Many subcontracts shift risk to the sub, even for problems they did not cause. Here is how to read and negotiate the clause.
In this article
- The clause most contractors never read
- What indemnification means
- Broad, intermediate and limited
- State anti-indemnity laws
- The duty to defend
- Match it to your insurance
- Additional insured requirements
- What to negotiate
- Flow-down to your subs
- Get legal advice
- An example of risky wording
- Frequently asked questions
- Frequently asked questions
The clause most contractors never read
Indemnification clauses decide who pays when something goes wrong: an injury, property damage or a lawsuit from a third party. Many subcontracts include broad language that shifts risk to the sub, even for problems they did not cause. Reading and negotiating this clause protects your company.
What indemnification means
To indemnify is to agree to cover the other party's losses, and often their legal defense costs, for certain claims. The details of the wording decide how far that goes.
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Broad, intermediate and limited
- Broad form: you cover losses even if the other party caused them.
- Intermediate form: you cover losses unless the other party was solely at fault.
- Limited form: you cover only losses caused by your own work.
State anti-indemnity laws
Many states limit or void broad form indemnity in construction contracts. Rules vary by state. Ask an attorney what applies where you work.
The duty to defend
Some clauses require you to pay legal defense costs from the start, even before fault is decided. This can be expensive.
Match it to your insurance
Contractual liability coverage may cover some indemnity obligations, but not all. Send the contract to your insurance agent before signing.
Additional insured requirements
Contracts often require naming the GC or owner as additional insured. Make sure your policy can do it.
What to negotiate
Ask to limit indemnity to the extent of your negligence and to remove the duty to defend for claims you did not cause.
Flow-down to your subs
If you are a GC, align your sub agreements with your prime contract.
Get legal advice
This is general information. Have a construction attorney review your standard agreements once.
An example of risky wording
A clause that says the sub will "indemnify, defend and hold harmless the contractor from any and all claims arising out of the work, regardless of cause" may make the sub responsible for accidents caused by others. Replacing "regardless of cause" with "to the extent caused by the negligence of the subcontractor" changes the risk dramatically.
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Frequently asked questions
What is broad form indemnity in construction?
It is a clause where one party agrees to cover the other's losses even when the other party caused them. Many states limit or void this type of clause in construction contracts.