United States: ContrACTUAL Liability: Challenges And Considerations An Indemnitee May Face By Failing To Allow An Indemnitor To Participate In Settlement

Last Updated: May 30 2014
Article by Dara Jebrock

Construction defect litigation often involves a number of parties and cross and third-party claims, stemming from a host of claimed construction, design and development defects at any given site. A number of factors are considered by a party when determining whether to settle a claim in a construction defect case. One factor that is often considered by a party is whether he/she/it can seek reimbursement of money paid in a settlement from another through a claim for contractual indemnification. An example in the construction context is when a general contractor seeks contractual indemnity from a subcontractor for money paid to settle a claim arising from the subcontractor's defective work.

A critical factor, often overlooked by the party seeking reimbursement (the indemnitee), is the indemnitte's burden of proof in a subsequent suit against the party from whom indemnity is sought (the indemnitor). Under Florida law, the indemnitee's burden of proof is dictated by whether the indemnitor was given notice and opportunity to review, pass upon or participate in the settlement. This article discusses the relevant law and challenges an indemnitee may face in a subsequent suit if the indemnitee fails to provide an indemnitor notice and opportunity to review, pass upon or participate in the settlement in an underlying construction defect case. 

To establish a cause of action for contractual indemnity under Florida law, a plaintiff must plead and prove the existence of a valid contractual right to indemnification and the inclusion of the claim within the scope of the contractual duty. Dade County School Bd. v. Radio Station WQBA, 731 So. 2d 638, 642–43 (Fla. 1999). The terms of the agreement will dictate whether the indemnitor is obligated to reimburse the indemnitee for a particular contractual indemnity claim. Id. at 642 (Fla. 1999); First Baptist Church of Cape Coral, Florida, Inc. v Compass Constr., Inc., 115 So. 3d 978, 986 (Fla. 2013).
Construction contracts often include indemnity provisions. An example of a contractual indemnity provision in a construction contract may state as follows:

Indemnification: Subcontractor agrees to indemnity and hold the general contractor harmless from any and all claims, loss, damage, injury, liability, and expense arising or incurred in connection with the subcontractor's negligence or work on XYZ project.

Assume a general contractor contracts with subcontractors to perform various scopes of work to complete construction of a residential condominium building. All of the subcontracts contain the indemnity provision above. After the project is completed, the general contractor is sued by condominium association for damages related to a host of alleged construction defects at the property. The association's complaint alleges various defects in the exterior building threshold, which implicates several trades, such as, stucco, waterproofing and painting. The general contractor files a third-party complaint against the stucco and painting subcontractor, but is unable to locate and serve the waterproofing subcontractor. During pendency of the primary action, the general contractor eventually locates the waterproofing contractor and files a separate complaint for contractual indemnity. The primary action settles following mediation. The global settlement agreement between the parties indicates the settlement was intended to resolve all defect claims and makes no distinction as to the amount paid by the general contractor for each implicated scope of work. The general contractor never notified the waterproofing contractor of the mediation or gave it an opportunity to participate in the settlement in the primary action.

Determination of whether the indemnitor will be bound by the settlement agreement reached in the underlying lawsuit against the indemnitee, hinges on whether the indemnitor was given notice and opportunity to review, pass upon or participate in the settlement. GAB Bus. Servs., Inc. v. Syndicate 627, 809 F.2d 755, 760–61 (11th Cir. 1987); Camp, Dresser & McKee, Inc. v. Paul N. Howard Co., 853 So. 2d 1072, 1080 (Fla. 5th DCA 2003).

If the indemnitor was not provided notice and opportunity to review, pass upon or participate in the settlement, the indemnitee can only recover the part of the settlement that corresponds to an actual liability caused by the indemnitor's breach of duty and upon a showing the settlement amount was reasonable. GAB, 809 F.2d at 760–61; Camp, 853 So. 2d at 1080. In contrast, only proof of potential liability and reasonableness of the settlement is required when an indemnitor was provided notice and an opportunity to object to the settlement. GAB, 809 F.2d at 760–61. "The question [of] whether an indemnitee must establish 'actual liability' to the plaintiff or only 'potential liability' based upon notice given to the indemnitor is a question for the court to decide." Camp, 853 So. 2d at 1080.

Under the hypothetical above, the general contractor has the burden of establishing "actual liability" in the action against the waterproofing subcontractor because the general contractor never notified the waterproofing contractor of the mediation or gave it an opportunity to participate in the settlement in the primary action. This means the general contractor has the burden of justifying its payment for damages to the association, by offering against the waterproofing subcontractor in the second suit practically the same evidence as was relied on to establish the case against the general contractor by the association when the general contractor was a defendantGAB, 809 F.2d at 761 (citing Hull & Co. v. McGetrick, 414 So. 2d 243, 245 (Fla. 1st DCA 1982)).

This is a difficult burden considering the nature of construction defect suits. For example, assume the association's expert in the underlying suit did not attribute damages to any particular trade and opined the damages resulted from all of the trades work and a defective design.   How will the general contractor establish in the second suit, the portion of the settlement that corresponds to an actual liability caused by the waterproofing subcontractor's negligence or work? To further complicate matters, assume the general contractor's expert in the underlying suit, attributed responsibility for the defects to the architect, and not the general contractor or its subcontractors. It is possible the waterproofing contractor could call this expert to testify at trial in the second suit to establish the general contractor's inconsistent positions (i.e., defending against the association's defect claims in the first case and then stepping into the association's shoes to establish liability for the defects in the second case). 

These examples highlight some of the many challenges an indemnitee may face in having to establish "actual liability" in a subsequent suit stemming from an underlying construction defect case. Therefore, it is important to ensure that notice of informal settlement discussions or mediation is provided to parties from whom one may seek indemnity. It may also be critically important craft discovery and elicit testimony in the underlying case that will assist in prosecuting a later indemnity claim, but does not hinder that party's defense in the primary case. Finally, a party seeking indemnity in a second suit should carefully consider the language of the settlement agreement in the underlying case, as it may be advantageous for the future indemnitee (the general contractor in the above hypothetical) to identify the amount paid for each scope of work without, of course, admitting liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Dara Jebrock
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.