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When Statutes Override Contracts

An Underappreciated Statute Favoring A/Es Who Contract with “Public Bodies” in Virginia

The following article was written by Stephan F. “Hobie” Andrews and J. Brandon Sieg of the law firm Vandeventer Black LLP in Richmond, Virginia. They devote a substantial portion of their practice to the representation of design professionals in the Mid-Atlantic and beyond.

We see them all the time: overreaching indemnity provisions that might compromise our professional liability insurance coverage and hold firms accountable for a catalog of frightening claims and damages. When negotiating a contract with a state agency or other public body in Virginia, have you ever encountered language such as:

The A/E, including its consultants, shall defend, indemnify and bear all loss, expense (including reasonable attorney’s fees) and damage from any cause whatsoever arising out of, incidental to, or in connection with the performance of the Contract. A/E shall defend, indemnify and hold harmless the Agency, its agents, Lenders, officers and employees from all claims, demands, expenses, penalties, costs and judgments made, claimed or recovered against the Agency from any cause whatsoever, arising out of, incidental to, or in connection with the performance of the Contract whether or not due to any act of its employees, servants or agents and whether or not due to any act of omission or commission, including negligence of the Agency.

What does it mean, and why is it a problem?

What Facts Might Trigger this Indemnity Provision?
Imagine the following scenario: the Contractor fell behind schedule early in a project, and the Owner is growing impatient with delays. Assume that a concrete subcontractor claims to have identified some ambiguity in your specifications for the concrete foundations. Unfortunately for you, these ambiguities are raised in a stack of submittals that the Contractor provides late on a Friday afternoon of a holiday weekend. The following week the Contractor tells the Owner that you are contributing to the delay by responding too slowly to submittals. You tell the Owner that you need more time to fully understand and evaluate the issues raised by the concrete subcontractor.

The Owner, tired of delays and anxious to occupy the project, instructs the Contractor to work out the issues with the subcontractor. After construction is completed, there is a structural failure resulting in personal injury and a lawsuit against your client, the Owner. Further investigation confirms that your specifications were correct and that the entire issue arose from the Contractor’s and subcontractor’s efforts to “work out” the problem and keep the project on schedule.

How might the indemnity provision above affect a claim by the owner against you under these facts?

In General, Assume that the Terms of Your Contract Will Be Enforced
In Virginia, courts will strictly enforce the language of a written agreement. By agreeing to terms similar to this indemnity agreement, you are essentially saying that the Agency can look to you to reimburse the cost of any claim or judgment awarded against the Agency, even if you can prove that the Agency was partially at fault. In the hypothetical above, the contract indicates that the Agency may have a viable indemnity claim against your firm even though your firm did nothing wrong – there is no “negligence” trigger in the indemnity provision as a link to your liability.

Furthermore, because you are agreeing to indemnify the Agency even if you are not negligent, it is likely that your professional liability insurance carrier will deny coverage for this claim.

How to Modify the Indemnity Agreement
For all of the reasons above, it is important to agree to acceptable language when you negotiate your contract with your clients. A significant problem with this particular indemnity agreement is that it applies “whether or not due to” the negligence of the A/E or any act of the Agency or its employees, servants or agents, “including negligence of the Agency.”

A practical solution is to replace this language with something along the lines of the following:

… A/E shall indemnify and hold harmless the Agency, its officers and employees from all damages, costs and expense (including reasonable attorneys’ fees and defense costs), to the extent arising out of the negligent acts, errors or omissions, recklessness or intentionally wrongful conduct of the A/E in performance of this Contract.

Such language will limit your duty to indemnify and hold harmless the Agency to claims that arise from your own negligence or wrongdoing and more nearly assure the maintenance of professional liability insurance coverage. By making these edits, you will preserve your defense in the above hypothetical to argue that you did nothing wrong.

If you have negotiated many contracts for A/E services, then the analysis above should be familiar to you. But things get more complicated if you are negotiating with a public body.

What if the Public Body Rejects Your Edits?
It is easy to feel like you have unequal bargaining power when negotiating a contract with a public body. You may still be in the honeymoon phase of having just been selected for the project, and you are concerned when the public body refuses to accept what you think is a justifiable allocation of risk on your project.

As to indemnity provisions, you have a strong fall-back position. The Code of Virginia appears to prohibit the kind of broad indemnity agreement identified above:

Any provision contained in any contract relating to the planning or design of a building, structure or appurtenance thereto . . . or any provision contained in any contract relating to the planning or design of construction projects other than buildings by which the architect or professional engineer performing such work purports to indemnify or hold harmless another party to the contract against liability for damages arising out of bodily injury to persons or damage to property suffered in the course of the performance of the contract, caused by or resulting solely from the negligence of such other party, his agents or employees, is against public policy and is void and unenforceable.

This section shall apply to such contracts between an architect or professional engineer and any public body as defined in § 2.2-4301. Every provision contained in a contract between an architect or professional engineer and a public body relating to the planning or design of a building, structure or appurtenance thereto . . . or relating to the planning or design of construction projects other than building by which the architect or professional engineer is performing such work purports to hold indemnify and hold harmless the public body against liability is against public policy and is void and unenforceable. This section shall not be construed to alter or affect any provision in such a contract that purports to indemnify or hold harmless the public body against liability for damage arising out of the negligent acts, errors or omissions, recklessness or intentionally wrongful conduct of the architect or professional engineer in the performance of the contract.

Va. Code § 11-4.4 (emphasis added).

This statute may have flown under the radar—there are no reported cases interpreting it. A plain reading indicates, however, that a public body cannot require you to indemnify claims arising from the public body’s own negligence. Such indemnity provisions are “void” and unenforceable. Moreover, the statute establishes limits on the scope of any A/E indemnity obligation.

Bringing this statute to the public body’s attention may help persuade the public body to narrow the scope of an indemnity provision. And even if the public body insists on broader language, you have put the public body on notice that its preferred language is not enforceable.

What Is a “Public Body”?
The term “public body” is defined in Va. Code § 2.2-4301 as:

Any legislative, executive, or judicial body, agency, office, department, authority, post, commission, committee, institution, board or political subdivision created by law to exercise some sovereign power or to perform some governmental duty, and empowered by law to undertake the activities described in this chapter [Virginia Public Procurement Act]. “Public body” shall include (i) any independent agency of the Commonwealth, and (ii) any metropolitan planning organization or planning district commission which operates exclusively within the Commonwealth of Virginia.

If you are negotiating a public contract in Virginia under Virginia’s Public Procurement Act, then chances are you are negotiating with a “public body” and the statutory limitations to indemnity agreements will apply.

Conclusion
It is always best to ensure that the written terms of your contract reflect an agreement you can live with. But if a public body in Virginia refuses to negotiate an appropriate balance of risk in its indemnity provision, Va. Code § 11-4.4 may provide an alternate argument to help prevent you from indemnifying the public body for its own negligence or for an overly broad indemnity obligation not covered by available insurance coverage.

The authors may be contacted at 804 237 8800 or by email at sandrews@vanblacklaw.com, jwalker@vanblacklaw.com, or bsieg@vanblacklaw.com.

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