Pushing the Limits of Contractual Indemnity

Encountering indemnity agreements in contracts and leases is common, and parties and the courts are constantly exploring the limits to which a party can be indemnified, even if the incident occurred because of its own negligence and/or on property it exclusively controlled.  One such case was recently decided in Constable v. Northglenn, LLC, 2011 Lexis 232 (Colo. March 21, 2011).  While this case was not decided in Florida, it is instructive on why such clauses attract litigation.

Facts

Northglenn was the owner of a shopping center and Constable leased commercial space from Northglenn.  A lawsuit was filed by a woman who slipped on ice in the shopping center parking lot.  The tenant, Constable, asserted that the indemnity provision in the lease favoring Northglenn was void as against public policy because it failed to clearly express an intent to indemnify Northglenn for its own negligence, and because it attempted to relieve Northglenn of “nondelegable duties” for which Northglenn had exclusive control - the care and maintenance of the parking lot.  The lease provision provided that Constable would indemnify Northglenn for liability for bodily injury sustained by anyone on the “premises” or elsewhere in the shopping center as long as the person was present to visit Constable’s shop or as a result of her business.  The only real exception was that there was no obligation to indemnify for Northglenn’s gross negligence or intentional torts; a high if not insurmountable hurdle in a normal premises liability case. 

Moreover, the lease required Northglenn as owner of the shopping center to maintain the community areas, including the parking lot.  However, Constable’s only remedy for failure to fulfill this obligation was for Constable to cause the maintenance to be performed by Constable and deduct any expense from the rent. 

Holding

The trial court held that the indemnity provision was unenforceable and granted summary judgment in Constable’s favor.  However, on the first appeal, the Colorado Court of Appeals reversed in favor of Northglenn finding that the lease clearly reflected an intent that Constable indemnify Northglenn for injuries sustained in community areas by her customers.  The first appellate court also concluded that the indemnity provision did not violate a duty made “nondelegable” by statute and therefore did not violate public policy.  The Colorado Supreme Court granted a petition to review on the question of whether the indemnity provision was or was not void as against public policy.  The Colorado Supreme Court essentially agreed with the appeals court and upheld the indemnity provision in favor of Northglenn.

The Colorado Supreme Court stated that Colorado public policy prevented an agreement to indemnify for damages resulting from someone’s own intentional or willful wrong acts.  However, this rule did not apply to agreements to hold a party harmless for its own negligence.  The Court stated that, in commercial settings, it has been willing to uphold broad language of indemnity, including language which generally provided that Constable would indemnify Northglenn for liability which could only have arisen due to Northglenn’s own negligence.  In short, when it comes to ordinary negligence claims and concepts, commercial parties were held to be free to contract in a broad fashion.  There clearly are legal tensions between private parties’ right to contract, and courts and legislators restricting indemnity clauses as a matter of public policy.  

The Supreme Court also rejected the argument that the indemnity provision violated the Colorado Premises Liability Act, which imposed a nondelegable duty on Northglenn to use reasonable care in maintaining its parking lot for the protection of shopping center patrons.  The Court found that an agreement to indemnify against liability for the breach of a duty was not the same as delegating that duty to another.  The purported distinction that the indemnity provision did not shift a “non-delegable” duty from Northglenn (the landlord) to Constable (the tenant) is simply wrong from a practical standpoint.  An indemnity agreement in a commercial lease was held to be an appropriate way of allocating risk of injury to patrons who are present to do business with a tenant and of inducing a landlord to enter into the lease.  The Court held that the provision did not violate general Colorado public policy or the particular statute in question, and the judgment was affirmed denying the tenant’s motion for summary judgment and providing indemnity to the landlord. 

Florida law

A thorough analysis of the applicable case law throughout the United States indicates divergent views on indemnity. Even so, most courts do agree upon the basic premise that: "A contract of indemnity will not be construed to indemnify the indemnitee against losses resulting from his own negligent acts unless such intention is expressed in clear and unequivocal terms." 41 Am. Jur. 2d Indemnity section 15 at p. 700. 

The basic premise under Florida law is that if the indemnitee is seeking to hold the indemnitor liable for the indemnitee's sole negligence, general clauses which "indemnify...against any and all claims" or equivalent language is not clear enough to authorize indemnification for negligence committed by the indemnitee alone. See, University Plaza Shopping Center, Inc. v. Stewart, 272 So. 2d 507 (Fla. 1973).
 Thoughts

Broad indemnity language in commercial contracts and leases may be given enforcement. Absent statutes which have been adopted in several states, broad indemnity provisions will be enforced as a matter of common law.

Courts may narrowly construe even state remedial statutes to preserve indemnity clauses in commercial contracts and leases. 

While the concept seems counter-intuitive, courts will enforce provisions indemnifying a party against its own negligence. 

Cases such as this have historically been what leads legislators to enact limitations and restrictions on indemnity language in certain situations such as construction contracts, residential real estate leases, commercial real estate leases, and the like.  Overbearing indemnity clauses inevitably lead to legislative limitations.

In challenging such an indemnity provision, it is helpful if a party can find some expression of statutory or legislative intent which directly or implicitly voids such an indemnity provision, such as the asserted Colorado Premises Liability Act in this case which was held not to be applicable, but an excellent counter-argument nonetheless.

If you are interested in obtaining copies of the decisions cited or wish to reach me, you may do so at miamipandi@comcast.net or motero@houckanderson.com.