Court Enforces Subcontractor’s Demand for Arbitration of General Contractor’s Claim

Posted by: Hilger Hammond On: 11th April 2017 | no responses.

By Aileen Leipprandt

The Court of Appeals recently enforced an arbitration agreement between a contractor and its subcontractor in a dispute involving indemnity and insurance coverage for a claim by subcontractor’s injured worker. (Spence Bros. v Kirby Steel, March 2017). In this case, the general contractor, Spence Brothers, was the project manager overseeing the University of Michigan’s expansion of the Crisler Arena. Spence subcontracted with Kirby Steel to provide structural and metal work. Spence’s letter accepting Kirby’s proposal directed Kirby to list Spence as an additional insured. The parties’ subcontract contained a standard indemnity clause requiring Kirby to defend and indemnify Spence against all losses. The subcontract also required that Kirby’s insurance policy name Spence as a named insured.

During the project, an employee of Kirby suffered injuries when he fell from a ladder. The employee sued Spence Brothers. Spence demanded that Kirby defend and indemnify Spence, but Kirby’s insurer refused such coverage because Spence was only an additional insured under its policy. Spence then sued Kirby for breach of the subcontract for failing to name Spence as a named insured and for failing to defend Spence. Kirby asked the trial court to dismiss Spence’s claim because the subcontract required arbitration. The trial court refused Kirby’s request and instead granted summary disposition in favor of Spence, ruling that Kirby breached its insurance coverage and indemnification obligations under the subcontract.

Kirby appealed arguing that the trial court made a mistake by ignoring the plain terms of the arbitration provision. The Court of Appeals agreed with Kirby, reversed the lower court’s ruling, and ordered the matter to arbitration. The appellate court observed that the subcontract unambiguously required arbitration of all claims and disputes related to the subcontract. This broad language clearly reflected the parties’ shared intention to submit any matters related to the subcontract to arbitration.

Court Enforces Subcontractor’s Obligation to Indemnify Contractor

Posted by: Hilger Hammond On: 3rd February 2017 | no responses.

By Aileen Leipprandt

The Michigan Court of Appeals recently affirmed a contractor’s right to defense and indemnity from its subcontractor under the plain language of the parties’ subcontract. Provenzino v Macomb County Department of Roads, et al (January 2017).

In this case, Mr. Provenzino alleged that he was injured when he fell from his motorcycle after encountering a disparity in height between adjacent milled and unmilled lanes of traffic in a construction zone. Provenzino sued multiple parties including Florence Cement Company, the general contractor, and Lois Kay Contracting Company (LKCC), the subcontractor who milled the roadway surfaces. Florence filed a cross claim against LKCC seeking indemnity based upon the indemnification provision in the parties’ subcontract. That provision stated:

Subcontractor agrees, and shall bind all sub-subcontractors to agree to indemnify Contractor, Owner and all other parties the Contractor is obligated to indemnify pursuant to the Prime Contract (hereinafter “Indemnitees”), and to defend and hold Indemnitees forever harmless from and against all suits, actions, legal and administrative proceedings, claims, demands, damages, interest, attorney fees, costs and expenses of whatsoever kind or nature whether arising before or after completion of Subcontractor’s work and in any manner directly or indirectly caused or claimed to be caused by any action or negligence of Subcontractor or Sub-subcontractor, and regardless whether directly or indirectly caused or claimed to be caused in part by a party indemnified hereunder or by anyone acting under their direction, control or on their behalf, until such time as a judgement [sic] is entered against Contractor by a court of law. …[emphasis added].

The trial court dismissed Florence’s claim for indemnity ruling that LKCC’s work did not cause the plaintiff’s injuries and that there was no evidence to suggest LKCC was negligent. The Court of Appeals reversed, ruling that the plain language of the indemnity provision required LKCC to defend and indemnify Florence. The appellate court explained that in determining whether a duty to indemnify exists, the issue is not whether LKCC was actually negligent; rather, the issue is whether Mr. Provenzino’s allegations arose in “any way” from LKCC’s work. Since Mr. Provenzino broadly alleged that LKCC and Florence’s actions created an unreasonably dangerous condition, under the plain language of the subcontract, the indemnification clause was triggered.

Lesson Learned :  Each party to a construction contract (whether giving or receiving indemnity) should carefully assess (and negotiate) the indemnity provision to properly manage risk transfer.

Contractor’s Common Law Indemnity Claim Against Architect and Engineer Fails

Posted by: Hilger Hammond On: 16th October 2014 | no responses.

wood constructionBy Aileen Leipprandt

A general contractor’s common law indemnification claim against the project architect and structural engineer was dismissed where the general contractor could not establish that it was liable for the wrongdoings of either the architect or structural engineer. Sachse Construction & Development Co, LLC v AZD Associates, et al (Mich Ct. Appeals 2014). 

In this case, Sachse Construction & Development was the general contractor for a condominium project located in Royal Oak. The condominium association sued Sachse claiming numerous construction defects. Sachse, in turn, sued the project architect and the structural engineer asserting a variety of theories including (1) common-law indemnification; (2) third-party beneficiary; (3) unjust enrichment; and (4) negligence.

As to its common law indemnity claim, Sachse argued that the damages sought by the condo association were the result of the malpractice of the architect and engineer, not Sachse. The trial court disagreed with Sachse, ruling that the evidence presented did not establish any claim by the condominium association for damages caused by the architect or engineer. Instead, the association had sued Sachse for construction defects solely related to Sachse’s work. The trial court dismissed Sachse’s indemnity claim and Sachse appealed.

The Court of Appeals upheld the trial court’s ruling, affirming the longstanding principle that in order to prevail on a claim for common law indemnification, the party seeking indemnity must show: (1) that it has been held liable for the acts of another, and (2) that it is “free from fault in the underlying wrongful act that gave rise to the liability at issue.”

General Contractor Not Entitled to Indemnity From Subcontractors Where General Contractor Liable Under Common Work Doctrine

Posted by: Hilger Hammond On: 2nd January 2014 | no responses.

bluepaintBy Aileen Leipprandt

In the recent case, National Fire, et al. v Kosters & DeVries, Inc., (Nov. 2013), the Court of Appeals rejected a general contractor’s request for indemnity from its subcontractor for a construction injury accident that occurred in a common work area. In National Fire, Pioneer (the general contractor), subcontracted with Kosters & DeVries (K&D) for K&D to provide painting services on a condominium project called Union Square. One of K&D’s employees was injured during the work. The employee sued Pioneer and others claiming that Pioneer was negligent for failing to guard against a “readily observable” and “avoidable” danger in a common work area, often called the “Common Work Area Doctrine.”

While that personal injury suit was pending, Pioneer’s general liability carrier, National Fire, separately sued K&D in a “declaratory judgment action” seeking a court order that K&D must indemnify Pioneer under the indemnity provision in the parties’ subcontract. The trial court agreed with National Fire and entered an Order, stipulated to by National Fire, requiring K&D to indemnify Pioneer for any liability imposed on Pioneer arising from acts or omissions of K&D or its employees.

Meanwhile, in the personal injury lawsuit, the jury entered a verdict in favor of the injured worker, assigning 70% of the fault for the injuries to the injured employee and 30% of the fault to Pioneer. Thus, the injured worker’s total recovery was reduced by 70%. National Fire paid the plaintiff that portion of the jury verdict (30%) related to Pioneer’s assessed liability. National Fire then sought to garnish K&D for this payment claiming that K&D was required to indemnify Pioneer pursuant to the Declaratory Judgment Order. The trial court agreed. The Court of Appeals, however, reversed, finding that Pioneer’s liability arose because of Pioneer’s own negligence in failing to maintain a safe common work area. The appellate court reasoned that to the extent that K&D’s employee was negligent, the jury had already reduced the verdict by 70% to reflect that employee’s negligence. Therefore, the remainder of the jury verdict, 30%, related only to Pioneer’s negligence for which Pioneer was not entitled to indemnity from K&D per the language of the Declaratory Judgment Order.

Consider, however, if Pioneer’s subcontract (and the ensuing Declaratory Order) had required K&D to indemnify Pioneer, even for Pioneer’s own fault (except where Pioneer was solely negligent), Pioneer (and therefore National Fire) could have sustained the indemnity claim. Instead, K&D’s indemnity obligation was limited to those circumstances as described in the Declaratory Order. Lesson learned – the language of any indemnity provision (and Court Order based on such provision) must be carefully drafted.