Will our indemnity clause cover the indemnitee's own negligence in Iowa?
Only if the intention is clearly expressed, and in a construction contract not at all. Iowa applies a special rule of construction: indemnification contracts will not be construed to permit an indemnitee to recover for its own negligence unless the intention of the parties is clearly and unambiguously expressed (McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.). An indemnity is otherwise "generally subject to the same rules of formation, validity and construction as other contracts", while clauses claimed to shift the indemnitee's own fault "are construed more strictly than other contracts." The Supreme Court has long recognised that an indemnity contract need not expressly state that the indemnitee will be indemnified for its own negligence if the clear intent of the contractual language provides for such indemnification, while general indemnity language has been deemed insufficient to impose indemnity for the indemnitee's own negligence. McNally is explicit that neither half of that is a formula: "our rule of construction does not actually require the contract to specifically mention the indemnitee's negligence or fault as long as this intention is otherwise clearly expressed by other words of the agreement", the tendency to find general all-inclusive clauses insufficient "is only a guideline, not a strict principle", and "even broad indemnity language may reveal an intent to indemnify an indemnitee for its own negligence". The indemnitee still lost: the Court affirmed summary judgment against McNally, because the rental agreement's specific exclusion of "damage[s] caused by defects in the equipment" showed the parties' clear intention and "This specific clause trumps the general clause." The holding is narrower than that sentence on its own: "We conclude the settlement by an in-demnitee of an underlying claim for damages based solely on the negligence of the indemnitee precludes indemnification under a contract that does not cover loss based on the indemnitee’s own negligence." Settling was not itself the problem, because "the settlement of the underlying case by an indemnitee does not always constitute a waiver of the right to seek indemnification"; McNally lost "because the circumstances of the underlying claim were not covered by the indemnification agreement." On top of that, and except as § 537A.5(3) excludes, a provision in a construction contract requiring one party to indemnify, hold harmless or defend another party, including the indemnitee's employees, consultants, agents or others for whom the indemnitee is responsible, against liability, claims, damages, losses or expenses, including attorney fees, to the extent caused by or resulting from the negligent act or omission of the indemnitee or of those persons, is void and unenforceable as contrary to public policy (Iowa Code § 537A.5(2)).
The trap
Section 537A.5's definition of "construction contract" reaches much further than a general contractor's form: architectural, design, engineering, construction-management, development and maintenance services, material purchases, equipment rental and labour, across all public, private, foreign or domestic agreements of that description other than public agreements relating to highways, roads and streets. It voids the clause only "to the extent caused by or resulting from" the indemnitee's own negligence, so the rest of an indemnity can stand. And § 537A.5(3) takes four things out of the section entirely: indemnification of a surety by a principal on a surety bond, an insurer's obligation to its insureds under an insurance policy or agreement, a borrower's obligations to its lender, and any obligation of strict liability otherwise imposed by law. Outside a construction contract, the Iowa rule is one of construction rather than invalidity, but do not read it as a magic-words rule, because McNally says the opposite: "In each case, the intent of the parties will control as revealed by the language of the agreement, and we should not impose any special requirement that specific language be used to express that intent." Language directed expressly at the indemnitee's own fault is the safest way to show the intention, not the only admissible one, and McNally says why: "we have permitted indemnity based on the indemnitee’s own negligence when the indemnitee’s own negligence is specifically addressed in the indemnification agreement"; and a specific clause elsewhere in the bargain can defeat a broad indemnity, which is how the indemnitee in McNally lost.
16 authorities
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
A contract for indemnification is generally subject to the same rules of formation, validity and construction as other contracts. Evans v. Howard R. Green Co., 231 N.W.2d 907, 916 (Iowa 1975). However, we have crafted a special rule of construction for indemnification contracts when the contract is claimed to relieve the indemnitee from liability for its own negligence. This rule provides that indemnification contracts will not be construed to permit an indemnitee to recover for its own negligence unless the intention of the parties is clearly and unambiguously expressed.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
We have long recognized that indemnity contracts do not need to expressly state that the indemnitee will be indemnified for its own negligence if the clear intent of the contractual language provides for such indemnification.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
On the other hand, general indemnity language in a contract has been deemed insufficient to impose indemnity for the indemnitee’s own negligence.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
Thus, our rule of construction does not actually require the contract to specifically mention the indemnitee’s negligence or fault as long as this intention is otherwise clearly expressed by other words of the agreement.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
Moreover, our tendency to find general, all-inclusive indemnification contracts to be insufficient to create indemnity for an indemnitee’s own negligence is only a guideline, not a strict principle.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
In each case, the intent of the parties will control as revealed by the language of the agreement, and we should not impose any special requirement that specific language be used to express that intent. Thus, even broad indemnity language may reveal an intent to indemnify an indemnitee for its own negligence.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
Nevertheless, the rental agreement specifically addressed the issue of causation by excluding indemnification for “damage[s] caused by defects in the equipment.” Thus, even if the broad lease provisions were construed to provide for indemnification without regard to fault, the language in the rental agreement, which both parties agree was part *573 of the contract, expressed the clear intention of the parties that Neumann would have no obligation to indemnify McNally if damage was the result of a defect in the crane. This specific clause trumps the general clause.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
We conclude the settlement precludes indemnification under the facts of this case. We affirm the order by the district court granting summary judgment.
- statuteIowa Code § 537A.5enactment date not established
The words that state the rule
Except as excluded under subsection 3, a provision in a construction contract that requires one party to the construction contract to indemnify, hold harmless, or defend any other party to the construction contract, including the indemnitee’s employees, consultants, agents, or others for whom the indemnitee is responsible, against liability, claims, damages, losses, or expenses, including attorney fees, to the extent caused by or resulting from the negligent act or omission of the indemnitee or of the indemnitee’s employees, consultants, agents, or others for whom the indemnitee is responsible, is void and unenforceable as contrary to public policy.
- statuteIowa Code § 537A.5enactment date not established
The words that state the rule
This section does not apply to the indemnification of a surety by a principal on any surety bond, an insurer’s obligation to its insureds under any insurance policy or agreement, a borrower’s obligations to its lender, or any obligation of strict liability otherwise imposed by law.
- statuteIowa Code § 537A.5enactment date not established
The words that state the rule
“Construction contract” includes all public, private, foreign, or domestic agreements as described in this subsection other than such public agreements relating to highways, roads, and streets.
- statuteIowa Code § 537A.5enactment date not established
The words that state the rule
As used in this section, “construction contract” means an agreement relating to the construction, alteration, improvement, development, demolition, excavation, rehabilitation, maintenance, or repair of buildings, water or sewage treatment plants, power plants, or any other improvements to real property in this state, including shafts, wells, and structures, whether on ground, above ground, or underground, and includes agreements for architectural services, design services, engineering services, construction services, construction management services, development services, maintenance services, material purchases, equipment rental, and labor.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
The traditional reluctance of courts to allow the burden of one who is negligent to be transferred to another who is not at fault, especially where there is a disparity in the bargaining power and economic resources of the parties, can be traced to public policy considerations. Id. at 212 , 90 S.Ct. at 885 , 25 L.Ed.2d at 233 . Thus, indemnification contracts claimed to contain these provisions are construed more strictly than other contracts.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
Thus, we have permitted indemnity based on the indemnitee’s own negligence when the indemnitee’s own negligence is specifically addressed in the indemnification agreement.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
We emphasize that the settlement of the underlying case by an indemnitee does not always constitute a waiver of the right to seek indemnification. See Liberty Mut. Ins. Co., 89 F.3d at 248 . Certainly, a n indemnitee should not lose any right to indemnification by settling the underlying claim rather than contesting it. Heckart v. Viking Exploration, Inc., 673 F.2d 309, 313 (10th Cir.1982). Yet, McNally is not denied indemnification in this case because it settled the underlying claim, but because the circumstances of the underlying claim were not covered by the indemnification agreement.
- case648 N.W.2d 564McNally & Nimergood v. Neumann-Kiewit Constructors, Inc.Iowadecided 2002read it at the source ↗
The words that state the rule
We conclude the settlement by an in-demnitee of an underlying claim for damages based solely on the negligence of the indemnitee precludes indemnification under a contract that does not cover loss based on the indemnitee’s own negligence. The district court properly granted summary judgment.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.