INDEMNIFICATION CLAUSES AND WHAT THEY COST.
Indemnification clauses are among the most financially significant provisions you sign in a subcontract, and among the least read. In the worst cases a broad form clause can make you financially responsible for injuries and damages caused entirely by somebody else on the project. There are three forms, broad, intermediate, and limited, and the one sitting in your standard subcontract sets your exposure.
The insurance side is where this bites. A broad form clause requiring you to indemnify the GC for the GC's own negligence may not be covered by your general liability policy, because most policies don't cover contractually assumed liability for another party's negligence. So you've signed an obligation your insurance may not pay. Many states have anti-indemnity statutes that void broad form provisions and many don't, which is why the answer is state specific and why thirty minutes with a construction attorney is cheap on a large contract.
WHAT IT MEANS.
An indemnification clause is the provision in a subcontract that decides who pays when a claim comes out of the project, and how far your obligation reaches beyond your own work.
The three forms are worth knowing by heart, because the difference between them is money. Broad form means you indemnify the GC even for the GC's sole negligence. Intermediate form means you indemnify the GC except where the claim arises from the GC's sole negligence. Limited form means you indemnify only for your own negligence, which is the one most owners assume they already signed.
SIGNED, AND NOT READ.
You signed an indemnification clause without understanding it
Most subcontractors sign standard GC subcontracts without a close read of the indemnification provisions. The language is dense, legal, and easy to skim past on a Friday afternoon when the job starts Monday. But a broad form clause can require you to defend and indemnify the GC for claims arising out of the GC's own negligence, even when your work had nothing to do with the incident.
Broad form indemnity creates insurance exposure
A broad form clause requiring you to indemnify the GC for the GC's own negligence may not be covered by your general liability insurance, because most policies don't cover contractually assumed liability for another party's negligence. That means you've signed an obligation your insurance may not satisfy, so the money would come out of the company instead. It's a balance sheet problem hiding inside a contract nobody read.
You don't know the difference between broad, intermediate, and limited forms
Broad form indemnity means you indemnify the GC even for the GC's sole negligence. Intermediate form means you indemnify the GC except where the claim arises from the GC's sole negligence. Limited form means you indemnify only for your own negligence. The form you signed sets your financial exposure, and most subcontractors have never checked which of the three their standard subcontract contains.
READ IT BEFORE YOU SIGN IT.
Before executing any subcontract with significant value, review the indemnification provision with your construction attorney. Work out whether it's broad, intermediate, or limited form. Find out whether your state enforces broad form indemnity, because many states have anti-indemnity statutes that void those provisions outright. Thirty minutes with an attorney is cheap on any contract above your materiality threshold.
Your general liability carrier needs to know when you're signing contractual liability beyond your standard policy coverage. Some carriers offer additional insured endorsements and contractual liability coverage that can address broad indemnity obligations, but only when you've disclosed the contract terms first. Signing a broad clause without telling your carrier leaves you holding an obligation with no coverage standing behind it.
SPM reviews subcontract financial terms and points at the provisions that create unusual financial exposure, including indemnification clauses, liquidated damages, and payment provisions sitting outside standard commercial practice. We aren't attorneys and we don't give legal advice. What we do is flag the provisions that deserve a conversation with your construction attorney before the contract gets signed rather than after a claim comes in.
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