Source: Virginia Lawyer
When preparing commercial contracts, parties strive for certainty to prevent post-execution risk allocation surprises. This is particularly true when drafting indemnification clauses in construction related contracts. To prevent downstream parties with little contracting leverage from being asked to indemnify upstream parties for those upstream parties’ own negligence, the vast majority of states have enacted “anti-indemnity” legislation limiting the breadth of indemnification clauses in contracts touching on construction projects. These statutes generally fall into two camps: (i) 16 states permit a party (the “indemnitee”) to be indemnified for its own negligence as long as it is not solely negligent; and (ii) 28 states do not permit the indemnitee to be indemnified for its own negligence under any circumstances, whether in whole or in part. Six states and the District of Columbia allow broad indemnity whereby an indemnitee can be required to indemnify the indemnitor even if the indemnitor is solely at fault.
Virginia’s anti-indemnity statute states, in relevant part: Any provision contained in any contract relating to the construction, alteration, repair or maintenance of a building … by which the contractor performing such work purports to indemnify or hold harmless another party to the contract against liability for damage … caused by or resulting solely from the negligence of such other party … is against public policy and is void and unenforceable.
Inclusion of the word “solely” in Section 11-4.1 leads most readers to conclude that it was drafted to fall into the first camp (bringing Virginia within those states barring indemnification for an indemnitee’s negligence only when the indemnitee is solely negligent). But therein lies the trap. Presumably unintentionally, the drafters of Section 11-4.1’s 1991 amendment structured the operative language in a manner similar to, but slightly different from, the anti-indemnity statutes that fall within the first camp. Almost all statutes included in the first camp use identical causation language, as follows: “caused by or resulting from the sole negligence of the … indemnitee.” But Section 11-4.1’s operative language reads: “caused by or resulting solely from the negligence of [the indemnitee].”
To provide context, while Section 11-4.1’s language is slightly different from the other first camp’s statutes, it is very different from the language of those falling in the second camp (that do not permit indemnification for an indemnitee’s own negligence under any circumstances). The major difference is that none of the statutes falling within the second camp include the limiting words “sole” or “solely.” There is no need to include the word “sole” or any variation thereof because these second camp statutes are broader, precluding indemnification for an indemnitee’s negligence whether the indemnitee is solely or only partially negligent.
Without this context, Section 11-4.1’s placement of “solely” after “resulting” permits a reader to more easily interpret the clause in at least two manners: (i) that "solely" modifies the entire phrase “caused by or resulting”; or (ii) that “caused by or resulting solely from” is disjunctive, meaning that there are really two disconnected phrases, “caused by” and “resulting solely from.” These alternate interpretations make a significant difference. Analysis under the first example results in the clause falling within the first camp; a limitation on indemnity for the indemnitee’s negligence only when the indemnitee is solely negligent. To the contrary, scrutiny under the second example leads to a broader bar; the indemnitee cannot be indemnified for its own negligence, whether sole or partial.
The Supreme Court of Virginia interpreted Section 11-4.1 in Uniwest Construction, Inc. v. Amtech Elevator Services, Inc. Uniwest, the prime contractor, engaged Amtech as a subcontractor to perform elevator work. One Amtech employee was injured, and another died as a result of a scaffolding collapse.
Various lawsuits arose involving indemnification and insurance, all of which made their way to the Court in a consolidated appeal. Without discussion, or reference to any legislative intent, and without comparing Section 11-4.1’s language with other states’ anti-indemnity clauses to gain context, the Court concluded that the phrases “caused by” and “resulting solely from” in the statute are disjunctive, meaning that they must be treated as separate clauses. From this, the Court found that the statute precludes indemnification for two types of damages: (i) those that are “caused by”; or (ii) those that “result[ing] solely from” an indemnitee’s negligence. In other words, under Section 11-4.1 an indemnitee can never be indemnified for its own negligence whether it is solely negligent or only partially negligent. The Court held that the indemnification provision at issue “clearly reaches beyond the negligence of other parties and indemnifies [the indemnitee]. Therefore, it violates Code 11-4.1 and is void.”
Many practitioners, fifty-state compendia, and even some treatises, review Section 11-4.1 and, finding the language so similar to those other jurisdictions that permit an indemnitee to be indemnified for its own negligence as long as it is not solely negligent, conclude that Virginia falls within that camp. Indeed, an internet search for anti-indemnity statutes results in myriad compendia and articles interpreting Section 11-4.1 and Virginia’s law on construction-related contractual indemnification clauses as permitting an indemnitee’s indemnification for its partial negligence, and precluding such indemnification only when the indemnitee is solely negligent. Thus, the trap is sprung.
The result in some cases has been a finding that flies in the face of the contract certainty for which parties yearn — that the indemnification clause the parties agreed to, permitting a party to be indemnified for its own partial negligence, is in fact void ab initio and cannot be reformed. Other jurisdictions with statutory language similar to Section 11-4.1 do not preclude indemnification for an indemnitee’s concurrent or partial negligence, instead limiting the statutory prohibition to damages arising out of an indemnitee’s sole negligence. Yet after Uniwest, despite the similarity in language to these other statutes where indemnification is prohibited only for an indemnitee’s sole negligence, Section 11-4.1 is interpreted in a more expansive fashion, also precluding indemnification for the indemnitee’s partial negligence.
It is high time for the General Assembly to correct the uncertainty created by the statute’s ambiguous language. If Section 11-4.1’s intent is to preclude an indemnitee’s indemnification only when it is solely negligent, as many states do, then it should modify Section 11-4.1 to read “caused by or resulting from the sole negligence of such other party.” Alternatively, if the intent is really as the Court found in Uniwest, then the General Assembly should remove Section 11-4.1’s current ambiguity by modifying it to read “caused partially or solely by, or resulting partially or solely from, or arising partially or solely out of the negligence of such party.” Further, given some of Uniwest’s progeny, the revised legislation should clarify that savings clauses inserted in indemnification clauses, such as the commonplace “to the fullest extent permitted by law,” will permit reformation of a non-conforming clause rather than a finding that it is void ab initio. At the end of the day, contractual certainty is best for all.
Reprinted with permission of the Virginia State Bar. See original article posting here.