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The Changing Faces of Indemnity Provisions in Construction Contracts (December Quarterly Litigation 2008)

December 1, 2008

In 1972, the Florida legislature enacted section 725.06, Florida Statutes which places limitations on indemnification in construction contracts.1 Although this statute remained unchanged for eighteen years, in the last decade, it appears that the legislature has struggled with this notion of indemnification in construction contracts. As a result, the statute has gone through various changes. Whether a particular indemnity provision in a construction contract is valid largely depends on the year in which a contract was executed. Below please find a synopsis of the changes to date.

The Original Version of the Statute

From 1972-2000, indemnity provisions in construction contracts were valid if the contract contained a monetary limit on indemnity and was part of the project specifications or bid documents, if any specification or bid documents exist2 or if the person being indemnified gave specific consideration for the indemnification and it was provided for in the contract and section of the project or specifications or bid documents, if any. Subsections (1) and (2) are stated in the disjunctive, and the satisfaction of either one is sufficient to render an otherwise invalid construction contract indemnification clause enforceable under the statute.3 Furthermore, the “specific consideration” required by section 725.06(2) need not be a dollar amount. In Westinghouse Electric Corporation v. Turnberry Corporation,4 the court held that early delivery of elevators, ahead of schedule, constituted “specific consideration” within the meaning of the statute. Courts have also held that the payment of a percentage amount pursuant to the agreement would satisfy the requirements of that section.5

The 2000 Amendment to the Statute

In 2000, the statute was amended for the first time.6 Some argue, the 2000 amendment constituted a radical change because it made unenforceable and void any indemnity provision which required one party to indemnify any other party for its own negligence.7 Instead, the only provisions that were valid were those which sought to hold the indemnifying party liable for its wrongful acts (negligence, recklessness or intentional misconduct) and those under the indemnifying party’s control.8 The 2000 version of the statute was, in effect, a codification of common law indemnity principles which would not be applicable to an independent contractor.9

The Current Version of the Statute

In 2001, the statute was again amended and remains in its current form.10 The current version of the statute now allows indemnification where the wrongful conduct was caused, in whole or in part, by the indemnifying party so long as the contract contains a monetary limitation that bears a reasonable relationship to the contract and is part of the contract specifications or bid documents, if any.11 As to indemnification to owners of real party by persons in privity with the owner shall not be less than $1 million dollars per occurrence unless agreed upon by the parties.12 The statute also limits the scope of indemnification by excluding claims of, or damages resulting from, gross negligence, or willful, wanton, or intentional misconduct of the indemnitee, 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 or result from the acts or omissions of the indemnitor, their agents, employees, and those working under them. 13

 

Conclusion

In sum, when evaluating a tender of indemnification, a practitioner should first determine whether the indemnity provision is valid pursuant to the particular version of the section 725.06, Florida Statute that governs the execution of the subject contract. While an indemnity provision may, for example, contain the requisite consideration or monetary limitation it may still be invalid because another version of the statute applies to the particular contract. The operative fact for determination as to which version of the statute applies is the date of execution of the contract.

Endnotes

1 Section 725.06, Florida Statutes (1972).

2 Peoples Gas System, Inc. v. RSH Constructors, Inc., 563 So.2d 107 (Fla. 1st DCA 1990).

3 See, Westinghouse Electric Corporation v. Turnberry Corporation, 423 So.2d 407 (Fla. 4th DCA1983); Peoples Gas System, Inc.. v. RSH Constructors, Inc., 563 So.2d 107 (Fla. 1st DCA 1990).

4 423 So.2d 407 (Fla. 4th DCA 1982).

5 Pacific Nat. Equity Co. v. Montgomery, 367 So.2d 729 (Fla. 4th DCA 1979); Peoples Gas System, Inc.. v. RSH Constructors, Inc., 563 So.2d 107 (Fla. 1st DCA 1990.) and MacIntyre v. Green’s Pool Service, Inc., 347 So.2d 1081 (Fla. 3d DCA 1977).

6 Section 725.06, Florida Statutes (2000).

7 Id.

8 Id.

9 See generally, Paul N. Howard Co. v. Affholder, Inc. 701, So.2d 402, 404 (Fla. 5th DCA 1997).

10 Section 725.06, Florida Statutes (2001).

11 Id.

12 Id.

13 Id.


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