It’s incredibly important to know and fully understand the contractual indemnity obligations in your contracts.

Defense, indemnification, and hold-harmless provisions are contained in most, if not all, construction contracts, as they’re used frequently between general contractors and subcontractors, who may very well be liable to project owners. Though these types of provisions are commonplace in the construction industry, they’re often not totally understood. Many times, especially if the contracting parties have an established relationship, they use the same boilerplate indemnity language in every contract, despite the specific project circumstances, without really considering the implications. Unfortunately, it’s not until something goes wrong on a project – and it’s too late – that the parties realize the extensive impact these provisions can have.

Michigan law provides contracting parties with broad discretion in negotiating the scope of indemnity clauses.

In the contractor-subcontractor context, parties have extensive latitude to enter into indemnification agreements with one notable legal exception: the prohibition on indemnification against the sole negligence of the contractor. ^[1] Note, too, that many indemnification provisions in construction contracts include the words “all” and “any,” which impart the broadest possible obligation. [2]

Before we go any further, it’s important to note that though often combined in a contract, the duties to defend, hold harmless, and indemnify are generally different and distinct duties. According to Black’s Law Dictionary, indemnification is “[t]he action of compensating for loss or damage sustained.” An indemnity provision, generally speaking, is designed to protect a party from the financial consequences that may result from another party’s work.

“Hold harmless” usually means a release of liability. If a party agrees to hold harmless another party, it agrees to release the other party from liability and will not hold it responsible for potential loss or liability. So when combined with the duty to indemnify, the indemnifying party agrees to cover the indemnified party’s losses resulting from certain liabilities and to not hold it responsible for those losses.

Now let’s talk about the duty to defend, which, again, is often boilerplate and intertwined with other indemnification obligations in a contract.

Significantly, the duty to defend is often broader than the duty to indemnify. [3] However, it too arises from the specific language of the contract. [4] The duty to defend obligates the indemnifying party to defend the indemnified party against third-party claims in litigation and arbitration, for example. [5] And, significantly, even if a contract doesn’t have a duty-to-defend provision, the indemnifying party may still be liable for the indemnified party’s attorney fees. [6]

In sum, as one Michigan court stated, “Where the parties have contracted to create duties that differ or extend beyond those established by general principles of law, and the terms of the contract are not otherwise unenforceable, the parties must abide by the contractual duties created.”[7] Indemnification provisions are complex and have serious and far-reaching implications. Such provisions should be drafted specifically for each contract and situation. Therefore, it’s vital to consult with an experienced construction law attorney to help you evaluate and minimize risk and financial exposure – before you sign on the dotted line.

[1] Miller-Davis Co v Ahrens Constr, Inc, 495 Mich 161, 173 (2014), citing MCL §691.991(1).
[2] Id. at 175.
[3] Busch v Holmes, 256 Mich App 4, 9 (2003).
[4] Mich Educ Emples Mut Ins Co v Turow, 242 Mich App 112, 117 (2000).
[5] Citizens Ins Co v Secura Ins, 279 Mich App 69, 74 (2008).
[6] Ajax Paving Indus, Inc v Vanopdenbosch Constr Co, 289 Mich App 639, 649 (2010).
[7] Grand Trunk W RR, Inc v Auto Warehousing Co, 262 Mich App 345, 351 (2004).

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This blog article is for informational purposes only.  It does not create an attorney-client relationship and is not intended to be regarded as legal advice.