You’ve probably seen indemnity and waiver of subrogation clauses in your contracts but, do you understand what they mean and how they operate? In this two-part Legal alert, we go through a real-world example. In the last alert we discussed subrogation. This time we discuss indemnity.
A party is entitled to full contractual indemnification provided that the intention to indemnify can be clearly implied from the language and purposes of the entire agreement and the surrounding facts and circumstances.
When Insured renovated his residence in 2013, he hired General Contractor. General Contractor, in turn, retained Plumber to perform the plumbing work. The plumbing work included. a water pipe, located between the exterior wall of the residence and the interior wall of the master bathroom that froze and burst. The pipe was attached to an exterior spigot, also known as a hose bib, that serviced an irrigation system for the 16th-floor terrace of the residence. General Contractor also hired Drywall Contractor to perform the framing and drywall work, as well as the placement of insulation within the framing.
Insurance Company sued the General Contractor, Plumber, and Drywall Contractor, asserting negligence against all defendants based on their alleged failure to properly install and adequately insulate the plumbing involved in the incident, and breach of contract against them based on their alleged failure to perform the plumbing and construction work for the project in a workmanlike manner and in failing to properly protect the plumbing from freezing temperatures.
General Contractor sued the Drywall Contractor for contractual and common-law indemnification, contribution.
Here, General Contractor and Plumber executed a Subcontract Agreement Rider containing the following indemnification clause:
1. Indemnity. In consideration of the Contract Agreement, and to the fullest extent permitted by law, the Subcontractor shall defend and shall indemnify, and hold harmless, at Subcontractor’s sole expense, the Contractor, all entities the Contractor is required to indemnify and hold harmless, the Owner of the property, and the officers, directors, agents, employees, successors and assigns of each of them from and against all liability or claimed liability for…any and all property damage or economy damage, including all attorney fees, disbursements and related costs, arising out of or resulting from the Work covered by this Contract Agreement to the extent such Work was performed by or contracted through the Subcontractor or by anyone for whose acts the Subcontractor may be held liable, excluding only liability created by the sole and exclusive negligence of the Indemnified Parties. This indemnity agreement shall survive the completion of the Work specified in the Contract Agreement.
General Contractor maintains that it is entitled to contractual indemnification from Plumber in the form of reimbursement for all defense costs incurred by it in this action pursuant to the indemnification clause. However, General Contractor has not established that the damages in this case originated from, were incident to, or connected to the work performed by Plumber so as to trigger the application of clause.
General Contractor submits the affidavit of professional engineer who states that the water pipe which allegedly burst was intended to be active “only during the irrigation season — approximately from late April to early November” and that it was meant to be winterized for the remaining part of the year so as to “prevent potential damage due to pipe component freezing”. He opines that the pipe was not winterized and “extremely cold, sub-freezing temperatures during mid-February 2016 caused the stagnant water in the irrigation pipe to freeze and subsequently rupture the pipe leading to the damage.”
Although he also maintains that Plumber was negligent in not warning General Contractor that the pipe could freeze without winterization, General Contractor was aware that the system needed to be winterized on an annual basis. Thus, General Contractor fails to establish, that the damage arose out of or resulted from the work performed by Plumber.
General Contractor also asserts causes of action against Drywall Contractor for contractual indemnification, common-law indemnification and contribution.
General Contractor and Drywall Contractor executed a Subcontract Agreement Rider containing the same indemnification clause as the one executed by General Contractor and Plumber, which requires indemnification in cases where the damages arose out of or resulted from the work performed by Drywall Contractor.
To support its position that it did not cause the flooding, Drywall Contractor claims that General Contractor hired Drywall Contractor to perform the framing and drywall work for the renovation, as well as the installation of Insulation on the perimeter walls of the residence. The purpose of this insulation installed by Drywall Contractor was to keep cold air from entering the interior space of the residence. That is, the insulation was intended to keep the rooms inside warm, not to keep pipes or outdoor fixtures from freezing.
Drywall Contractor was not involved in the plumbing and was not responsible for insulating any pipes.
In addition, Drywall Contractor points out that both General Contractor’s expert and Plumber’s expert identify the failure to winterize the hose bib and water line as the cause of the incident. Drywall Contractor contends, and it is undisputed that, it had no responsibility to perform the winterization or to notify the Insured or his representative that winterization was necessary.
Drywall Contractor established that the damages at issue did not arise out of or result from the work it performed so as to trigger the application of the indemnification clause.