New Decision Locks In More Risk To Subcontractors In Indemnity Agreements

By: Geoff Bryce, Managing Partner

933 Van Buren Condominium Association vs. West Van Buren, LLC, et al, 216 Il.App. (1st) 143490, held that a roofing subcontractor was required to defend a real estate developer for claims asserted by the condominium association against the developer for defective roof construction and subsequent leaks. The decision was handed down on September 8, 2016 but has not yet been released for publication in the permanent law reports. This means the opinion is subject to change.

However, if the decision stands, then contractors may have additional risk associated with their indemnity agreements in construction contracts. In a construction contract context, a general contractor cannot indemnify an owner for the owner’s own negligence and a subcontractor cannot indemnify a general contractor for the general contractors own negligence. However, it is perfectly acceptable for the general contractor to indemnify the owner for the general contractor’s own negligence as well as a subcontractor indemnifying a general contractor for the subcontractor’s own negligence.

In this case the court found that an indemnity agreement which also contained a clause requiring the roofer to defend the developer was not void, and then held that because the roofing subcontractor did not defend the developer for the claims asserted by the association relating to defective roof work and subsequent leaks, the roofing subcontractor breached its agreement and was liable for the defense costs.

The down side of this case is that contractors now have specific law that will require them to provide defense for upper tier contractors, property owners, and property managers regardless whether the contractor’s insurance company will provide defense and indemnity pursuant to an additional insured provision in the contract.

This case raises many issues as to how the defense between the subcontractor and its carrier work. For example, can the subcontractor control the defense of the general contractor pursuant to the defense agreement and indemnity agreement? How do you allocate expenses between the subcontractor’s defense obligation and the carrier’s defense obligation?

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