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Type I, Type II, Type III, Which Indemnity Clause Is Your Contract Type?

If Type I and Type II contract indemnity clauses make your head spin, then here's a solution for you:  McCrary Construction Co. v. Metal Deck Specialists.  It's a brand new case that ties up the explanation of these somewhat troublesome provisions into a nice, tidy little package, and even explains Type III indemnity clauses, although the court doesn't actually use that latter term.

To understand the ruling, the facts set the stage.  General Contractor McCrary worked on a construction project that involved a roof.  Metal Deck built the roof, and another subcontractor, Horizon Sheet Metal, was responsible for HVAC at the project.  Horizon employee Frederick Kimbark died after falling through a hole in the roof by Metal Deck.  Metal Deck covered the hole with plywood, but didn't secure it.  Kimbark moved the plywood aside, and then without looking, started to walk and fell through the hole. 

In the trial, Metal Deck and McCrary disagreed about whose responsibility it was to securely cover and mark the hole.  Apparently there was some evidence that McCrary may have assumed the responsibility to cover and secure the hole while at the same time, Metal Deck had an affirmative duty to comply with all safety rules and regs. 

The jury assessed the responsibility this way:  45% to McCrary, 30% to Metal Deck and 25% to Kimbark, with none to Horizon.  McCrary and Metal Deck then paid their portion of the $1.17M judgment to Kimbark's estate.  McCrary then sought full indemnity from Metal Deck and Horizon for its 45% share based on the contract language, which included an indemnity provision in both contracts.

Here's how the court described the three types of indemnity provisions:  Type I provides for the express indemnity of the indemnitee (here McCrary) despite McCrary's active negligence.  This particularly nasty type of provision essentially makes the subcontractor the insurance company for the contractor, and after January 1, 2006, will no longer be enforceable in California, now that Assembly Bill 758 has been signed into law, amending Civil Code section 2782.

Type II requires indemnity only where the negligence of the indemnitee (McCrary) is passive, and not active.  The sub is still the insurance company for the general, but only in situations where the general didn't do anything wrong.

Type III, otherwise known as a general indemnity clause, requires indemnity only where the negligence was caused by the indemnitor (here Metal Deck) and where the negligence is not the result of either active or passive negligence by the indemnitee (McCrary).  Here, the general has to be squeaky clean in order to get any money out of the subcontractors.

In this case, McCrary had a Type III indemnity provision, so it was unable to receive any indemnity for its 45% share of the verdict from either Metal Deck or Horizon.  If you want to see how to draft these various provisions (depending on who you represent), the discussion section of the opinion provides the actual language.

In other words, read your contracts carefully.

Posted by J. Craig Williams on Monday, November 14, 2005

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