It is not unusual for contractors to use form contracts, or the last form of a contract previously used for a transaction, when contracting with subcontractors on a project. Such contracts, however, should regularly be reviewed to ensure that they reflect the current status of the law and contain all the essential provisions necessary to protect the interests of the contractor. The recent case of Estate of Willis v. Kiferbaum Construction Corp. illustrates a disastrous result when a contractor uses a flawed contract.
In Willis, Kiferbaum Construction Corp. (“Kiferbaum”) contracted with Arlington Steel Corp. (“Arlington”) to fabricate and install structural steel on a project to be constructed by Kiferbaum. Kiferbaum’s contract with Arlington (the “Arlington Contract”) contained an indemnification provision that provided that Arlington would indemnify Kiferbaum from all claims arising from Arlington’s performance under the Arlington Contract. The indemnity provision, however, failed to provide that Arlington would indemnify Kiferbaum without limitation from any damages resulting from the negligence of Arlington’s agents and employees.
Upon execution of the Arlington Contract, Arlington contracted with Decking & Steel, Inc. (“Decking”) to erect the steel that was being fabricated by Arlington. Arlington’s contract with Decking (the “Decking Contract”) provided that Decking would indemnify Arlington, the project architect and the project owner from any damages resulting from the negligence of Decking’s agents and employees.
During the project, a Decking employee died as a result of an accident. The estate of the employee filed suit against Arlington and Kiferbaum asserting a claim for wrongful death. Arlington and Kiferbaum then filed suit against Decking for contribution based upon Decking’s negligence in causing the accident. Decking sought to limit its contribution liability as provided by the 2000 case of Kotecki v Cyclops Welding Corp., which held an employer-subcontractor’s (“employer”) contribution liability in a personal injury action filed by an injured employee is limited to the amount the employee would recover under the Workers’ Compensation Act, unless the employer waives such a limitation in writing. Such a limitation on liability is commonly known as the Kotecki cap. Contractors regularly require subcontractors to contractually waive the Kotecki cap, because the subcontractor is responsible for the supervision and safety of its employees on the job, and the contractor will want to avoid limitation on the amount of the contribution the contractor can recover from the subcontractor if an injured subcontractor employee recovers a multi-million dollar judgment against the contractor.
The court found Arlington’s claim was not subject to the Kotecki cap because the Decking Contract indemnified Arlington against the negligence of Decking’s agents and employees without limitation. Conversely, the court found Kiferbaum’s claim was subject to the Kotecki cap because the Arlington Contract did not provide that Arlington indemnify Kiferbaum against the negligence of Arlington’s agents and employees without limitation.
Kiferbaum might have limited its liability by adopting a procedure of regular review and updating of its form contracts. If you are a contractor and would like your form contracts reviewed, and updated if necessary, please telephone the member of the firm with whom you regularly work.