A Study in Juristic Realism: the Historical Development and Interpretation of Construction Industry Indemnification Clauses in Washington

• Publication year: 1986

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 10, No. 1FALL 1986

A Study in Juristic Realism: The Historical Development and Interpretation of Construction Industry Indemnification Clauses in Washington

Steven P. Soha

I. Introduction

The interpretation and enforcement of contract indemnity provisions in multi-employer construction projects has generated substantial litigation in the Washington courts.(fn1) The relative frequency with which these cases arise, not to mention the often substantial damages involved, makes them of special interest to the practicing attorney. In particular, it is critical that any attorney practicing in the area of construction law be intimately familiar with the multitude of issues often associated with the litigation of construction industry indemnification clauses.

Litigation in this area arises most often in the context of major multi-employer construction projects. These projects typically involve the services of a general contractor who contracts directly with the owner to direct, supervise, and control the overall project. This general contractor, in turn, engages the services of various specialty subcontractors who undertake to perform and complete discrete portions of the overall project under the terms and conditions of individual subcontracts. The duties, responsibilities, and obligations of these project-related subcontracts are traditionally weighted heavily in favor of the general contractor and typically include a general, all-inclusive indemnification provision in which the subcontractor agrees as follows:To indemnify and save harmless the Contractor from and against any and all suits, claims, actions, losses, costs, penalties, and damages, of whatsoever kind or nature, including attorney's fees, arising out of, in connection with, or incident to the Subcontractor's performance of this Subcontract.(fn2) This type of indemnity clause clearly encompasses a wide variety of potential claims, including sub-subcontractor claims, materialmen claims, equipment rental claims, quality of work claims, and personal injury claims. As a practical matter, the very breadth and all-inclusive nature of the clause invite litigation for virtually any unanticipated project related loss, damage, or injury.

Despite the wide variety of potential claims encompassed by the typical indemnification clause, the vast majority of reported cases interpreting and enforcing construction industry indemnity clauses involve a fairly consistent fact pattern. In generic terms, the common scenario may be briefly summarized as follows: (1) a subcontractor's employee sustains a job-site injury; (2) the injured employee makes a claim against the general contractor whose activities or negligence allegedly contributed to the injury;(fn3) and (3) the general contractor makes a claim against the subcontractor (employer) under the provisions of a subcontract indemnity provision. Faced with this scenario, the Washington courts have struggled for more than twenty years trying to develop a consistent approach to interpret these clauses and seeking to impart a practical and equitable interpretation within the principles of general contract law.

This struggle has resulted in significant changes in the state of the law. In a broad sense, the chronological progression of reported decisions evidences a transition from a literal and strict enforcement of indemnity clauses(fn4) toward a requirement of indemnification only upon proof of an "overt act or omission" by the indemnitor, which causes, or participates in causing, the original and underlying loss.(fn5) A previous focus upon the literal language of the clause(fn6) has gradually surrendered to a more precise analytical focus upon the particular facts and circumstances underlying the claim for indemnification.(fn7) More specifically, reported decisions have evolved to a present focus upon the specific acts and activities of the indemnitor, and the causal relationship of these acts or omissions to the fact of loss, damage, or injury.(fn8) However, to state the progression of reported decisions on this issue in terms of evolution does not necessarily imply complete consistency. Rather, the very concept of evolution suggests a dynamic process, subject both to some internal inconsistency and to consequent analytical critique.

This Article develops how Washington courts historically have interpreted construction industry indemnification clauses. This Article first addresses the substantive and the primary issue of liability, vel non,(fn9) under construction industry indemnification provisions. This section offers a historical analysis of Washington case law on the subject and concludes with an analysis of the recent statutory amendments to section 4.24.115 of the Washington Revised Code,(fn10) which substantially impact the current state of the law and which should resolve many unsettled or ambiguous issues in the case law.(fn11) This Article then discusses some unique issues that have arisen in the context of attempts to judicially enforce these indemnification provisions. Finally, this Article proposes a model indemnification provision that equitably formulates the clause, taking into account the precepts enunciated in Washington case law and statutes.

By way of brief preliminary comment, it must be acknowledged that indemnity and hold harmless clauses are not unique to construction industry contracts. Washington appellate decisions have addressed the validity and enforceability of indemnity clauses in many contexts, including property management contracts,(fn12) franchise agreements,(fn13) and lease agreements,(fn14) as well as a county fair concession contract.(fn15) To a large extent, the courts' interpretation of clauses in these former contexts parallels the interpretation progressively imparted to indemnification clauses in construction industry contracts. In certain circumstances, a principle first articulated in a case concerning a construction industry indemnification clause is further developed and refined in a non-construction industry indemnification case. For this reason, this Article discusses certain non-construction industry cases when principles enunciated in those cases bear upon issues and principles germane to the interpretation of indemnity clauses in construction industry cases. Notwithstanding this brief discussion, the primary focus of this Article is upon the interpretation and enforcement of indemnity clauses in construction industry contracts.

II. The Fundamental Issue of Liability

The judicial development and interpretative evolution of construction industry indemnity clauses can be conveniently broken down into four distinct categories. Three of these categories relate to a chronological analysis of Washington case law; the fourth category relates to the impact of the recent amendments to section 4.24.115 of the Revised Code of Washington upon indemnity law.(fn16) The first of these categories develops the line of cases culminating in Tucci and Sons, Inc. v. Madsen, Inc.,(fn17) which promoted strict, and often inequitable, enforcement of the indemnity provisions. The second category focuses exclusively upon the seminal Washington Supreme Court decision in Jones v. Strom Construction Co.,(fn18) which ameliorated the harsh principles enunciated in earlier cases and first articulated the "overt act or omission" test that remains the predicate for liability under these provisions.(fn19) The third category develops cases subsequent to Jones that further address the "overt act and omission" test. Finally, the fourth category analyzes the recent amendments to section 4.24.115(fn20) of the Revised Code of Washington on the substantive liability of a party under construction industry indemnity clause.

A. Early Case Law: Strict Enforcement of Indemnity Provisions

Historical analysis of relatively early case law that enforces indemnity provisions begins with a brief review of appellate decisions, culminating with the decision of the Washington Court of Appeals in Tucci and Sons, Inc. v. Madsen, Inc.(fn21)

1. The Historical Predicate

Although it arose outside the context of the construction industry, Griffiths v. Broderick, Inc.(fn22) enunciated the analytical precepts that influenced the interpretation of indemnity provisions in the construction industry for more than two decades. Griffiths concerned an action by an apartment owner against a property management company for losses associated with an injury to a tenant. The property manager based his defense on a provision in the property management contract that required the owner to hold the manager harmless from "any and all loss, damage or injury to any person or persons whomsoever, or property, arising from any cause or for any reason whatsoever in and about said premises."(fn23) Rejecting the owner's contention that the contract did not unequivocally indemnify for the consequences of the manager's negligence, the court enunciated the principle that continues to govern the general interpretation of indemnification clauses to this date:

Contracts of indemnity, therefore, must receive a reasonable construction so as to carry out, rather than defeat, the purpose for which they were executed. To this end they should neither, on the one hand, be so narrowly or technically interpreted as to frustrate their obvious design, nor, on the other hand...