Clear and Unequivocal: An Indemnification Story

Recently, in a dispute between a contractor and subcontractor, the South Carolina Court of Appeals ruled that an indemnity clause cannot be construed to indemnify the indemnitee against losses resulting from its own negligent acts unless the intention is expressed in clear and unequivocal terms.

In Concord & Cumberland Horizontal Prop. Regime v. Concord & Cumberland, LLC, Op. No. 5585 (S.C. Ct. App. filed August 8, 2018), the contractor entered into a contract with the subcontractor for the installation of windows and exterior doors of a condominium construction project. The indemnification clause in the contract between the parties contained standard ‘indemnify and hold harmless’ provisions whereby the subcontractor would indemnify the contractor for all losses resulting out of work performed by the subcontractor. Following periods of water intrusion and inspections of the materials provided and installed by the subcontractor, the two parties formed another agreement which acknowledged the presence of defects in the windows and doors installed by the subcontractor. In this new agreement, the subcontractor agreed to remedy the defects and further indemnify the contractor for all damages paid in potential suits arising from the defective products installed by the subcontractor. The property regime responsible for the condominium brought suit for damages caused by water intrusion, and both the subcontractor and contractor settled.

Following the settlement, the contractor initiated an equitable indemnification action against the subcontractor. The Court of Appeals determined the indemnity clause in the contract at issue did not indemnify the general contractor for concurrent negligence, or, in other words, for any negligence beyond the subcontractor’s negligence.

In order for the subcontractor to be contractually obligated to indemnify the contractor for the contractor’s own negligence, the Court of Appeals noted the language must clearly and unequivocally provide for such indemnity. A subcontract that reads: “Subcontractor agrees to indemnify for all damages, regardless of whether the damages are caused in part by a party indemnified hereunder,” may provide indemnity for concurrent negligence, however the Court of Appeals noted that no precedent exists for a provision that has been read to meet the standard of ‘clear and unequivocal.’

Additionally, it is worth noting that even in the event an indemnification provision is read to be clear and unequivocal, it may still be challenged as a contract of adhesion (take it or leave it) or through public policy concerns that could invalidate the application of the clause.