Section 3.7.23 Contractual Indemnities

• Library: Construction Law Practice Manual 3rd Edition 2016

§ 3.7.23 Contractual Indemnities

One of the greatest risk exposures for design professionals today lies in contractual indemnities that obligate them to pay for increases in the cost of construction due to contractor change orders or other losses without regard to fault. Far too often, a design professional can find itself saddled with expensive legal obligations and risks far exceeding its fee or insurance coverage because it assumed a contractual duty to defend and indemnify the project owner against contractor or other third-party claims. Arizona’s anti-indemnity statutes, which prohibit indemnities for the owner’s sole fault on private projects and indemnities of the owner’s sole or partial fault on public projects, are not an adequate counterweight to these risk-shifting clauses.¹⁹⁹

This risk underscores the need for owners, design professionals and contractors to negotiate reasonable contract terms that balance the risks and rewards of the project. Indemnities that require a defense and payment of all claims arising from the project before the indemnitor’s fault has been determined, even those damages caused by the party indemnified, inappropriately shift project risk. Arizona courts will usually enforce these special indemnities as they are written, unless they violate applicable anti-indemnity statutes.²⁰⁰ In Washington Elementary School District No. 6 v. Baglino Corp., where the indemnitor agreed to indemnify against loss resulting “in whole or in part by any negligent act or omission…regardless of whether or not it is caused in part by a party indemnified hereunder” the indemnitor paid for the entire loss even though it was not legally at fault.²⁰¹

Contractual indemnities are subject to the absolute bar imposed by Arizona’s statute of repose.²⁰² If common law indemnity is still a viable claim after the abolition of joint and several negligence, it is not subject to the statute of repose bar because it is premised on tort law principles.²⁰³

Depending on the language of the contractual provision, a duty to indemnify against “liability” may accrue once liability for a cause of action is established, regardless of whether actual payment has been made, while indemnity for “loss” requires actual payment by the indemnitee before the indemnitor’s duty is triggered.²⁰⁴ A contractual indemnity term may contain both types of indemnification.

There are some circumstances in which express or implied indemnities will not be enforceable to recover the indemnified person’s loss or liability, regardless of their terms. For example, an indemnity will cover only those losses or liabilities which reasonably appear to have been intended by the parties.²⁰⁵ A general indemnity will not require indemnification for loss caused by the indemnitee’s active negligence.²⁰⁶ One may also argue that indemnification is not available to one who has a non-delegable duty of care.²⁰⁷ In the context of design teams, the project prime...