Even When You Win, You Lose: Subcontractor’s Indemnity Obligation Enforced Despite Being Absolved of Liability at Trial

7/25/2017

Construction Law Update, July 2017

In Provenzino v Macomb County, 2017 WL 104544 (Mich. App. 2017), the Michigan Court of Appeals reversed the trial court’s decision to dismiss a general contractor’s claim for indemnity where the plaintiff’s allegations arose “in any way” from the subcontractor’s work. The appeals court reasoned that the broad indemnity language of the parties’ agreement encompasses indemnification for the subcontractor’s conduct regardless of whether the subcontractor is found actually negligent.

The case arose from a severe motorcycle accident in Macomb County, Michigan, during a construction project on Harper Avenue that included asphalt resurfacing and concrete reconstruction. Florence Cement Company (Florence) was the general contractor and Lois Kay Contracting Company (Lois Kay) was the asphalt subcontractor. The plaintiff was severely injured while heading southbound on Harper Avenue traveling at about 20 miles an hour; he saw friends in a local bar and attempted to turn into the parking lot. When the plaintiff turned, he encountered a 4-inch rise from the new asphalt resurfacing and lost control of his motorcycle. Plaintiff brought claims against both Florence and Lois Kay for negligence. Pursuant to its subcontract agreement with Lois Kay, Florence asserted cross-claims against Lois Kay for contractual indemnity.

The indemnity provision contained in the subcontract was broad and shifted a great deal of responsibility to the subcontractor. In pertinent part, it stated:

INDEMNIFICATION: Subcontractor agrees, and shall bind all sub-subcontractors to agree to indemnify Contractor, Owner and all other parties the Contractor is obligated to indemnity pursuant to the Prime Contract (hereinafter “Indemnities”), and to defend and hold Indemnities forever harmless from and against all suits, actions, legal and administrative proceedings, claims, demands, damages, interest, attorneys’ fees, costs and expenses of whatsoever kind or nature whether arising before or after completion of Subcontractor’s work and in any manner directly or indirectly caused or claimed to be caused by any action or negligence of Subcontractor of Sub-subcontractor, and regardless of whether directly or indirectly caused or claimed to be caused in part by a party indemnified hereunder or by anyone acting under their direction, control or on their behalf, until such time as a judgment is entered against Contractor by a court of law.

At the trial court level, Lois Kay filed a motion for summary disposition, arguing that Florence was solely negligent because plaintiff’s allegations revolved around signage, barricades, ramps, clean-up and warnings in general, and not because of Lois Kay’s milling the road surface. Relying upon Michigan’s anti-indemnity statute, Lois Kay argued that MCL § 691.991 applied and prohibited Florence from seeking indemnity for its sole negligence. The trial court agreed and dismissed the general contractor’s indemnity claim.

Cause of the injury

The Court of Appeals focused on whether the plaintiff’s injury arose from Lois Kay’s conduct. In order to make this determination, the court focused on the allegations that the plaintiff “was confronted by unclearly marked signage/cones/barrels, etc.,” as well as a differential in height of approximately inches in the asphalt. According to the plaintiff, these unreasonably dangerous conditions caused him to lose control of his motorcycle.

In construing the indemnity provision against these allegations, the appeals court examined the language of the contract according to its plain and ordinary meaning to determine whether plaintiff’s alleged injuries arose out of the subcontractor’s conduct. In reaching its decision, the court explained:

The case was not just about signage, barriers and warnings, which fell within Florence’s scope of work. Rather, plaintiff’s broad allegation that the combined defendants created an unreasonably dangerous condition included the height differential, which was the result of Lois Kay’s work. The issue is not whether Lois Kay was actually negligent; the issue is whether plaintiff’s allegations arose “in any way” from Lois Kay’s work, thereby triggering the indemnification provision.

This case illustrates the importance of paying close attention to the indemnity provisions of your contract. The failure to negotiate a fair and reasonable indemnity provision could leave you in the same position as Lois Kay – paying for the legal defense of the general contractor even when you have been absolved of liability at trial.

Scott Murphy is a partner in the Grand Rapids office of Barnes & Thornburg LLP. For more information about this topic and the issues raised in this article, please contact Scott at (616) 742-3930 or smurphy@btlaw.com.

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