Pennsylvania law has long held that indemnification contracts which purportedly require one party to indemnify for another's negligence are to be narrowly construed and require a "clear and unequivocal" written expression of intent before a party may transfer its liability to another party. In December 2004, the Pennsylvania Supreme Court, in a case of first impression, ruled on whether a contractor's "pass-through" indemnification provision could make its subcontractor liable to all parties in the contractual chain above the subcontractor.
In Bernotas v. Super Fresh Food Markets, 2004 Pa. LEXIS 3238 (Pa. December 22, 2004), the principal issue was whether a subcontractor to a general contractor could be held responsible for paying an entire $200,000 settlement reached with a plaintiff who was injured in a fall at a construction area inside a Super Fresh store. The indemnification language in Super Fresh's contract with the general contractor was held to be clear and unequivocal in obligating the general contractor to indemnify Super Fresh. The general contractor then argued that its subcontractor, by virtue of a subcontract provision which incorporated the indemnification language from the main contract with Super Fresh, was obligated to pay not only the general contractor's share of the settlement but also Super Fresh's share. In other words, the issue was whether 100 percent of the liability of both the owner and its general contractor could be passed through to the subcontractor via the subcontract's incorporation provision, which provided, in pertinent part, as follows:
The Contract Documents for this Subcontract ... consist of this Agreement, ... the General Contract agreement ... between [Super Fresh] and CONTRACTOR, the Conditions of the Contract between [Super Fresh] and CONTRACTOR ... [and] the Drawings, the Specifications, [and] all addenda ... all of the above being, in the aggregate, herein referred to as the "Contract Documents". The Contract Documents form a part of this Subcontract, and are as fully a part of this Subcontract as if attached to this agreement and as if herein set forth at length.
Although the subcontract lacked the express "agree to be bound" language that some incorporation clauses use to bind lower tier contractors to the terms of the prime contract, paragraph 11 of the subcontract provided that the "SUBCONTRACTOR agrees to fully perform and to assume all obligations and liabilities of the CONTRACTOR under the General Contract for the work, or as may be imposed by law, including but not limited to all warranties and guarantees."
By a 6-1 majority, the Supreme Court determined that the foregoing subcontract language was not sufficient to obligate the subcontractor to indemnify Super Fresh and the general contractor for liability arising from their respective negligent acts, because it assigned more liability to the subcontractor than the subcontractor contractually agreed to accept. The heart of the Court's ruling was its determination that the incorporation language did not satisfy Pennsylvania's requirement that agreements to indemnify another party for that party's negligence must clearly and unequivocally spell out such an intent, thereby rendering the indemnification language ambiguous and unenforceable. Since the language did not "clearly express the parties' intentions regarding the issue of indemnification", it would not be read to pass any liability through to the subcontractor.
The Bernotas decision has obvious ramifications for all parties who seek to enforce or avoid liability via contractual indemnification clauses, particularly in the construction contract context.
Please contact Jim Burns (215-587-9400) if you would like to receive a copy of the opinion.
