We are a trade contractor that works directly with owners mostly, but we also work for GC's occasionally. We're seeing more often lately clauses in contracts saying that our indemnity obligations shall NOT be limited by insurance coverages. We hold $11M in insurance, which as a trade contractor (painting & coatings) is very rare. We don't want to give our clients an unlimited/open-ended indemnity but we get a LOT of push back. We've even turned down work in relation to these clauses. We're VERY concerned about the risk and want to make sure we're fully understanding the language. We work mostly in CA, but also often in NV, UT, WA, AZ & TX and nationwide in some cases. 1. What are you overall thoughts on these clauses? 2. What are the main differences between insurance and indemnity in construction? What indemnity is and isn't covered by insurance. 3. We've seen unlimited for WC more often than any other unlimited clauses. (see below example b) but are often seeing the open-ended unlimited clause (see below example a & c) 4. Are we misunderstanding these clauses? examples: a. The indemnification obligations shall not be limited by the insurance requirements b. the indemnification obligation shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable by or for Contractor under workers’ or workmen’s compensation acts, disability acts or other employee benefit acts. c. None of the requirements contained herein regarding types, limits and approval of insurance coverage to be maintained by Contractor are intended to, and shall not in any manner, limit or qualify the liabilities and obligations assumed by Contractor under this Agreement or at law, including Contractor’s indemnification obligations and liability in excess of the limits of the insurance coverages required herein. thank you!
1. I share your concern about these indemnity clauses, but they are very common. I usually suggest that my clients try to strike these clauses or at least propose language such as "For any claim within the scope of coverage of Subcontractor’s insurance, the provision of such insurance shall fully satisfy Subcontractor’s defense and indemnity obligation." That provides some compromise terms and with an $11MM policy limit should be acceptable to many owners.
2. What are the main differences between insurance and indemnity in construction? What indemnity is and isn't covered by insurance? Insurance typically only covers property damage or bodily injury caused by an accident. Indemnity includes those types of claims but also can encompass governmental penalties, defective work that doesn't cause property damage, nuisance caused by your work, or virtually any other type of claim by a non-party that you can imagine. In addition, if you have a truly catastrophic accident that causes injury or property damage exceeding the amount of your insurance limits, such a broad indemnity clause would require you to cover any damages in excess of the policy limits. The indemnity obligation also typically includes a duty to defend any lawsuit caused by your operations. Your insurance should typically cover that defense obligation. But for a non-covered claim or a catastrophic claim, you could be on the hook for significant attorney's fees.
3. We've seen unlimited for WC more often than any other unlimited clauses. I've seen the same. If your employee is injured, the employee typically must look to WC to cover their injuries rather than suing you. But the employee may still have an action against the owner or GC. And the owner or GC may look to you to defend and indemnify the claim. Since such a claim will typically be for personal injury arising out of an accident, your liability insurance should cover your indemnity obligation.
4. I don't think you're misunderstanding these clauses. Note that these are just general observations about California law. The application of insurance or an indemnity provision depends entirely upon the language of the insurance policy and endorsements and the indemnity contract. So don't rely upon any of these general comments for any particular circumstances.