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Why Indemnity Clauses Are Important

William B. Hanley, Attorney At Law July 27, 2022

Indemnity clauses, also commonly referred to as “hold harmless” clauses, are used in various types of contractual arrangements and are certainly prevalent in the construction industry. An indemnity clause basically transfers risk from one party to the other.

In legal terms, the indemnitor is the one who assumes the risk, and the indemnitee is the one who is protected by indemnification. For instance, Party A is the indemnitor, and Party B is the indemnitee. If B is sued by another party, then A will have to assume the duty of defending the lawsuit and paying off any judgment.

Of course, not all types of indemnity clauses in California are solely one-sided. State courts have recognized three basic types of indemnity clauses, though even those distinctions have started to blur in subsequent legal battles. Indemnification disputes tend to end up in court a lot.

If you need to enforce or defend yourself in an indemnity clause dispute in Irvine, California, contact William B. Hanley, Attorney at Law. 

Business litigation attorney William B. Hanley has more than four decades’ experience in handling contractual disputes and will be happy to meet with you, discuss your situation, and advise you of your options going forward. He also proudly serves clients throughout the counties of Orange, Los Angeles, and San Diego.

What Are Indemnity Clauses Under
California Law?

California Civil Code Section 2772 defines indemnity as “a contract by which one engages to save another from the legal consequences of the conduct of one of the parties, or of some other person.” The California Supreme Court has further defined indemnity as “the obligation resting on one party to make good a loss or damage another party has incurred.”

Using a construction industry example, an owner will agree with a contractor to develop a vacant lot into an office or apartment building. The owner will include an indemnity clause in the contract, making the owner the indemnitee and the contractor the indemnitor.

Suppose once the building is completed, a tenant is injured when a poorly constructed stairway causes the person to fall backward and suffer neck and spine injuries. The tenant sues the owner, who then shifts responsibility to the contractor under the indemnity clause.

A couple of caveats should be noted here. First, indemnity clauses generally have time limitations on them. A construction contract’s indemnity clause might expire one year after completion of the project or even earlier. Also, the contractor most likely would have a contract containing an indemnity clause with the subcontractor who erected the stairway. Thus, indemnity could shift again.

Types of Indemnity Clauses in California

As mentioned earlier, California courts, starting in 1972 with a decision known as MacDonald & Kruse, Inc., v. San Jose Steel Company, Inc., have generally recognized three types of indemnity clauses:

TYPE I: A clause of this type holds the indemnitor liable for all loss or damage to the indemnitee except in cases where the indemnitee exhibits active negligence or willful misconduct. In a construction project, the wording may specify “the contractor agrees to hold the owner free and harmless of any loss or liability except for loss or liability caused by the owner’s sole willful conduct or active negligence."

TYPE II: Often referred to as a general indemnity clause, this type holds the indemnitor liable for loss or damage resulting from the indemnitee’s passive negligence only. The difference between passive and active negligence has been the source of much debate, but the California Supreme Court ruled this way: 

“Passive negligence is found in mere nonfeasance, such as the failure to discover a dangerous condition or to perform a duty imposed by law…. Active negligence, on the other hand, is found if an indemnitee has personally participated in an affirmative act of negligence, was connected with negligent acts or omissions by knowledge or acquiescence, or has failed to perform a precise duty which the indemnitee had agreed to perform.”

TYPE III: This type precludes the indemnitor from paying for any loss or damage arising from the actions of the indemnitee. The indemnitor is liable only for damages or losses they cause.

Enforcing an Indemnity Clause

Under California law, indemnity clauses are largely enforceable except for those known as “broad form” or “no-fault,” whereby the indemnitor is liable for all damages and losses regardless of whose negligence caused them. 

Nonetheless, indemnity fights are common in the court system. If you want to enforce an indemnity clause, you’d better make sure its language is clear and to the point. If it’s ambiguous or imprecise, courts will have to interpret everything, and their decision could go in any direction.

Legal Guidance You Can Trust

Before you create or enter into a contract containing an indemnity clause, you need to have it reviewed by an experienced attorney to ensure it’s worded precisely and legally enforceable. If an indemnification dispute arises from an existing contract, it’s once again essential to have the contract clause reviewed by an attorney to determine its exact provisions before proceeding further.

If you’re facing or initiating an indemnity clause action in Irvine, California, contact William B. Hanley, Attorney at Law. He will review everything with you, develop a plan to protect your interests, and represent you in any legal or other proceedings going forward. He proudly serves clients in Irvine and throughout the counties of Orange, Los Angeles, and San Diego, California.