In Florida, general contractors can face legal liability when their subcontractors perform shoddy work or when the general contractor’s own negligence is the cause of an owner’s loss. As a result, many general contractors include indemnification clauses in their contracts with their subcontractors in the event the property owner seek damages from the general contractor. However, if an indemnification clause is poorly drafted, it may be unenforceable leaving the general contractor stuck absorbing the losses. Florida construction lawyer Jonathan P. Cohen helps contractors to draft contractual indemnity clauses that fully comply with Florida law so that they will be protected.
Problem: A property owner files a claim against the contractor, and the contractor then files a contractual indemnity claim against the subcontractor for losses caused by both the subcontractor and the general contractor’s own negligence. However, the indemnity clause does not include a monetary limit for the indemnity. Is that allowed?
Answer: Under § 725.06, Fla. Stat. (2021), when an indemnity clause provides that the indemnitee will be held harmless for conduct that includes the indemnitee’s own negligence, either in whole or in part, the indemnity clause must include a monetary limit on the indemnification that bears a reasonable commercial relationship to the contract and is included in the bid documents or project specifications. Before 2001, an indemnity provision did not need to have a monetary limit so long as the indemnitee paid consideration for the indemnification provision. However, the Florida Legislature removed this option, which now means that indemnification clauses that include coverage for the indemnitee’s own negligence, must have a monetary limit on the indemnification and be reasonably related to the work performed.
General contractors must understand when an indemnity provision must include a monetary limitation. Under the decision in Fed. Ins. Co. v. Western Waterproofing Co., 500 So.2d 162, (Fla. 1st DCA 1968), the key to understanding whether an indemnification clause in a contract is governed by § 725.06 is whether the indemnity language includes the contractor’s own negligence. If it does, the clause must follow the statute’s requirements.
Contractors sometimes argue that their indemnity clauses do not fall within the scope of § 725.06 by claiming that they are not asking subcontractors to indemnify them for their own negligence. However, if there are construction defects and even if the general contractor is seeking indemnification from its downstream subcontractors, some of the damages may be causally related to the general contractor’s own negligence.
As discussed, to be enforceable, an indemnification clause must include monetary limits on the subcontractor’s obligation to indemnify when the indemnification provision includes holding the indemnitee harmless for their own negligent acts or omissions, but some general contractors have argued that having insurance coverage satisfies this requirement. In Lexington Ins. Co. v. Morrow Equip. Co., LLC 2010 U.S. Dist. LEXIS 24786, at * 6-7 (S.D. Fla. 2010), the court held that a contractual requirement for the contracting parties to secure a specific amount of insurance coverage satisfies the monetary limits requirement of § 725.06, but this is a non-binding decision. Moreover, Florida state courts view insurance requirements as distinct obligations from providing indemnity. This leaves the door open for subcontractors to argue that a call for insurance does not fulfill the requirement of a monetary limit within an indemnification clause.
While many judges hesitate to void a general contractor’s indemnification clause, an increasing number of subcontractors are challenging contractual indemnification claims based on a lack of a monetary limit. This makes it important for a general contractor to carefully review its indemnification clause to ensure that it either does not call for the subcontractor to indemnify a general contractor for its own negligence or it includes a monetary limitation on the scope of the indemnity when such a condition exists.
Talk To An Experienced Florida Construction Lawyer
The law firm of Jonathan P. Cohen, P.A. helps contractors draft contractual indemnity clauses that fully comply with Florida law thereby strengthening the probability that a contractor will prevail on an indemnity claim to recover damages they might be forced to pay for a subcontractor’s negligence. If you need help with an indemnification issue, contact the law firm of Jonathan P. Cohen, P.A. at (954) 833-7586.
 In our example, the indemnitee is the general contractor and the indemnitor, the subcontractor.
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