Contractual Indemnity Language Effects and Enforceability

In an effort to limit liability, a party rendering services to another may attempt to introduce contractual language that could impair an indemnification claim.

An example of such language is as follows:

“In no event shall the indemnification obligation extend beyond when the institution of legal or equitable proceedings for negligence would be barred by an applicable statute of repose of limitations.”

Whether you are the party seeking to enforce, or invalidate, the above contractual language, there are pitfalls under New York law of which you should be aware.

· The statute of limitations for a claim of indemnification does not start to run until the party seeking indemnification has made a payment to the injured party, which may be after the statute of limitations on the underlying negligence claim has run. The settlement of the underlying claim and/or the statute of limitations applicable to the underlying claim itself do not bar the indemnity claim.

· An indemnity claim has a six year statute of limitations, as per CPLR §213(2), which commences upon payment. You do not have to wait however, until payment to the injured party is made to bring an indemnification claim, as held by the courts and codified by CPLR §1007. The language above, depending on when the contract is signed, might bar this indemnity claim if it was not made within the statute of limitations applicable to the underlying negligence claim.

· The ability to bring a claim after the statute of limitations for the underlying cause of action has run is limited to indemnification only, where the entire loss is shifted to another.

· The party trying to enforce the limiting language may not be able to do so because the General Obligations Law §17-103 states that an agreement to waive, extend or not plead the Statute of Limitations in contract actions is valid if in wiring and signed after the accrual of the cause of action, thereby rendering any waiver of a claim at the contract drafting stage unenforceable. It is not uncommon that some contracts get signed after a design professional or contractor is already at work on a project and there may even be an existing claim at that time. Signing an agreement with the above language, if after the accrual of a certain cause of action, could act as a waiver.

The important take away is that indemnification language in a construction contract is only as good as its ability to be enforced. The waiver of claim, or the belief you have required another waive claims, can easily be thwarted or overlooked if handled improperly. Our attorneys are available to assist you with your contracts to ensure that the indemnity clauses are enforceable.