neighbor over damages allegedly caused by the accidents. Owner subsequently resolved this dispute by paying Neighbor $69,639.

Contractor filed a notice of mechanic's lien against the property. Owner claims that in response to threats by Neighbor to commence litigation and in order to resolve the dispute that Contractor failed and refused to resolve, Owner was forced to make a payment to Neighbor resulting in damage to Owner.

Article 4 of the AIA form contract at issue is entitled “Contractor,” and Paragraph 4.18 is entitled “Indemnification.” Subparagraph 4.18.1 states that

“[t]o the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, the Architect, the Construction Manager, and their agents and employees from and against all claims, damages, losses and expenses, including, but not limited to, attorneys' fees arising out of or resulting from the performance of the Work, provided that any such claim, damage, loss or expense (1) is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including the loss of use resulting therefrom, and (2) is caused in whole or in part by any negligent act or omission of the Contractor ... regardless of whether or not it is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge or otherwise reduce any other right or obligation of indemnity which would otherwise exist as to any party or person described in this Paragraph 4.18.”

Article 10 of the form contract is entitled “Protection of Persons and Property,” and Paragraph 10.2 is entitled “Safety of Persons and Property.” As relevant to the issue herein, Subparagraph 10 .2.1.3 provides that

“[t]he Contractor shall take all reasonable precautions for the safety of, and shall provide all reasonable protection to prevent damage, injury or loss to: ... property at the site or adjacent thereto, including trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction;....”

Finally, Subparagraph 10.2.5 specifies that

“[t]he Contractor shall promptly remedy all damage or loss ... to any property referred to in Clause[ ] ... 10.2.1.3 caused in whole or in part by the Contractor ... and for which the Contractor is responsible under Clause [ ] ... 10.2.1.3, except damage or loss attributable to the acts or omissions of the Owner, the Architect, the Construction Manager or anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable, and not attributable to the fault or negligence of the Contractor. The foregoing obligations of the Contractor are in addition to the Contractor's obligations under Paragraph 4.18.”

There is insufficient proof in this case to support indemnification under Subparagraph 4.18.1. As for the first accident, the parties agree that the electrical cable servicing the Neighbor property was not where it was supposed to be, but had been relocated by others before Contractor began work. As a result, there is no proof of Contractor's negligence, and because the identity of the electrician responsible for the relocation is unknown, it is not possible to figure out whether that person was someone for whose acts Contractor might be liable, so as to trigger indemnity under Subparagraph 4.18.1.

With respect to the second incident, the facts reveal only that the same electrical cable was damaged when the ground adjacent to Contractor's excavation gave way, dragging the cable towards the excavation site. An employee of the construction manager was present and supervising Contractor's work at the time. There was no contact between the excavation equipment and the cable, and the only damage to the cable was at the site of the previous repair.

As for Subparagraph 10.2.5, its reach is limited in this case to “damage or loss ... to any property referred to in Clause[ ] ... 10.2.1.3”; namely, “property at the site or adjacent thereto, including trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction.” The only “property” damaged would appear to have been the cable, and there is no evidence as to whether Neighbor actually suffered any damage to its own property as a result of the damage to the cable, or, instead, sustained purely economic injury which Subparagraph 10.2.5 does not cover. In light of the above there is no need to reach and express an opinion as to whether Subparagraph 10.2.5 imposes a negligence or fault-type liability standard.

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