Inside this Issue

A1 - Indemnification Duty not Incorporated by Reference to Prime Contract
A2 - Contractor may Sue Design Firms for Defective Plans & Specs on which They Relied
A3 - Parol Evidence not Permitted to Alter Integrated Contract - Quantum Meruit Claim Fails
A4 - Indemnification Clause Unenforceable Where it did not Clearly Require Indemnification for the Indemnitee’s Own Negligence

Article 1

Indemnification Duty not Incorporated by Reference to Prime Contract

See similar articles: anti-indemnity | duty to defend | Flow down | Incorporation by Reference | Indemnification clause

Subcontract excavator owed a duty to indemnify and defend the prime contractor installing underground utility lines for a telecommunications company. Two important holdings were (1) a state statute applicable to certain construction contracts, which prohibits indemnity for ones own negligence, did not apply to the excavation contract where no buildings or structures were being built as part of the work and (2) incorporation by reference of the prime agreement did not entitle the prime contractor to indemnification since it did not expressly state that subcontractors must indemnify the prime. Block Bldrs v. Katryniok, 2018 WL 1940951, (Fl. 2018).

After Blok performed excavation near the driveway in one of the neighborhoods covered by the project, a homeowner was walking down his driveway when it suddenly collapsed, causing him to fall and sustain permanent serious injuries. The homeowner sued Blok for damages due to his injuries and then amended his complaint to add Mastec and BellSouth for their own negligence in contributing to the dangerous condition.

The prime contractor [Mastec] and BellSouth crossclaimed against Blok, alleging that Blok had agreed to contractually indemnify them through the subcontract between Blok and Mastec. The contract between Blok and Mastec contained a provision requiring Blok to indemnify Mastec for Mastec's own negligence:

Indemnification. a) Subcontractor [Blok] agrees to indemnify and hold harmless Contractor [Mastec] and its directors, officers, employees and agents (collectively the “Indemnitees”) and each of them from and against any loss, costs, damages, claims, expenses (including attorneys' fees) or liabilities, causes of action, lawsuits, penalties, or demands (collectively referred to as “Liabilities”) by reason of any injury to or death of any person or damage to or destruction or loss of any property arising out of, resulting from, or in connection with (i) the performance or nonperformance of the Work contemplated by this Agreement which is or is alleged to be directly or indirectly caused, in whole or in part, by any act, omission, default, negligence (whether active or passive) of Subcontractor or its employees, agents or subcontractors, regardless of whether it is, or is alleged to be, caused in whole or part (whether joint, concurrent, or contributing) by any act, omission, default or negligence (whether active or passive) of the Indemnitees, or any of them ... Said indemnity shall include but not be limited to injury or damage which is or is alleged to be caused in whole or in part by any act, omission, default or negligence of Subcontractor or its employees, agents or subcontractors....

*2 c) Where not specifically prohibited by law, Subcontractor further specifically agrees to indemnify and hold harmless the Indemnitees from all Liabilities, by reason of any injury, death, or damage to any person or property whatsoever, caused by, arising from, incident to, or connected with the performance or nonperformance of the work contemplated by this Agreement which is, or is alleged to be, caused in part (whether joint, concurrent, or contributing) or in whole by any act, omission, default, or negligence (whether active or passive) of the Indemnitees.

The contract also required Blok to defend any claim arising out of the performance of the contract and brought against the Indemnitees, as well as to pay any costs and attorney's fees incurred by the Indemnitees in defending any action or in enforcing the indemnification agreement.

The agreement between the excavator and prime contractor incorporated the terms of the contract between the contractor and BellSouth. The indemnification clause in that contract provided the following:

Article 9. Indemnity

The Contractor [Mastec] shall indemnify and hold harmless the Company [BellSouth] and its directors, officers, employees and agents (collectively the “Indemnitees”) and each of them from and against any loss, costs, damages, claims, expenses (including attorneys' fees) or liabilities (collectively referred to as “Liabilities”) by reason of any injury to or death of any person or damage to or destruction or loss of any property arising out of, resulting from, or in connection with (i) the performance or nonperformance of the work contemplated by this Contract which is or is alleged to be directly or indirectly caused, in whole or in part, by any act, omission, default, negligence (whether active or passive) of Contractor or its employees, agents or subcontractors, regardless of whether it is, or is alleged to be, caused in whole or part (whether joint, concurrent or contributing) by any act, omission, default or negligence (whether active or passive) of the Indemnitees, or any of them ....

(emphasis added).

The trial court granted summary judgment against the excavator, concluding it must indemnify both the prime contractor and telecommunications company. As to any duty of the excavaotor to indemnify Bell South, however, the court held that the flow down provisions of the prime agreement did not require subcontractor indemnification of Bell South. The court stated:

As to BellSouth, we conclude that the court erred in determining that Blok owed a duty of indemnity and a duty to defend BellSouth. Under the Blok/Mastec contract, Blok agreed to indemnify Mastec and its directors, officers, and agents. Nowhere does it require Blok to indemnify BellSouth. And, although the subcontract incorporated the provisions of the BellSouth/Mastec contract, that contractual indemnification provision required that Mastec, not its subcontractors, indemnify BellSouth.

Comment: The part of the decision addressing the impact of the incorporation of reference is quite significant. In reviewing contracts on behalf of design subconsultants and construction subcontractors it is not uncommon to have the prime include language in the subcontract that expressly requires the sub to indemnify the project owner. But when we review the prime agreement we may find that the agreement only requires the prime to indemnify the owner and is silent concerning the subcontractor. In that instance, we want to revise the subcontract indemnity clause so that our subcontractor does not contractually commit to indemnify the project owner

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 20, No. 7 (Aug 2018).

Article 2

Contractor may Sue Design Firms for Defective Plans & Specs on which They Relied

This was a negligence cause of action in which the contractor argued that the designer breached duties owed to the contractor by providing deficient plans to the project owner upon which the contractor relied. The designers moved to dismiss, arguing they had no supervisory role or control over the contractor and therefore owed no duty to the contractor. The court denied the motion because it determined that under Florida law a duty could arise where a “foreseeable zone of risk arises from the acts of the defendant.” The court cited precedent decisions in Florida that hold an architect’s level of control over a contractor and the foreseeability of injury determine whether the architect owes a professional duty to the contractor.

In the absence of privity of contract between the contractor and designer the court states that the designer must have some control over a contractor or a project for a duty to be imposed. “Control may be established … where the architect or engineer acts with knowledge that the plaintiff will rely on its designs or plans.” The court permitted the case to proceed to trial for a jury to determine whether the facts show that the designers had such control over the process to make it foreseeable that the contractor would be injured by the designer’s reports, plans and designs. Suffolk Construction Co., Inc. v. Rodriquez Quiroga Architects, et al., 2018 WL 1335185 (FL 2018).

Museum of Science, Inc. contracted with Rodriquez and Quiroga (“R&Q”) Architects as Executive Architect and contracted with Grimshaw Architects as Design Architect -- for designing a science museum in Miami, Florida. The Museum contracted with Suffolk Construction, Inc. for the construction. After the Museum terminated the Suffolk contract for convenience, Suffolk sued the design firms for economic losses.

Plaintiffs set forth claims for negligence against each of the Defendants, arguing that Defendants breached their duties to Plaintiffs by providing deficient architectural, design, or engineering plans for the Project. To state a claim for negligence under Florida law, a plaintiff must allege: (1) a legal duty requiring the defendant to protect others from unreasonable risks, (2) breach of that duty, (3) a causal connection between the defendant’s conduct and the injury, and (4) damages.

In Florida, legal duties typically arise from: “(1) legislative enactments or administrative regulations; (2) judicial interpretations of such enactments or regulations. The duty alleged in this action falls under the last category—one which “encompasses that class of cases in which the duty arises because of a forseeable zone of risk arising from the acts of the defendant.

The court weighed heavily the appellate court precedent in the decision of A.R Moyer, Inc. v. Graham, 285 So. 2d 39 (Fla 1973) and explained that in that case,

the Florida Supreme Court held that a supervising architect owed a duty to a general contractor despite a lack of privity between the architect and general contractor. In reaching this case-specific conclusion, the Court balanced various factors, including “the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm.” [citation omitted] .The Court determined that, as a matter of policy, supervising architects simply have too much control over a contractor not to owe the contractor a legal duty and, therefore, “a third party general contractor, who may foreseeably be injured or sustained an economic loss proximately caused by the negligent performance of a contractual duty of an architect, has a cause of action against the alleged negligent architect, notwithstanding absence of privity.” Accordingly, the Florida Supreme Court held that an architect’s level of control over a contractor and the foreseeability of injury determines whether the architect owes a professional duty to the contractor.

The court then explains that cases that follow Moyer continue to require in the absence of privity of contract that a professional architect or engineer have some level of control over a third-party contractor for a duty to arise. The court then concludes that unless a designer exercises some control over a contractor or project, no duty will be imposed. But knowledge that the contractor will rely on its designs or plans may be sufficient to demonstrate “control” and therefore subject the designer to a duty owed to the contractor.

Article 3

Parol Evidence not Permitted to Alter Integrated Contract - Quantum Meruit Claim Fails

See similar articles: integrated contract | parol evidence | Quantum Meruit

A subcontractor sued the prime contractor for breach of contract, and in the alternative for quantum meruit recovery, seeking compensation in excess of the amount set forth in the subcontract – arguing that an interim agreement between the Teaming Agreement and the final subcontract agreement provided for more compensation. Appellate court held that the subcontract was a fully integrated contract that did not allow revision by parol evidence or any evidence outside of the four corners of the contract. It further held that because a valid written contract existed there could be no implied contract or presumed agreement that would permit quantum meruit recovery. Vanhook Enterprises, Inc. v. Kay & Kay Contracting, LLC, 543 S.W.3d 569, (Kentucky 2018)

The subcontractor here executed a lien waiver acknowledging full payment for all services performed under the subcontract, including “full and final payment due including any retainage.” Despite that lien release, the subcontractor continued to seek additional payment of $326,024 worth of work it says was outside of the subcontract agreement lump sum contract price.

The basis for asserting entitlement beyond the contract price was the subcontractor’s argument that the parties executed a series of agreement – a Teaming Agreement, a “Prime Agreement” and then finally a “Subcontract Agreement.” The prime contractor denied that there was any so-called Prime Agreement between itself and the subcontractor and that issue is not further explained in the court decision.

What is important is that the court found the Subcontract Agreement to be a complete integration of the dealings between the parties. Accordingly, the court agreed with the trial court that the alleged additional work was included within a plain, ordinary reading of Exhibit A of the Subcontract Agreement as “any other ancillary items required to provide a complete bridge structure.” In refusing to allow evidence from the subcontractor to be considered for interpreting the contract, the state supreme court explained that “the parol evidence rule is a substantive rule that regulates the admissibility of written or oral evidence introduced to vary a written contract. “Under the parol evidence rule, an unambiguous writing intended by the parties to be a full and final manifestation of their agreement cannot be supplemented, contradicted, or modified by evidence of prior written or oral agreements.”

The court further stated that as a matter of law, a document which on its face appears to be a complete integratioin is a complete integration…. Here, the merger clause at Paragraph XXV of the Subcontract Agreement categorically states that the parties intended the Subcontract Agreement to “represent[ ] the entire and integrated agreement between the Contractor and Subcontractor and supercedes [sic ] all prior negotiations, representations, or agreements, either written or oral ....” (emphasis added).

“Because the merger clause states that the parties intended the Subcontract Agreement to be a complete integration, to embody the “entire integrated agreement” between Vanhook and Kay & Kay which supersedes all prior agreements, any evidence of a prior written or oral agreement is inadmissible to vary its terms. Therefore, the trial court properly found that any evidence of the alleged Prime Agreement was inadmissible to vary the Subcontract Agreement's terms.”

Article 4

Indemnification Clause Unenforceable Where it did not Clearly Require Indemnification for the Indemnitee’s Own Negligence

See similar articles: Anti-Indemnity Statute | Indemnification clause

An indemnification clause in a contract between a table rental company and restaurant was held to be unenforceable where the Indemnitee sought to be indemnified for its own negligence. The indemnity claim arose out of a suit by patron at a restaurant who was injured when a table collapsed and then sued the restaurant and the rental company that owned the table to recover damages for his injuries. The appellate court found that the clause didn’t include express language that clearly and unequivocally showed the parties’ intent to transfer liability to the Indemnitee where that liability arose out of the indemnitor’s own negligence. It therefore reversed the trial court which concluded that the clause covered liability for the Indemnitee’s own negligence because the only exception to the indemnity obligation that was stated in the clause was for “intentional misconduct.”

The appellate court explained that the courts in the state disfavor agreements “seeking to indemnify the Indemnitee for losses occasions by its own negligence.” The court explained the strict rules applicable to finding contractual indemnity for one’s own negligence. It must have an express provision stating the parties intent. Dewitt v. London Road Rental Center, Inc., 910 N.W.2d 412 (Minn. 2018).

The background on the decisions from the lower level courts was the following:

“The district court granted London Road summary judgment on its contractual indemnity cross-claim, concluding that the terms of the rental agreement’s indemnity clause required Tower Tap to defend and indemnify London Road. Relying on the clause’s exception for claims directly resulting from London Road’s intentional misconduct, the district court concluded that the clause unequivocally covered liability for London Road’s own negligence and “[t]o find otherwise would make the entire clause nonsensical.”

The intermediate court of appeals, “substantially followed the district court’s reasoning, relying on the indemnity clause’s exception for London Road’s intentional misconduct and explaining that the clause was “so broad” that it “ ‘necessarily includes claims of the indemnitor’s [London Road’s] negligence.’ ”

In reversing those decisions, the state supreme court explained:

“For an indemnity clause to pass strict construction, the contract must include an “express provision” that “indemnif[ies] the indemnitee for liability occasioned by its own negligence; such an obligation will not be found by implication.” Id. Such a provision need not include the word “negligence,” but it must use specific, express language that “clearly and unequivocally” states the contracting parties’ intent for the indemnitor to indemnify the indemnitee for the indemnitee’s own negligence.”

“The test is therefore not whether the language of an indemnity clause is “so broad” that it necessarily includes the indemnitee’s own negligence. [citation omitted]. That test would be inconsistent with the rule we set forth in Farmington, 281 N.W.2d at 842. Rather, the proper test is whether the clause includes specific language that expressly shows, in clear and unequivocal language, that the parties intended the clause to obligate the indemnitor to indemnify the indemnitee for the indemnitee’s own negligence.”

In this case the indemnity clause provided as follows:

HOLD HARMLESS/INDEMNITY. You assume all risks associated with the possession, use, transportation and storage of the Equipment.

ACCORDINGLY, YOU HEREBY WAIVE ANY AND ALL LIENS AND CLAIMS ARISING FROM OR ASSOCIATED WITH, AND AGREE TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE RENTAL COMPANY FROM AND AGAINST, ANY AND ALL LIABILITIES, CLAIMS, DAMAGES, LOSSES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION, ATTORNEYS’ FEES, CLAIMS FOR BODILY INJURY(IES) (INCLUDING DEATH), PROPERTY DAMAGE, LOSS OF TIME AND/OR INCONVENIENCE) RESULTING FROM OR ARISING IN CONNECTION WITH SUCH POSSESSION, USE, TRANSPORTATION AND/OR STORAGE, REGARDLESS OF THE CAUSE AND INCLUDING ANY INJURIES AND/OR DAMAGES SUFFERED BY YOU, YOUR EMPLOYEES AND/OR ANY THIRD PARTY(IES), EXCEPT TO THE EXTENT DIRECTLY RESULTING FROM OUR INTENTIONAL MISCONDUCT.

The supreme court found that this did not expressly refer to “negligence” and did not expressly state that the restaurant agreed to indemnify the rental company for the restaurant’s own acts or omissions.

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