Summary: In 2004 Skanska was the general contractor on a National Institutes of Health research facility project in Baltimore. Skanska subcontracted the masonry façade work to Long Masonry. Years later, in 2013, the façade that Long had constructed collapsed as a result of Long’s failure to construct the façade according to the design or industry standards. Skanska returned to the project and undertook the reconstruction of the faulty masonry.
The Skanska-Long subcontract contained a broad indemnification clause in Skanska’s favor. The indemnification duty applied to all claims “in connection with” the performance of the subcontract work, and required reimbursement of “all claims, loss, costs, and expenses (including attorney’s fees and expenses).” Skanska sued Long in federal court for reimbursement of nearly $2 million in remedial construction costs, as well as substantial amounts for interest, expert costs, and attorneys’ fees. After the lawsuit was underway, Skanska moved for summary judgment.
Decision: The federal court granted summary judgment and enforced the broad indemnity clause against the subcontractor:
- Compensatory damages consisted of costs paid by Skanska to a subcontractor, Lindman—$1.6 million, plus $331,000 in “general conditions” costs incurred by Skanska in supervising the Lindman remedial work.
- Skanska was awarded pre-judgment interest on the money paid to Lindman, on a “check-by-check” basis. The court denied Skanska prejudgment interest on the internal Skanska general conditions costs.
- Skanska was awarded the cost of expert fees paid for an investigation of the masonry façade collapse ($241,000), and for assistance in the accounting of Skanska’s damages ($30,000).
- The court opined that the indemnification clause plainly contemplated reimbursement of attorneys’ fees incurred in responding to a third-party’s claim against Skanska—for example, a claim by the project owner or by a neighboring property that suffered damage. Here, however, the attorneys’ fees were “first party” attorneys’ fees incurred by Skanska in enforcing its indemnification rights against Long. After careful analysis of the wording of the indemnification clause, the court concluded that these first-party fees were also recoverable, in the sum of $346,000.
- As is typical for most judgments, Skanska was entitled to post-judgment interest.
Comment: Long did not take any action to remediate the damage caused by the 2013 masonry collapse. If it had returned to the site and taken primary responsibility for the remedial work, Long might have been able to mitigate the costs.
The court concluded that “it appears that Skanska and Long intended to create [an indemnification] scheme ‘to ensure that [Long], and not [Skanska], carried all of the risk’ under the contract.” Many indemnification clauses are narrower than the clause in the Skanska-Long subcontract—though subcontract indemnities are often broad.
Indemnification is at its core a means of addressing third-party claims. Often the failure of the work itself is not within the scope of a contractual indemnification clause, though it may be the subject of a breach of contract or warranty claim. The potential for recovery of attorneys’ fees is one reason an indemnification claim can be more advantageous to a claimant than a breach of contract claim.
The subcontractor apparently did not raise defenses on the merits, or contend that statutes of limitations or repose shielded it from liability. The focus here was on the scope of damages.
Perhaps the most interesting feature of this case is the discussion of first-party versus third-party attorneys’ fees. The various EJCDC indemnification clauses call for recovery of attorneys’ fees (and other expenses), but do not expressly refer to either the “first party” or “third party” categories of attorneys’ fees. It may be beneficial to review that point—and to reflect on whether first-party recovery is intended or desired.