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Florida Statutory Limitation on Indemnity Does Not Apply to Excavation Subcontract on Utility Line Project

Economic

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Fla. Stat. § 725.06 limits the scope of indemnification provisions in construction contracts.  Specifically, the statute limits the ability of an indemnitee (e.g., owner) to require an indemnitor (e.g., contractor) to indemnify the indemnitee for damages arising from the indemnitee’s own actions, omissions, or defaults. The statute sets forth the types of construction contracts for which the limitation is applicable as follows:

Any portion of any agreement or contract for or in connection with, or any guarantee of or in connection with, any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance, including moving and excavating associated therewith…wherein any party referred to herein promises to indemnify or hold harmless the other party to the agreement, contract, or guarantee for liability for damages to persons or property caused in whole or in part by any act, omission, or default of the indemnitee arising from the contract or its performance, shall be void and unenforceable…(emphasis added).

In January, a Florida appellate court took a closer look at the applicability of § 725.06 to certain construction contracts in the Blok Builders LLC v. Katryniokdecision. In that case, the court analyzed whether the statute applied to an excavation subcontract as part of a construction project to “perform all work necessary to provide access to underground [telecommunication] lines” as part of a telecommunications improvement project. The subcontractor was to perform all excavation necessary for access to the utility lines that were to be repaired and updated. After the subcontractor performed some excavation work near a residence, the driveway on the property collapsed while the resident was walking on it. The resident sued the subcontractor, the contractor, and the owner of the project for negligence.

In the lawsuit, the contractor claimed the subcontractor owed the contractor indemnity based on a provision in the subcontract that required the subcontractor to indemnify the contractor for any liability arising out of an injury to a third party whether such injury was caused in part, or in whole, by any act, omission, default, or negligence by the contractor. The subcontractor alleged that its excavation subcontract fell within the scope of the prohibition on such indemnity provisions contained in § 725.06, which made the indemnity provision in the subcontract void and unenforceable.

The court disagreed and ruled that the indemnity provision was valid. The subcontractor argued that excavation services were explicitly referenced in § 725.06 making the provision applicable to its subcontract. However, the court reasoned that the utility line improvement project did not involve the construction of any “building, structure, appurtenance or appliance,” so any excavation work performed on that project did not qualify as a covered construction agreement under § 725.06.  The court enforced the indemnity provision allowing the contractor to recover all damages incurred, plus attorneys’ fees and costs.

Statutes like § 725.06 exist in other states besides Florida, and it can be difficult to keep up with all the competing requirements and limitations under various states’ indemnification regimes. The Blok Builders case is a useful reminder of the importance of (1) keeping track of indemnity limitations in whatever state you’re working in and (2) paying attention to the scope of your indemnity obligations when negotiating any contract. While the contractor here was able to escape the nullification of its indemnity provision based on the type of construction services performed, slightly different statutory language or a contrary interpretation by the court could have resulted in the contractor being exposed to substantial liability and associated costs due to the resident’s injury. Since third-party injuries are never planned for on a project, understanding the scope of your indemnity obligations before executing any agreement is important.

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