BAD BEHAVIOR: FLORIDA LAW ON CONTRACTS OF INDEMNIFICATION WHICH SEEK TO INDEMNIFY A PARTY AGAINST ITS OWN WRONGFUL ACTS

Indemnification agreements are an extremely common provision found within in a wide variety of written contracts.  In a world where injuries and accidents spawn quick litigation against multiple parties, even if those parties are only tangentially involved, and even against those who may have no direct fault for the incident, indemnity agreements are a necessary and valuable contractual risk-shifting tool. 

 

Typically, a contractual indemnification provision operates by shifting a loss from the party unfairly facing that loss (the indemnitee), to the party actually responsible for causing the loss (the indemnitor) and who agreed to provide indemnification.  In general, such agreements are perfectly valid and enforceable. 

 

Where parties may run afoul of Florida law, however, is when those indemnification agreements are written very broadly—some might argue too broadly—and thus provide indemnification to a party even when that party has fault for the incident and has committed its own negligent or wrongful acts.  Thus, the indemnified party is not merely an innocent party to litigation, but has been alleged to have committed its own “bad acts”. 

         

The above-described indemnity agreements are commonly known as “broad form” indemnity.  Many states have taken the position that such agreements violate public policy.  Other states, such as Florida, have determined that such agreements may be permissible (i.e., enforceable), but only if they meet certain standards imposed by law, and if they contain the requisite specificity.

 

Florida Common Law on Indemnification Agreements

As a general matter, indemnification serves the purpose of holding the indemnified party harmless by shifting the entire loss or damage incurred by the indemnified party to the responsible party who should bear the cost because it was that party’s wrongdoing for which the indemnified party is held liable. See Sanislo v. Give Kids the World, Inc., 157 So. 3d 256, 264-65 (Fla. 2015) (citing First Baptist Church of Cape Coral, Florida, Inc. v. Compass Const., Inc., 115 So. 3d 978, 986 (Fla. 2013) (Lewis, J., dissenting)).

Broadly drafted contracts of indemnification which attempt to indemnify a party against its own wrongful acts, however, are viewed with disfavor in Florida and may be found invalid where certain conditions are not met.  See Charles Poe Masonry, Inc. v. Spring Lock Scaffolding Rental Equip. Co., 374 So. 2d 487, 489 (Fla. 1979). In general, the rule in Florida is that because broadly drafted indemnification agreements allocate the risk of liability for injuries to an unknown third party, specificity is required so that the indemnitor is well aware that it is accepting liability for both, its negligence and the negligence of the indemnitee. Sanislo, 157 So. 3d at 265-66.

Consequently, indemnity contracts that purport to provide indemnification even for the negligence of the indemnitee will be enforced “only if they express the intent to indemnify against the indemnitee’s own wrongful acts in clear and unequivocal terms.” Cox Cable Corp. v. Gulf Power Co., 591 So. 2d 627, 629 (Fla. 1992); Charles Poe Masonry, Inc., 374 So. 2d at 489; Univ. Plaza Shopping Ctr. v. Stewart, 272 So. 2d 507, 509 (Fla. 1973) (holding that a release of “any and all claims” is not clear and unequivocal); P.P. Partners, Ltd. v. J.J. Gumberg Co., 611 So. 2d 55, 57 (Fla. 3d DCA 1992).

For example, terms and provisions held too general to require indemnity for the indemnitee’s own negligence include an agreement to indemnify “against any and all claims”. Cox Cable Corp., 591 So. 2d at 629.

Cox Cable Corporation offers an illustration of this principle. In Cox Cable Corporation, a cable company and an utility company entered into an agreement where the utility company authorized the cable company to attach cables to the utility poles, while requiring indemnification on the part of the cable company against claims for personal injury or property damages.  The relevant provision stated as follows:

Licensee [Cox] shall indemnify, protect and save the Licensor [Gulf] forever harmless from and against any and all claims and demands for damages to property and injury or death to any persons including, but not restricted to, employees of Licensee and employees of any contractor or sub-contractor performing work for Licensee ... which may arise out of or be caused by the erection, maintenance, presence, use or removal of said attachments.

Cox Cable Corp., 591 So. 2d at 629. When the utility company sued the cable company for indemnity due to injuries caused to a worker of the cable company, the court did not uphold the indemnity contract.  The Court reasoned that the agreement contained terms that failed to disclose an intention to indemnify the electric company for its own wrongful acts. Id.

Indemnification Agreements in Construction Contracts

In addition to the above Florida common law principles on indemnity contracts, Florida has various statutes relating to construction contracts and their requirements, such as the current version of Florida Statute § 725.06 (2001), which specifically addresses indemnity provisions within such contracts. 

 

The full text of the statute is shown below:

 

(1) Any portion of any agreement or contract for or in connection with, or any guarantee of or in connection with, any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance, including moving and excavating associated therewith, between an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman or any combination thereof wherein any party referred to herein promises to indemnify or hold harmless the other party to the agreement, contract, or guarantee for liability for damages to persons or property caused in whole or in part by any act, omission, or default of the indemnitee [party being held harmless] arising from the contract or its performance, shall be void and unenforceable unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any. Notwithstanding the foregoing, the monetary limitation on the extent of the indemnification provided to the owner of real property by any party in privity of contract with such owner shall not be less than $1 million per occurrence, unless otherwise agreed by the parties. Indemnification provisions in any such agreements, contracts, or guarantees may not require that the indemnitor indemnify the indemnitee for damages to persons or property caused in whole or in part by any act, omission, or default of a party other than:

 

(a) The indemnitor;

 

(b) Any of the indemnitor's contractors, subcontractors, sub-subcontractors, materialmen, or agents of any tier or their respective employees; or

 

(c) The indemnitee or its officers, directors, agents, or employees. However, such indemnification shall not include claims of, or damages resulting from, gross negligence, or willful, wanton or intentional misconduct of the indemnitee or its officers, directors, agents or employees, or for statutory violation or punitive damages except and to the extent the statutory violation or punitive damages are caused by or result from the acts or omissions of the indemnitor or any of the indemnitor's contractors, subcontractors, sub-subcontractors, materialmen, or agents of any tier or their respective employees.

 

* * *

§ 725.06(1), Fla. Stat. Ann. (bolding added).

 

Note that not all construction-related contracts, however, fall within  Florida Statute § 725.06.  The statute notes that the contract at issue must be an:

 

[A]greement or contract for or in connection with, or any guarantee of or in connection with, any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance, including moving and excavating associated therewith, between an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman or any combination thereof. . . .

 

§ 725.06(1), Fla. Stat. Ann. (bolding added).

 

Florida courts have stated that the statute does not apply where the contract at issue is only for service or maintenance and does not involve a general contractor, subcontractor, etc.  See Kone, Inc. v. Robinson, 937 So. 2d 238, 241 (Fla. 1st DCA 2006) (finding a contract for elevator maintenance falling outside of the statute).  "This statutory provision expressly applies in situations when an owner of real property contracts for improvements to property." Cox Cable Corp., 570 So. 2d at  383.

 

Assuming that Florida Statute § 725.06 applies to the contract, in order for the contract to be invalidated based on the language of the indemnity agreement, the following conditions must be met:

 

[T]he Florida Statute renders contracts void and unenforceable under the following circumstances: (1) the contract concerns or guarantees “any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance, including moving and excavating associated therewith” (“Construction Contract”); (2) the parties to the Construction Contract include “an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman or any combination thereof” (“Contracting Party Requirement”); (3) one of the parties to the Construction Contract promises “to indemnify or hold harmless” the other party “for damages to persons or property caused in whole or in part by any act, omission, or default of the indemnitee arising from” the Construction Contract or performance of the Construction Contract; and (4) the Construction Contract does not contain “a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any.

 

Great Am. Ins. Co. v. Brewer, 6:16-CV-63-ORL-37KRS, 2016 WL 3640395, at *2 (M.D. Fla. July 8, 2016) (citing Florida Statute § 725.06).

 

Much like Florida common law principles that apply to indemnity agreements, Florida courts have held that in order to invalidate an indemnification agreement within a construction contract under the statute, the party seeking indemnification must be seeking such indemnification for its own active negligenceSee Fed. Ins. Co. v. W. Waterproofing Co. of Am., 500 So. 2d 162, 164 (Fla. 1st DCA 1986).  It is only where a party is seeking indemnification for its own active negligence that the two conditions following the "unless" language in the statute can apply to potentially void the indemnity provision.  Id.

 

As another illustration of this principle, consider the indemnity agreement at issue in Construction Services and Consultants IncSee Mid-Continent Cas. Co. v. Constr. Services & Consultants, Inc., 06-CV-80922, 2008 WL 896221 (S.D. Fla. Mar. 31, 2008). 

In Construction Services and Consultants Inc. a contract existed between the contractor, CSCI, and the owner, Transeastern. The indemnity language at issue stated:

 

DAMAGES TO PERSONS OR PROPERTY: Contractor [CSCI] hereby indemnifies and holds harmless Owner [Transeastern] ... against all liability, claims judgments, loss, expenses, demands, damage or causes of action of whatever nature ... for injury to or death of persons ... arising out of or in any way connected with the work, including, but not limited to, claims occasioned in whole or in part by the acts or omissions of any of the indemnities [sic] [Trans-eastern], [or] claims occasioned in whole or in part by the acts or omissions of Contractor [CSCI], its Subcontractors or the agents or employees of Contractor or Subcontractors ... Contractor [CSCI] shall protect and defend all indemnities [sic] [Transeastern] in any suit or action brought on account of any such injury ... and will pay for any costs or expenses of such persons ...

 

Id. at *2. 

 

The Court correctly read the above agreement as an agreement under which “CSCI not only agreed to defend and indemnify Transeastern from all claims and liability arising out of the acts or omissions of CFCI and its agents or employees, but it also agreed to defend and indemnify Transeastern from Transeastern's own acts or omissions.”  Id. (emphasis supplied).  The Court determined that as a result of the above language, Fla. Stat. § 726.05 applied to the agreement and served to void the portion of the contract that indemnified the owner for its own acts of negligence, as the indemnity agreement did not include the required monetary limitation required under the statute.  Id.

 

It is also important to note that Construction Services and Consultants Inc. held that even where a portion of an indemnity agreement is found to be invalid, this will not void the entire contractual indemnity provision but rather only that portion that does not comply with Florida’s legal requirements. Id. at *4 (“Section 725.06 of the Florida Statutes only voided that portion of the Contract that attempted to impose on CSCI a contractual obligation to defend and indemnify Transeastern from its own acts or omissions. It did not void the entire contractual indemnity provision.”). 

 

In sum, when faced with a contractual claim for indemnification, parties should first determine if the provision comports with Florida law.  Where such an agreement provides indemnification, even for the indemnified party’s own “bad acts,” careful scrutiny should be given to determine if the agreement will be enforceable by a Florida court.

 

MSC handles a variety of claims which involve disputes over the interpretation and enforceability of indemnity contracts.  The firm also frequently assists clients with analyzing insurance contracts for coverage for indemnity agreements entered by insureds with their customers or contractors.  For assistance, contact the author at: ddobuler@mscesq.com or (954) 765-1001, ext. 2101.

Categories: Insurance Coverage

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