Certain Indemnity Provisions Void

Kegler Brown Construction Newsletter

It is increasingly common for those in the construction industry to encounter indemnity provisions in their contracts, that being an agreement where one party, the promissor, agrees to protect and hold harmless the other party, the promisee, from liability arising from personal injury or property damage on the job.These provisions, in essence, can shift the risk of liability from a negligent party, the promisee, to an innocent party, the promissor, and therefore have been justly criticized as being unfair.

Ohio has a statute, Ohio Revised Code §2305.31, which provides that an indemnity provision in a construction contract that purports to indemnify and hold harmless a party from his own negligence is void as against public policy and unenforceable. This statute has been interpreted to mean that the promissor (i.e. subcontractor) cannot be required to indemnify the promisee (i.e. general contractor) for the promisee's own negligence . It has also been interpreted to prohibit the shifting of liability arising from the negligence of the promisee, regardless of whether such negligence is sole or concurrent. This means that such a prohibition is applicable whether the promisee (i.e. general contractor) is 1% negligent or 100% negligent.

Accordingly, Ohio construction contracts, regardless of how they are written, generally cannot require one party to indemnify another for the other party's negligence, in whole or in part. This means that the risk of liability remains with the negligent party or parties as if such an indemnity provision never existed.

Based upon these cases, we have traditionally advised contractors and subcontractors that they should not worry too much about these indemnity provisions believing that they were unenforceable. However, a recent Court of Appeals case out of Dayton, held differently, and determined that hold harmless language insisting that the contractor pay the owner's attorney's fees and expenses (but not the damages for the injuries suffered by the injured employee) incurred by the owner in defending a claim asserted by the contractor's injured employee was enforceable. This case appears to carve out a new exception to the general unenforceability of such provisions under Ohio law.

This means that while a contractor should be protected against an injured employee's direct claims under worker's compensation, if he sued or threatened to sue the owner, the contractor may be liable (at a minimum) for the owner's attorney's fees and costs. The same problem exists for subcontractors who sign such provisions obligating them to pay the contractor's attorney's fees and expenses. In view of this case, it is increasingly important for subcontractors and contractors to closely scrutinize their contracts and modify the indemnification provisions appropriately.

Some owners or contractors are now requiring contractors or subcontractors to post insurance covering the contractor's or owner's negligence —in essence to insure indirectly what is unenforceable by contract. The good news is that an even more recent Court of Appeals case out of Cleveland found that indemnification clauses that obligate the contractor or subcontractor to purchase a liability insurance policy to insure against the owner's negligence are void, as well as an agreement to indemnify the owner for attorney's fees and costs.

In any event, the complexity of indemnity provisions and insurance coverage mandates that contractors and subcontractors closely review these provisions with their attorneys and insurance consultants. Once a contract is negotiated, we recommend that the contractor or subcontractor fax a copy of the insurance and indemnity provisions in the contract to their insurance agents and request the precise type of policy necessary to cover this risk.