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Township of Lakewood v. Epic Management, Inc.

A-2866-07T2 (N.J. Super. App. Div. 2009) (Unpublished)

CONTRACTORS; SUBCONTRACTORS; INDEMNIFICATION — It is not against public policy for an indemnitor involved in a construction project to promise to hold an indemnitee harmless for the indemnitee’s own negligence as long as the indemnitee is not solely at fault because of the judicial recognition that ordinarily the financial responsibility for the risk of injury during the course of a construction project is shifted by the parties to their insurance carriers.

A contractor was awarded a contract by a municipality to construct a minor league baseball stadium. It subcontracted some of the work. In the subcontract, the subcontractor agreed to indemnify the contractor under two separate provisions. In one provision, it agreed to indemnify and hold the contractor harmless for any damage or injury caused by, resulting from, arising out of or occurring in connection with the execution of the work. In another provision, it agreed to indemnify and hold the contractor harmless for any claim made or asserted against the contractor in connection with the work or services performed by the contractor. The stadium roof leaked and the municipality sued the contractor. The contractor called for indemnification from its subcontractor. The contractor also sought to recover the legal fees it incurred in defending the action brought by the municipality and sued to enforce the indemnification claims.

The underlying action was settled, leaving only the claims against the subcontractor. The lower court ordered the subcontractor to pay the contractor’s fees and costs. The subcontractor appealed the lower court’s finding as to fees and costs only.

The Appellate Division affirmed the lower court’s decision that the subcontractor was responsible for fees and costs. According to the Court, ambiguous clauses in indemnification agreements are to be construed against an indemnitee. It also ruled that an indemnification provision will not be construed to cover losses resulting from an indemnified party’s own negligence unless such an intention is expressed in unequivocal terms. The Court held that it is not against public policy for an indemnitor to promise to hold an indemnitee harmless for the indemnitee’s own negligence as long as the indemnitee is not solely at fault. This principle derives from the judicial recognition that ordinarily the financial responsibility for the risk of injury during the course of a construction project is shifted by the parties to their insurance carriers, i.e., it is an allocation by the parties of the total required insurance protection for the project and is part of the “bargaining process.”

In this case, the Court found that the indemnification clauses were neither ambiguous nor contradictory and were thus enforceable. It found that, pursuant to both indemnity provisions in the contract, the subcontractor’s obligation extended only to work performed by it. It rejected the subcontractor’s argument that the lower court erred in compelling it to provide defense and indemnification because there was no apportionment of liability among all of the defendants. It stated that apportionment of liability was not relevant to the defense and indemnification provisions, and was only relevant to the amount to be paid by the subcontractor. But for the parties’ settlement, apportionment would have been determined by the finder of fact. In the settlement, the Court held that the parties themselves apportioned liability, rendering that issue moot. It also rejected the subcontractor’s claim that the municipality’s claim did not “arise out of” the work that it had performed (as was required by the indemnification provisions) because the contractor directed it to install the roof incorrectly. The Court noted that the record indicated that although the contractor may have also been negligent, the subcontractor’s installation of the roof violated good roofing practice. In addition, since the parties settled on the liability aspect of the action, it was not relevant to the subcontractor’s indemnification obligation for fees and costs.


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