A construction company hires a subcontractor to install plumbing in a new building. The contract includes a clause stating, 'Subcontractor agrees to indemnify and hold harmless the Contractor from any and all claims, damages, liabilities, and expenses, including attorney's fees, arising out of or resulting from the Subcontractor's performance of the work.' A plumbing pipe installed by the subcontractor bursts due to faulty workmanship, causing significant water damage to the building. The building owner sues the general contractor. What is the likely effect of this clause?
- AThe clause is unenforceable as it attempts to shift liability entirely from the general contractor.
- BThe subcontractor is only liable if the general contractor can prove gross negligence.
- CThe general contractor must pay for the damages and cannot recover from the subcontractor.
- DThe subcontractor is obligated to reimburse the general contractor for any losses incurred from the owner's lawsuit, including legal fees.
Show answer & explanationAnswer & explanation
Correct answer: D. The subcontractor is obligated to reimburse the general contractor for any losses incurred from the owner's lawsuit, including legal fees.
An indemnity clause obligates one party (the indemnitor, here the subcontractor) to compensate the other party (the indemnitee, here the general contractor) for losses or damages incurred due to claims or actions specified in the clause. Here, the clause covers damages arising from the subcontractor's performance, making the subcontractor liable to cover the general contractor's losses from the owner's lawsuit.
Why the other options are wrong
- A. This is incorrect. Indemnity clauses are generally enforceable, especially when they relate to the indemnitor's own performance, though some states have limits on certain types of indemnity (e.g., against indemnitee's sole negligence).
- B. This is incorrect. The clause typically covers claims arising from performance, not necessarily requiring proof of a higher standard of negligence unless specified.
- C. This is incorrect. The indemnity clause is specifically designed to shift the financial burden of such claims.
Indemnity Clause
A contractual provision where one party (indemnitor) agrees to compensate the other party (indemnitee) for losses or damages incurred from third-party claims related to the contract.
- Shifts risk and financial responsibility.
- Common in construction, insurance, and service contracts.
- Scope can vary; often includes attorney's fees.
Memory trick: Indemnity: It's like saying, 'If someone sues you because of *my* work, I'll pay your bills.'