The American Institute of Architects (AIA) documents, like most standardized
contracts, have various risk-shifting provisions, including indemnification
clauses. The issues are often more complicated when applied in the real world
than when dealing with terms in a theoretical abstract. The Missouri Supreme
Court has provided some guidance that should be of use in sorting out the application
of the indemnity clauses in the case of Zilma and Wayne
Nusbaum v The City of Kansas City, Missouri, et al.
Lesson To Be Learned
Like most legal disputes, the issues addressed in the Nusbaum case are driven by the specific facts
involved. However, some helpful lessons can be drawn.
You will see below that the duty to indemnify (and, hence, your right to
be made whole under the indemnity clause) is not triggered until notice is given
to the party from whom you are seeking indemnification. When a claim is made
against you, you should review all of the applicable contracts and identify
as early as you can all the entities against whom you may have a claim for indemnification.
Put all of these parties on notice as promptly as you can.
Remember that indemnity is to make you whole and that you will incur fees
and expenses in the defense of the underlying claim, as well as in your efforts
to establish your right to indemnity. Unless the party that has agreed to indemnify
you quickly and voluntarily agrees to do so without being coerced, your costs
and fees to establish your right to indemnity could be significant. These expenses
are not recoverable under the indemnity clause. You should probably track the
costs and expenses separately, keeping the fees and expenses of establishing
your right to indemnity separate and apart from the fees and expenses incurred
in the defense of the underlying claim.
If you are making a claim under an indemnity agreement, like the one discussed
here, you will likely only be indemnified in an amount that is proportionate
to the negligence of the party that is going to indemnify you. As a result,
you will likely only be awarded a proportionate amount of your fees, costs,
expenses, and the damages you have paid.
History of the Case
In the Nusbaum case, the court dealt with
the indemnity clause in the agreement between the general contractor and the
subcontractor on a project that resulted in personal injury to a third party.
There was also an indemnity clause in the agreement between the general contractor
and the owner. The General Contractor—Subcontractor Agreement had the typical
indemnity clause that read, in part, as follows:
- … To the fullest extent permitted by law, the Subcontractor shall indemnify
and hold harmless the Owner, Contractor, Architect, Architect's consultants,
and agents and employees of any of them from and against claims, damages,
losses and expenses, including but not limited to attorneys fees, arising
out of or resulting from performance of Subcontractor's work under this
Subcontract, but only to the extent caused all or in part by negligent acts
or omissions of the Subcontractor, the Subcontractor's Subcontractors, anyone
directly or indirectly employed by them, or anyone for whose acts they may
be liable, regardless of whether or not such claim, damage, loss, or expenses
incurred in part by a party indemnified hereunder. …
The case arose from a person's fall on a walkway adjacent to a construction
project. The owner of the project was made a defendant when the suit was first
filed, and then the general contractor was added later. The owner filed a cross-claim
against the general contractor, asserting a contractual claim for indemnification
as provided in the contract documents. The general contactor then filed a third-party
action seeking contractual indemnification or contribution from its subcontractor
based on the general contractor's subcontract with the subcontractor.
Settlements were subsequently reached with the tort victim and the entities
relevant for our purposes. The subcontractor settled with plaintiffs and secured
a release not only for itself but also for both the project owner and the general
contractor for liability arising out of subcontractor's negligence. The release
between the plaintiff and the subcontractor provided that the plaintiffs were
releasing the owner, the general contractor, and “all other companies, organizations
or persons, who may have contractual, respondeat
superior, or other derivative liability, for the alleged negligent actions”
of the subcontractor in performing its work on the project.
The general contractor settled with the plaintiffs for $5,000 following the
subcontractor's settlement. The settlement agreement between the plaintiffs
and the general contractor released the plaintiffs' claim against the general
contractor, but not the claims against the owner that may have arisen out of
the general contractor's negligence. The owner then settled with the plaintiffs
Summary Judgment Motions and Rulings on the Indemnity Issues
The general contractor and the owner both filed motions for summary judgment
on their respective indemnification claims. The trial court granted both motions.
At the hearing on the owner's claim for contractual indemnification against
the general contractor, the owner sought $70,505.27, which represented the $45,000
settlement with the plaintiffs, its attorney fees and expenses for defending
the plaintiffs' claim, and its fees in pursuing the indemnification claim. The
trial court ruled in favor of the owner and ordered the general contractor to
indemnify the owner in the amount of $68,994.77, which represented the owner's
$45,000 settlement to the plaintiffs, and a portion of the owner attorney fees
At the hearing on the general contractor's claim for contractual indemnification
from the subcontractor, the general contractor sought $35,049.90, representing
the $5,000 settlement with the plaintiffs and $30,049.90 for attorney fees and
expenses in (1) defending the plaintiffs' claim and (2) establishing its right
to indemnification. The trial court granted summary judgment in favor of the
general contractor and against the subcontractor with the exception that the
trial court did not award the general contractor the full amount of the legal
expenses requested and did not award prejudgment interest. The trial court ordered
the subcontractor to indemnify the general contractor in the amount of $95,194.77,
which represented the owner's recovery against the general contractor, the general
contractor's $5,000 settlement with the plaintiffs, and a portion of the general
contractor's attorney fees and expenses. The court also ordered the subcontractor
to pay post-judgment interest on both the general contractor's and the owner's
Everyone appealed. The subcontractor contended that the trial court erred
in entering judgment in favor of the general contractor. Both the general contractor
and the owner argued that the trial court erred in not awarding them the full
amount of the legal expenses requested and in not awarding prejudgment interest.
The general contractor appealed arguing the trial court erred in entering
judgment in favor of the owner on the owner's claim for contractual indemnification
for liability and expenses, including attorney fees the owner incurred as a
result of defending against the plaintiffs' lawsuit.
Supreme Court Rulings
The supreme court held that the intent of the parties as expressed in the
indemnification provisions of the contracts between the general contractor and
the owner and between the general contractor and the subcontractor were questions
of law for determination on appeal.
The Subcontractor—The General Contractor Indemnity Issue
On appeal, the subcontractor argued that because its agreement with the general
contractor does not require it to indemnify the general contractor for the general
contractor's own negligence, the trial court erred in entering judgment in favor
of the general contractor and against the subcontractor on the general contractor's
claim for contractual indemnification. As a result, the first issue presented
is whether the general contractor's agreement with the subcontractor entitled
the general contractor to receive indemnification for its own negligence.1
Since Missouri law, like many, but not all states, provides that an indemnification
contract “will not be construed so as to indemnify one against loss or damage
resulting from his own negligent acts, unless such intention is expressed in
clear and unequivocal terms,” the court held that the phrase “to the extent
caused” expresses an intention to limit the indemnitor's liability to the portion
of fault attributed to the indemnitor.
The court held that the preferred construction of the indemnification provision
is one that provides a reasonable meaning to each phrase of the provision, and,
therefore, requires nothing more than that the subcontractor indemnify the general
contractor for the subcontractor's negligence, even if the general contractor
participates in part in the subcontractor's negligent conduct. The court concluded
that to hold otherwise would make the intended expression “to limit liability
to the acts of the indemnitor” meaningless.
The General Contractor/The Owner Indemnity
In its dispute with the owner, the general contractor argued that the trial
court erred in entering judgment against the general contractor on the owner's
claim for indemnification. The general contractor argued that the owner is not
entitled to indemnification for the owner's defense of the plaintiffs' direct
claim of negligence against the owner in that the indemnification provision
does not clearly and unambiguously provide for indemnification for the owner's
The owner's contract with the general contractor contains an indemnification
provision substantially identical in all material respects to the provision
contained in the general contractor's contract with the subcontractor. As held
in the resolution of the general contractor/subcontractor dispute, the indemnification
provision contained in the owner's Agreement with the general contractor does
not indemnify the owner for the owner's own negligence.
Once the court determined that the indemnification provisions contained in
the parties' agreements do not indemnify the owner and the general contractor
for their own negligence independent of the indemnitor, the court considered
whether the owner and the general contractor, were entitled to be reimbursed
for the liability and legal expenses they incurred as a result of the plaintiffs'
The owner, unlike the general contractor, did not concede that its settlement
with the plaintiffs was for its own negligence independent of the general contractor's
negligence. Therefore, the supreme court could not determine whether the trial
court erred in finding that the owner was entitled to indemnification for its
$45,000 settlement with the plaintiffs. This issue was sent back to the trial
court for determination of what amount, if any, the owner settled the plaintiffs'
claim against it for the negligence of the general contractor and the subcontractor.
If on remand the trial court would determine that the owner's settlement
with the plaintiffs was merely an acknowledgment of its own negligence independent
of the negligent acts or omissions of the general contractor and/or the subcontractor,
then the owner is not entitled to receive indemnification for its settlement
with the plaintiffs. If the trial court determines that the owner's settlement
with the plaintiffs was based on the general contractor's and/or the subcontractor's
negligence, the owner is entitled to be indemnified by the general contractor
“to the extent” the owner's settlement with the plaintiffs reflects the general
contractor's and/or the subcontractor's negligence.
If the general contractor is required to reimburse the owner for the owner's
settlement with the plaintiffs, and the reimbursement includes money paid to
settle negligence claims attributable to the subcontractor, then the subcontractor,
in compliance with its contract with the general contractor, must reimburse
the general contractor for those amounts.
Recovery of Legal Fees
The owner and the general contractor both incurred legal fees and expenses
resulting from their respective defenses, and incurred legal fees and expenses
in the defense of the negligence claims made against their respective indemnitors.
Thus, a portion of the owner's legal expenses are attributable to the defense
of itself for the alleged negligent acts or omissions of the general contractor
and the subcontractor. Likewise, a portion of the expenses incurred by the general
contractor resulted from the general contractor's defense of itself against
the negligence of the subcontractor.
The owner and the general contractor are entitled to indemnification for
legal expenses incurred as a result of defending against the negligence of their
indemnitor and those for which their indemnitor was liable. The owner's and
the general contractor's right to recover such legal expenses, however, did
not arise until their indemnitor had notice of the lawsuit and an opportunity
After determining the portion of fault that is attributable to each party,
the supreme court ordered the following reimbursements be made.
- Based on the percentage of fault ascribed to the subcontractor, the
subcontractor must reimburse the general contractor that same percentage
of expenses and legal fees the general contractor incurred from the date
that the subcontractor first received notice of the lawsuit to the date
when the plaintiffs named the subcontractor as a defendant, if the subcontractor
began fulfilling its obligation to defend against the lawsuit that it caused
- Based on the percentage of fault ascribed to the general contractor,
the general contractor must reimburse the owner the same percentage of the
expenses and legal fees the owner incurred from the date the general contractor
first received notice of the plaintiffs' suit up to the date when the plaintiffs
named the general contractor as the defendant.
- Based on the percentage of fault ascribed to the subcontractor, the
general contractor must reimburse the owner the same percentage of expenses
and legal fees the owner incurred from the date the general contractor first
received notice of the plaintiffs' suit to the date when the plaintiffs
named the subcontractor as a defendant. In turn the subcontractor was required
to reimburse the general contractor for all such amounts, because although
they constitute legal expenses to the owner, they are indemnified liabilities
and costs to the general contractor.
Recovery of Legal Fees in Pursuit of the Indemnity Claim
The owner and the general contractor both cross-appealed, contending the
trial court erred in failing to award them legal expenses they incurred pursuing
indemnification against their indemnitor. The supreme court held that while
the indemnification provisions at issue provide for the recovery of legal expenses,
including attorney fees incurred in the defense of a claim, nothing in the indemnification
provisions suggest that it provided for the recovery of legal expenses incurred
in establishing the right to indemnity. The supreme court ruled that the trial
court was correct that the owner and the general contractor were not entitled
to receive indemnification for legal expenses they incurred in pursuing indemnification
against their indemnitor.