Indemnification

Has your general contracting company been exposed to a liability through no fault of its own?

For example, you are a general contractor hired by a property owner to build a home. The roofing subcontractor you hired has done faulty work. Now, one year later, the home’s roof leaks when it rains. The leaking roof causes extensive damage throughout the home.

Now, the homeowner is looking to recover his damages. The homeowner did not hire the roofing subcontractor, and instead hired you. Therefore, he likely does not have a contractual relationship with the subcontractor you hired. Because of this, it will be easiest for the homeowner to recover his damages from you, the general contractor. You now face the headache and financial burden of a dispute with the homeowner.

Depending on the facts, there may be a handful of remedies against the roofer available to the general contractor as allowed by the law, including negligence and breach of contract. Here, one possible claim is for “indemnity”. A right of indemnity may arise by express agreement or by implication. Titan Mach., Inc. v. Renewable Resources, LLC, 950 N.W.2d 149, 153 (N.D. 2020)

It is common for construction contracts to have indemnity clauses in place. North Dakota Century Code chapter 22-02 regulates contractual indemnification.

In the North Dakota case, Sayler v. Holstrom, the North Dakota Supreme Court held, “…it is the right of a person exposed to liability and compelled to pay damages on account of the negligent or tortious act of another to indemnity for the latter.” Put more simply, a party who indirectly causes monetary damages to you has a duty to reimburse you.

When we apply this rule to the current scenario it may go as follows: Because the roofing subcontractor exposed the general contractor to the liability of having to pay for the damages in the home, the general contractor now has a right to recover those damages from the roofing subcontractor.