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May 2017

The Rise of Florida Statute § 725.06 and Fall of Noncompliant Contractual Indemnity Provisions

It may be the end of an era for Florida. That era being a time when general contractors can hail subcontractors into court with contractual indemnity claims based on botched or carelessly drafted indemnification provisions. Although surprising, many general contractors try to raise contractual indemnity claims that are not compliant with Florida’s contractual indemnification statute, F.S. § 725.06. Even more surprising, is how Courts are inclined to permit them and hesitant to dispose of contractual indemnity claims based on unenforceable provisions.

This issue potentially arose when the Florida Legislature revised the contractual indemnification statute, Section 725.06, in 2001. Prior to 2001, a contractual agreement to indemnify was void and unenforceable unless it included: (1) a monetary limit on the indemnity that was part of the project specifications or bid documents, or (2) the indemnitee paid specific consideration for the indemnification that was provided for in the contract. In 2001, the Florida Legislature omitted the second condition, and maintained that a contractual indemnity provision is void and unenforceable unless it includes a limitation on the indemnification obligation.

Specifically, under the current form of Florida Statute § 725.06, “any portion of any agreement or contract for or in connection with. . . any construction, alteration, repair or demotion of a building. . . shall be void and unenforceable unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any.” Fla. Stat. § 725.06. In its plain terms, this statute requires a valid indemnification provision to include a monetary limitation on the extent of the indemnity obligation. The following analysis confronts the common arguments raised by General Contractors who attempt to recover under non-compliant indemnification provisions.

First, general contractors completely overlook Florida’s clear rule: the language of the indemnity provision governs whether the statute applies, not the self-serving nature in which a party may pled or fashion its indemnity claim. As the court explained in Fed. Ins. Co. v. W. Waterproofing Co., 500 So. 2d 162, 164 (Fla. 1st DCA 1986), the proper inquiry when determining whether the indemnity provisions at bar come within the statute “is whether the clauses provide indemnification to the indemnitee (general contractor-appellant) for its own negligence.” Accordingly, if the indemnity provision contemplates the indemnitee’s own negligence within the scope of the indemnification obligation, it must comply with Section 725.06’s requirements.

Next, general contractors often claim that Section 725.06 is inapplicable by arguing that they are not seeking indemnification for their own negligence. However, in doing so, they ask the court to conclude that they are wholly without fault or ignore the variety of statutory and common law non-delegable duties they may be owed directly to property owners. See Fla. Stat. §§ 718.203, 553.84; Bialkowicz v. Pan Am. Condo. No. 3, Inc., 215 So.2d 767, 71-72 (Fla. 3d DCA.)(the duty of care, with respect to the property of others, imposed by a city building permit on a general contractor cannot be delegated to subcontractors); Mastrandrea v. J. Mann, Inc., 128 So. 2d 146, 148 (Fla. 3rd Dist. Ct of App 1961) (as a general rule, if a statute requires one to do a certain thing or to take certain precautions, he cannot delegate such a duty to an independent contractor and be released form liability in the case the contractor fails to perform it). The argument is that subcontractors cannot, as a matter of law, be liable for these nondelegable duties. Therefore, to the extent construction defects exist, the general contractor is directly liable to the property owner. This means, general contractors are at least in part responsible for the construction defects on which their contractual indemnification claims are based. Accordingly, they may be seeking indemnification for damages caused at least in part by their own negligence.

Finally, Section 725.06 renders a contractual indemnity provision void and unenforceable for failing to include a monetary limitation on the extent of the indemnification. Griswold Ready Mix Concrete, Inc. v. Tony Reddick, & Pumpco, Inc., 134 So. 3d 985, 987 (1st Dist. Ct. of Appeal 2012); Barton-Marlow Co. v. Grunau Co., 835 So. 2d 1164, 1165-66 (Fla. 2d Dist. Ct of App. 2002)(holding an indemnity provision void and unenforceable when it fails to contain a monetary limit on the subcontractor’s liability). General contractors may cite Lexington Ins. Co. v. Morrow Equip. Co., LLC 2010 U.S. Dist. LEXIS 24786, at * 6-7 (S.D. Fla. 2010), a federal non-binding decision, in which the Court considered a contract’s explicit instruction to obtain a certain amount of insurance coverage in satisfaction of the monetary limitation required by Section 725.06. Reliance on Lexington Ins. Co. is dangerous because not only has this case never been followed or cited by a Florida State Court, but the requirement to procure insurance is generally deemed a separate and distinct obligation than providing indemnity. Therefore, subcontractors could argue that a coverage limit should not fulfill the monetary limitation required by Section 725.06.

Although, as stated above, Judges are hesitant to discard a general contractor’s opportunity to recover under contractual indemnity provisions, more and more subcontractors are challenging indemnity requirements, and winning, on dispositive motions in Florida. General Contractors are well advised to examine their indemnity provisions and ensure that they are clear either (1) that indemnity will not be sought from the subcontractor for the general contractor’s own negligence or (2) that there is a clear monetary limitation on that indemnity.