Legal Alert Snell & Wilmer L.L.P.
June 9, 2011

Leon F. Mead II
Leon F. Mead II
702.784.5239
lmead@swlaw.com
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Contractual Indemnity Provisions Must Expressly Provide for Indemnity in Contributory Negligence Circumstances

Reyburn Lawn & Landscape v. Plaster Dev. Co., Inc., 127 Nev.Adv.Op. 26 (June, 2011)

In late 2010, the Nevada Supreme Court held that a Type I indemnity provision (obligating an indemnitor to indemnify and defend an indemnitee for the indemnitee's own negligence) must expressly or explicitly state that it does so. A general reference to "any and all claims" will not be sufficient to encompass the sole negligence of an indemnitee under Nevada law. Now the Nevada Supreme Court has extended this "expressly or explicitly provided" test to Type II indemnity provisions, i.e., those indemnity provisions allowing for complete indemnification of the indemnitee, even in the circumstance of contributory negligence of the indemnitee.

In Reyburn Lawn & Landscape v. Plaster Dev. Co., Inc., 127 Nev.Adv.Op. 26 (June, 2011), a homeowner's association made a claim for construction defects against the developer/general contractor of a single family home community, arising from the design, preparation and construction of retaining and boundary walls in the communities. The developer made indemnity claims against the retaining wall subcontractor and the landscape subcontractor, based on general indemnity provisions in the construction subcontracts. After the wall subcontractor settled out its liability, the case proceeded to trial with the plaintiff, the general contractor and landscape subcontractor on indemnity claims. During the trial, the subcontractor's president testified in essence that if his company did a certain act, that it would have been "a mistake". Based on this testimony, the general contractor made an oral motion for the entry of judgment on the indemnity obligation against the subcontractor. The district court granted that motion, finding that the subcontractor president's testimony amounted to a judicial admission of liability, and refused to allow the subcontractor to present any exculpatory evidence to the jury. Without the ability to determine the relative fault of the subcontractor, the jury returned a verdict in favor of the plaintiffs, finding the general contractor 99% liable for the defects and the plaintiffs 1% liable. Because the district court had already entered judgment on the indemnity obligation against the subcontractor, the district court ordered the subcontractor liable for the plaintiffs' judgment against the general contractor and awarded interest, attorneys' fees and costs against the subcontractor. The subcontractor appealed.

The Nevada Supreme Court, however, reversed the district court's ruling in its entirety. The Court noted that just as in Type I sole indemnity obligations under Brown Insurance v. Star Insurance, 126 Nev. ___, 237 P.3d 92, (2010), an indemnification clause must explicitly or expressly state that the indemnitor will indemnify the indemnitee for the indemnitee's contributory negligence. A general statement of indemnity will not suffice. Contributory negligence indemnity is governed by the parties' agreement, and because Nevada has not adopted an anti-indemnity statute, the parties are free to contract for the allocation of indemnification responsibilities to each other.

In this case, because the indemnification clause did not expressly or explicitly indicate that the subcontractor would indemnify the general contractor for the general contractor's contributory negligence, the extent of the subcontractor's obligation to indemnify would be limited to the damages occurring from the subcontractor's scope of work. Unfortunately, the district court did not allow the jury to review evidence of any construction defect arising from the subcontractor's scope of work; the Supreme Court was obligated to review that determination to decide if a new trial was appropriate.

The Court then determined that only testimony that is deliberate, clear and unequivocal will support a finding of judicial admission. Anything less is evidentiary admission and must be weighed as evidence by the trier of fact. Since the testimony of the subcontractor's president was that hypothetically a mistake had been made, that testimony was not a sufficient statement to constitute a judicial admission of liability. As such, the district court should have allowed the testimony to go to the jury for determination.

Finally, as to the award of attorneys' fees and costs as a result of the indemnity, the Court determined that without an express or explicit indemnity for the indemnitor's own or contributory negligence, any award of attorneys' fees based on a breach of indemnity agreement must be limited to those fees incurred in defending the causes of action involving the indemnitor's work. Again, since the jury was not allowed to make any determination or weigh evidence of the subcontractor's own actions or damages arising therefrom, the case had to be reversed and remanded back to the district court for a new trial.

This case is further evidence that the Nevada Supreme Court is limiting the ability of developers and general contractors to obtain complete indemnity under Type I indemnity obligations, by extending the express contractual requirement to Type II indemnity agreements. In these cases, the developer/general contractor indemnity obligations must be revised to expressly and explicitly provide for indemnity and defense, including attorneys' fees and costs incurred, in order to pass those liabilities to subcontracting companies. Developers and general contractors should consider revising their contracts to comply with this evolving Nevada precedent.

 

 


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