Are More Detailed Contracts Better?
By Timothy Quinn
When it comes to construction contracts, many companies and their attorneys assume it’s a good idea to slip in extra provisions, just for good measure.
But a recent case decided by the Pennsylvania Superior Court should remind everyone that adding multiple provisions to a contract regarding the same issue doesn’t necessarily afford greater protection.
In the case, construction contractor Grace Construction Management signed a contract with Burlington Coat Factory to perform renovations on a Philadelphia store. As is standard in construction contracts, Burlington Coat Factory included indemnification provisions that required the Grace Construction to assume legal and financial responsibility for certain personal injury claims and property damage that occurred during the course of work. To cover any such claims or damage, the contract required Grace Construction to submit proof of insurance and add Burlington Coat Factory as a covered party on its insurance policy.
The problem, however, was that the contract contained two separate indemnification provisions with different wording. The first provision stated that the contractor took responsibility for any claims of personal injury or property damage on the job, but only if the claims were the result of the contractor’s or one of its subcontractors’ negligence. The second indemnity provision was potentially much broader, purportedly requiring the contractor to assume all responsibility and liability for any accidents or property damage that occurred in connection to the work, irrespective of whether the accident or damage was caused by the contractor’s negligence.
During renovations, an employee of one of Grace Construction’s sub-subcontractors was injured by a service elevator gate. The employee sued Burlington Coat Factory and the company that made the elevator for negligence, claiming that his injuries were the result of negligent construction and maintenance of the elevator. Burlington Coat Factory and the elevator company agreed to settle the claim with the employee.
Burlington Coat Factory then sought reimbursement from Grace Construction’s insurer for the settlement amount. The insurer rejected the claim, citing, among other things, the first indemnity clause that stated that Grace Construction was only liable for claims if they were the result of the negligence of the contractor, a subcontractor or their employees and agents.
Where’s the Responsibility?
Burlington Coat Factory then filed a lawsuit claiming that Grace Construction breached its contract. According to Burlington Coat Factory, the second indemnity provision held the contractor liable for all costs associated with a personal injury claim, regardless of who was at fault. Grace Construction countered that nothing in the contract protected Burlington Coat Factory from claims related to its own negligence.
The Superior Court noted that Pennsylvania courts narrowly interpret indemnity clauses and that a party cannot place the responsibility for its own negligence on another party unless the contract provides for it clearly and unequivocally. Furthermore, conflicting provisions in a contract are interpreted against the party that drafted it, here Burlington Coat Factory. Therefore, in the event of conflicting indemnity provisions, the less expansive provision generally will govern. As a result, the court gave the contractor the benefit of the narrower provision, which held the contractor liable only for incidents that occurred as a result of the contractor’s negligence.
This case serves as a warning to companies involved in construction that the specific wording of a contract dramatically alters the rights and liabilities of the parties. Sometimes including multiple provisions about the same issue in a contract, may seem like “belt and suspenders,” but if not carefully drafted, could create a conflict which actually reduces one’s rights. Therefore, companies should take care to include precise, consistent and complete terms in a contract.