by James R. Keller
This article appeared in St. Louis Construction News & Review, p. 22, September-October, 2002.
Owners and contractors in Missouri no longer can safely rely on AIA-approved contract provisions to protect themselves from their own negligence, according to a recent appellate decision from Missouri's Western District Court of Appeals (Kansas City). The case isNusbaum v. City of Kansas City, WD # 60242, decided August 20, 2002.
This result squarely contradicts a 1996 decision from the Eastern District Court of Appeals (St. Louis), leaving two of Missouri's appellate courts in complete disagreement on how to apply the industry-standard AIA indemnity clause presently being used in countless projects around the state. Seldom do appellate courts collide on such issues, especially ones involving contract provisions that are so universally used and accepted.
Without resolution from Missouri's Supreme Court, which may or may not occur in the future, anyone using AIA's standard indemnity provision and expecting protection from their own negligence should rewrite the clause to ensure this will be the result. They otherwise face potential trouble, as shown in the Nusbaumcase.
The Western District case involved a woman who tripped and fell on a manhole cover protruding above a sidewalk in Kansas City's Swope Park. She was badly hurt.
She and her husband sued the City of Kansas City, MO (owner of Swope Park), the Starlight Theatre, which maintained the Park, and J.E. Dunn Construction, Inc., the general contractor that was doing work in the area. Dunn allegedly knocked down a light pole that damaged the manhole,which caused her injury. Dunn had promised before the accident to replace the light pole, but never did.
Starlight sued Dunn for contract indemnity, claiming that if Starlight was liable to the Nusbaums, then Dunn was liable to Starlight. Dunn thenin turnsued PC Construction, Inc., Dunn's subcontractor on the project, seeking contract indemnity applying the same theory.
Both Starlight and Dunn relied on language in their contracts that they believed absolved them from their own liability. Although the court did not discuss the origin of the indemnity provisions at issue in the case, the disputed provisions clearly came from 3.18.1 AIA Document A201-1997 General Conditions of the Contract for Construction between Owner and Contractor and 4.6.1 AIA Document A401-1997 Standard Form of Agreement between Contractor and Subcontractor. Hence, they were standard AIA provisions. AIA's Contractor-Subcontractor provision provides:
To the fullest extent permitted by law, the Subcontractor shall indemnify and hold harmless the Owner, Contractor, Architect, Architect's consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorney's fees, arising out of or resulting from performance of the Subcontractor's Work under this Subcontract, but only to the extent caused in whole or in part by negligent acts or omissions of the Subcontractor, the Subcontractor's Subcontractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder.
The Owner-Contractor provision found in 3.18.1 of A201 reads essentially the same.
These provisions, without question, protect the owner from the negligence of its contractor and protect the contractor from the negligence of its subcontractor. The Kansas City appellate court decided, however, that these clauses do not protect an owner from its own negligence and do not protect a contractor for its own negligence. Missouri law requires that if there is "any doubt" about what an indemnity clause means, such doubt must be resolved in favor of no indemnity.
Of course, the Nusbaum court cited the contrary case from the Eastern District of Buchanan v. Rentenbach Constructors, Inc., 922 S.W.2d 467 (Mo. App. E.D. 1996). The Nusbaum court believed, however, that more substantial and persuasive authority supported its conclusion.
Not surprisingly, given the widespread use of AIA contracts, many courts from other states already have considered the same issues discussed inNusbaum and Buchanan. According to the Nusbaum court, the "preferred construction" from those courts is that an owner and a contractor cannot use the AIA language to indemnify for their own negligent actions.
This result does not preclude an owner and a contractor from indemnifying for their own conduct. They still can do this by rewriting the AIA's provision or by drafting new language that makes clear who is liable for what.
Once a judgment is entered, the various defendants must together pay all of it. To sort out the percentage of the judgment that each must pay requires an assessment of the percentage of fault to be assigned to everyone involved, including the owner, the contractor and the subcontractor
The court also had to determine whether the owner could receive from the contractor and the contractor from the subcontractor reimbursement for their legal expenses, given the indemnity provisions. The court decided that they could each recover their own legal expenses in defending a claim that was not their fault.Such legal expenses, like damages that may be assessed against an owner for its contractor's fault or against a contractor for its subcontractor's fault, were covered under the indemnity provision.
The owner can recover from the contractor and the contractor from the subcontractor that portion of the legal expenses that each of them incurred in defending the claim and that portion of the damages awarded to the plaintiff according to the percentage of fault attributable to each of them. If, for example, there is an assessment of zero percent fault against the subcontractor, then the subcontractor would not have to pay anything towards the overall damages or someone else's attorney fees.
Contractors and subcontractors cannot recover, however, their own legal expenses in pursuing indemnification, since the indemnity provisions did not expressly call for reimbursement of such attorney fees.
James R. Keller is a partner at HERZOG, CREBS & MCGHEE, LLP, St. Louis, Missouri, where he concentrates on business litigation and construction law. He also is a neutral/arbitrator with the American Arbitration Association and a court-certified mediator in state and federal courts.