Indemnification Agreements May Require Defense of Unproven Negligence

Oct 25, 2017

The wording of an indemnification clause is important.

Indemnification clauses are usually part of construction contracts between owners, and contractors or design professionals. They stipulate that the contractor or design professional will “indemnify” or defend the owner if a legal action for negligence arises on a project.

In a recent New Hampshire case, Penta Corporation v. Town of Newport, N. H. v. AECOM Technical Services, No. 212-2015-CV-00011, the critical issue before the court was whether the engineering firm, AECOM, had an obligation to indemnify the town in its suit with the general contractor, Penta, before it was proven that AECOM was negligent.

An article in the Hirschler Fleischer Law Blog examines this case.

The Environmental Protection Agency advised the Town of Newport, N.H., that its wastewater treatment facility was not performing to the standard set by the “permit authorizing the Town to discharge treated water into the Salem River…”

Newport hired “AECOM to complete the engineering design services necessary to upgrade the Town’s treatment plant in order to satisfy the requirements of the EPA’s Administrative Order.”

The town also hired Penta to make the upgrades. At some point in the construction Newport became dissatisfied with Penta’s work and withheld further payment on the project.

Penta filed suit against the Town for “the balance of its contract price claiming it had completed construction according to AECOM’s plans and specifications.”

The Town demanded that AECOM honor the indemnification clause in their contract and defend the suit. AECOM refused, claiming the indemnification clause did not apply unless negligence was proven.

The Court ruled that the ‘’plain language of the indemnification clause” was the determining factor in deciding the merits of this issue.

It found that the contract between the Owner and the engineering firm stated that AECOM had a “duty to defend…claims, including unproven allegations” and ruled in favor of Newport.

The authors caution contractors to carefully review indemnification clauses. Some require negligence to be proven before a duty to defend arises. But some, as in the Newport case, do not.

Source—

Do Parties’ Indemnification Obligations Arise Before or After Negligence is Proven? Hirschler Fleischer Law Blog, Sept. 12, 2017.