By: Alexander A. Miuccio Thomas H. Welby Published: May 2007

Contractor Liable for Indemnification and Failure to Obtain Insurance for Owner

Construction contracts often contain a provision which makes the contractor an indemnitor for personal injury or property damage claims arising out of the work performed under the contract. Apart from indemnity clauses, construction contracts often contain a provision obligating the contractor to obtain insurance naming the owner as an additional insured under the contractor’s insurance policy. The enforcement of both provisions was addressed in the recent case of Trano v. Federated Department Stores, Inc.

Background

Douglastown Plaza Shopping Center, LLC, entered into two agreements with 4 Star Contracting, Inc., under the terms of which 4 Star was to remove, replace and cover all expansion joints on the sidewalk of a shopping center. Approximately one month after 4 Star last performed work at the project, Ms. Trano tripped and fell on an expansion joint, sustaining injury. She sued the owners of the shopping center, claiming that the defective expansion joint caused the accident because it was two to three inches above the level of the sidewalk.

The agreements between Douglastown and 4 Star contained an indemnification clause whereby the contractor agreed to indemnify the owner from all claims for personal injury and property damage “alleged to arise out of” the work performed under the agreements. The two agreements also contained a provision whereby 4 Star guaranteed the materials and workmanship to be free from defects for a one-year period, running from final completion.

Based on the indemnification provision, the owners of the shopping center demanded that 4 Star indemnify them for the costs incurred in defending the personal injury action. When 4 Star refused, the owners sued the contractor, requesting that the Court enforce the terms of the indemnification provisions contained in the agreements. The owners also sued 4 Star for breach of contract for its failure to procure insurance naming the owners as additional insureds, as was required by the agreements.

The contractor argued in its defense that even if the expansion joint was somehow defective, the duty to maintain the joint fell squarely on the owner of the property and not 4 Star, which had been off the job site for at least one month prior to the accident.

Decision

The trial court ruled in favor of the shopping center owners’ claim for contractual indemnification and for breach of contract based on 4 Star’s failure to obtain insurance protecting the owners. The court held that because the injury occurred within the one year guaranty of work and materials period, coupled with the plain contract language obligating 4 Star to indemnify the owner, the contractor was liable to the owners for the costs incurred in defending the personal injury action. Equally important, the Court also found 4 Star in breach of contract for its failure to provide an insurance policy naming the owners as additional insureds.

Comment

Though the Court relied on the one-year guaranty of work provision in rendering its decision, it is probable that even absent the guaranty, the Court would have enforced the indemnification agreement against 4 Star. This is because Ms. Trano claimed that the injury “arose out of” uneven expansion joints in the sidewalk. The contractor had performed work on the expansion joints up to one month before plaintiff’s fall. As to indemnification for costs incurred in defending the personal injury action, it is immaterial whether 4 Star’s work actually caused the trip and fall accident. What mattered was what Ms. Trano alleged in her lawsuit. Since she alleged that her injury arose out of 4 Star’s work, the contractor was required to indemnify the property owners.

As illustrated time and again, parties to a construction contract must carefully review the terms of the contract so that they fully understand their respective rights and responsibilities.

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