Indemnification Provisions --- Owner-Architect Agreements
Owners routinely require an indemnification in their agreements with architects. Architects frequently ask that the indemnification obligation be mutual, citing "fairness" as the reason.
On the surface, it does seem fair for a contractual indemnity obligation to be mutual --- but in a professional design contract, it is actually fair for it to be one-sided, i.e., the design professional gives an indemnity to the owner, but not the other way around. Here's the reason:
The design professional, in designing a facility for the owner, is providing a valuable service to the owner based on the designer's unique knowledge, skill and judgment. If the design professional is negligent in performing that service, there is at least a reasonable chance that a third party could be harmed as a result of that negligence and if that happens, that the third party will bring a claim against the owner --- after all, it is the owner's facility and the owner may be held responsible, as to third persons, for the injury. It is right that the design professional indemnify the owner in such a circumstance.
On the other hand, the owner's main obligation under a design contract is to pay the designer. The owner is not providing a professional service which, if performed negligently, may cause injury to a third person who could then hold the designer responsible for the owner's actions. In other words, the risks of the respective parties under a design contract are not reciprocal and, therefore, the obligations under a design contract should not be reciprocal.
That this is the right way to think about it is borne out by the fact that the AIA, in its new edition of its standard form design agreements, includes an express indemnification from the architect to the owner, but does not make it reciprocal. (This post published by Karen Estelle Carey, a member of the construction practice at Womble Carlyle.)
On the surface, it does seem fair for a contractual indemnity obligation to be mutual --- but in a professional design contract, it is actually fair for it to be one-sided, i.e., the design professional gives an indemnity to the owner, but not the other way around. Here's the reason:
The design professional, in designing a facility for the owner, is providing a valuable service to the owner based on the designer's unique knowledge, skill and judgment. If the design professional is negligent in performing that service, there is at least a reasonable chance that a third party could be harmed as a result of that negligence and if that happens, that the third party will bring a claim against the owner --- after all, it is the owner's facility and the owner may be held responsible, as to third persons, for the injury. It is right that the design professional indemnify the owner in such a circumstance.
On the other hand, the owner's main obligation under a design contract is to pay the designer. The owner is not providing a professional service which, if performed negligently, may cause injury to a third person who could then hold the designer responsible for the owner's actions. In other words, the risks of the respective parties under a design contract are not reciprocal and, therefore, the obligations under a design contract should not be reciprocal.
That this is the right way to think about it is borne out by the fact that the AIA, in its new edition of its standard form design agreements, includes an express indemnification from the architect to the owner, but does not make it reciprocal. (This post published by Karen Estelle Carey, a member of the construction practice at Womble Carlyle.)
posted by Womble Carlyle Construction Law Team at 5:32 PM
3 Comments:
Karen,
Could you point me to this indemnification provision in the B101-2007. I'm looking for it to link to a discussion on our blog and cite to your post, but I can't find the provision in the Owner-Architect agreement.
Thanks,
Ashley Brandt
The problem that I see with indemnification by the architect is that it creates an uninsured obligation. The indemnifications I see often require the defense of any claims and the payment of attorney's fees and costs. The architect's E&O policy doesn't cover the defense of others - it covers damages caused by the architect's negligence. The Owner can (and should) buy insurance to protect themselves from the risk of damage caused to third parties by their Project - not expect the Architect to serve the role of an insurance company.
I was actually referencing (and should have done so explicitly) B103-2007, the owner-architect agreement for large or complex projects. The indemnification provision in B103 is section 8.1.3.
There appears not to be a comparable provision in B101-2007, which is surprising to me, given the AIA's commentary on these two documents. The AIA commentary on B103 says that this form is intended to replace the B141 Parts 1 and 2 and the B151 on large or complex projects ---- the commentary on the B101, however, also states that the B101 is intended to replace the B141 and B151.
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