Construction Contracts

Indemnification Law in South Carolina 101: Contractual Indemnification

Josh Bennett | Rogers Townsend
January 23, 2015

As I mentioned in my last post of this series, there is more than one type of indemnification. Indeed, there are two forms of indemnity: contractual indemnity and indemnity implied in law, or “equitable indemnity.” Let’s delve a little deeper into contractual indemnification.

Contractual indemnity involves a transfer of risk for consideration, and the contract itself establishes the relationship between the parties. Rock Hill Tel. Co. v. Globe Communs., Inc., 363 S.C. 385 (2005). Perhaps the best way to explain contractual indemnification is to look at examples provided directly by the South Carolina Court of Appeals:

A familiar example of contractual indemnity is the third party liability insurance policy. Under such a policy, the insurer (the first party) agrees to pay the insured (the second party) the amount of any damages the insured may become legally liable to pay a third party. In this situation the insured’s liability to the third party is often (though not necessarily) based on the insured’s own fault (e.g., negligent operation of an automobile, failure to maintain premises in safe condition). That is, the second party may be an at fault party.

A second example of contractual indemnity is a “hold harmless” clause in a subcontract. Here the subcontractor (first party) agrees to pay the prime contractor (second party) the amount of any loss the prime contractor may incur to third parties as a result of the subcontractor’s breach of contract or negligence. In this situation the subcontractor’s liability is based on his own fault, not the fault of the prime contractor. That is, the first party is the at fault party.

Winnsboro v. Wiedeman-Singleton, Inc., 303 S.C. 52 (Ct. App. 1990).

Based on the above, a general contractor would desire an indemnification provision be included in any subcontract. In our running example, an owner has sued a general contractor based on alleged defective installation of an air conditioning unit. If the general contractor required an indemnification provision in his contract with the HVAC subcontractor, then the general contractor could bring a third party claim against the HVAC subcontractor for contractual indemnification.

There are many standard indemnification provisions that are often used in construction contracts. However, there is an important consideration to note when dealing with contractual indemnification provisions. South Carolina Code § 32-2-10 tells us that an “agreement in connection with the . . . construction . . . of a building . . . purporting to indemnify the promisee . . . against liability for damages arising out of bodily injury or property damage proximately caused by or resulting from the sole negligence of the promisee . . . is against public policy and unenforceable.” In short, South Carolina law provides that a construction contract cannot require indemnification when the injury or property damage is solely caused by the party seeking indemnification.

The content of this article is intended to provide general information and as a guide to the subject matter only. Please contact an Advise & Consult, Inc. expert for advice on your specific circumstances.

SOURCE: www.rtt-law.com

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