NASCLA Accredited Commercial General ContractorGeneral RequirementsMedium
A commercial general contractor is negotiating a contract for a new retail complex. The owner insists on a clause that transfers the risk of loss or damage to the project, as well as liability for third-party claims, from the owner to the contractor. This clause requires the contractor to protect the owner from any claims, damages, losses, or expenses that arise out of the contractor's work. What type of clause is the owner requesting?
- AArbitration Clause
- BWaiver of Subrogation Clause
- CForce Majeure Clause
- DIndemnification Clause
Show answer & explanationAnswer & explanation
Correct answer: D. Indemnification Clause
An indemnification clause is a contractual provision that shifts potential liabilities from one party (the indemnitee, in this case, the owner) to another party (the indemnitor, the contractor). It requires the contractor to protect the owner against claims, damages, losses, or expenses arising from the contractor's work.
Why the other options are wrong
- A. An Arbitration clause dictates how disputes will be resolved, not who bears liability for claims.
- B. A Waiver of Subrogation clause prevents an insurer from seeking recovery from a third party, which is related to insurance but not the primary mechanism for shifting direct liability as described.
- C. A Force Majeure clause addresses unforeseeable events beyond control, not liability transfer.
Indemnification Clause
A contractual provision that requires one party (the indemnitor) to compensate the other party (the indemnitee) for certain costs, losses, or damages incurred as a result of the contract.
- Transfers risk and liability.
- Often 'hold harmless' language.
- Can be broad, intermediate, or limited form.
Memory trick: Contracts can shift who holds the liability shield.