Construction Contracts – Are Contractual Indemnification Provisions Enforceable?
We are now three years removed from the Supreme Court of Virginia’s Uniwest decision interpreting Virginia’s anti-indemnification statute, Virginia Code § 11-4.1. Yet, the enforceability of contractual indemnification clauses in construction contracts remains murky under Virginia law. In Uniwest, two contractual indemnification clauses were at issue, only one of which was enforceable. Confusion remains regarding the enforceability of such provisions because the Supreme Court of Virginia failed to explain why the one indemnification clause was enforceable. However, a careful reading of the Uniwest opinion should remove any doubt about which provisions are and are not enforceable.
In Uniwest, a general contractor sought contractual indemnification from a downstream subcontractor for bodily injury claims. The invalid indemnification provision was found in the subcontract. The enforceable provision was found in the prime contract. The general contractor was able to rely upon the indemnification clause in the prime contract because the subcontract incorporated the terms of the prime contract and required the subcontractor to assume towards the general contractor the same obligations the general contractor assumed towards the owner.
The core holding of Uniwest is that an indemnification provision in a construction contract is void and unenforceable as against public policy if it requires the indemnitor (typically a subcontractor) to indemnify the indemnitee (typically a general contractor) for the indemnitee’s own negligence. Specifically, the Uniwest Court explained that Virginia Code § 11-4.1 will invalidate an indemnification provision if the provision can be read to indemnify the indemnitee for its own negligence irrespective of whether the indemnitee was at fault under the facts at issue.
The enforceability confusion arises from the fact that both of the indemnification clauses at issue in Uniwest required the subcontractor to indemnify the general contractor even if the general contractor was partially at fault. The only material distinction between the two provisions is that the enforceable provision contained a savings clause – “to the fullest extent permitted by law.” Thus, the only conclusion that can be drawn is that an indemnification provision containing a savings clause will be enforced consistent with Virginia Code § 11-4.1.
The end of the Uniwest opinion provides guidance to the lower courts for the proper procedure for resolving enforceable contractual indemnification claims. In the damages section of the opinion, the Court explains that, because the subcontract does not permit the general contractor to be indemnified for its own negligence, the Court is remanding the case to the trial court for a determination of the subcontractor’s relative fault and entry of a judgment against the subcontractor based upon its relative fault. A determination of relative fault is required because the indemnitee is not permitted to obtain indemnification for its own fault under Virginia law.
To date, very few courts have issued written opinions in cases governed by Uniwest. There are no reported decisions, and few decisions have been reported in the Virginia Lawyers Weekly. At least one Virginia Circuit Court correctly recognized the significance of the savings clause in the Uniwest decision. See Snyder v. Waterford Falls Church II, LLC et al., CL 2010-16609 (Va. Cir. Ct., Fairfax County Oct. 23, 2012). However, the Snyder Court went on to misapply the Uniwest decision because it concluded that the indemnification clause is enforceable only to the extent that the indemnitee is not at fault under the facts at issue. The Snyder court explained as follows:
. . . as noted above, Uniwest upheld the indemnification clause in the prime contract that required indemnification “regardless of whether or not such claim, damage, or loss or expense is caused in part by a party indemnified hereunder, [t]o the fullest extent permitted by law. . . . [Indemnitor’s] subcontract with [Indemnitee] contains similar language, including the limitation “to the fullest extent permitted by law.” Despite the subcontract containing language that reaches [Indemnitee’s] partial negligence, the inclusion of “to the fullest extent permitted by law” allows the clause to be enforced in circumstances that are consistent with Uniwest, such as if [Indemnitee] was not negligent, but not enforced if the [Indemnitee] was negligent.
Furthermore, the subcontract also states, “[n]othing in [the indemnification clause] shall be construed to require any indemnification which would make [the indemnification clause] void or unenforceable,” demonstrating that the parties intended for courts to construe the indemnification clause in a way that is consistent with public policy. Consequently, enforcing the clause as facially valid, but potentially invalid if [Indemnitee] was negligent, allows the parties’ intent to be vindicated while also maintaining public policy as interpreted in Uniwest.
As noted above, Uniwest holds that the facts at issue are irrelevant to determining whether the indemnification provision is enforceable in the first place. The critical inquiry is whether the provisions can be read to require indemnification for the indemnitee’s own negligence. If so, the contractual indemnification provision is contrary to Virginia’s public policy and unenforceable. If not (due to a savings clause or otherwise), the provision is enforceable but only to the extent that the indemnitee is liable for the negligence of the indemnitor and/or a third party. Thus, the Snyder court should have held that the indemnification clause was enforceable, and permitted the general contractor to recover indemnity for the portion of fault allocable to the subcontractor irrespective of whether the general contractor was also at fault.