Indemnity in Iowa: One Contract Term You Don’t Want to Miss - Iowa - Webinar

In this blog, presented by SunRay Construction Solutions and Stephen D. Marso, Attorney at Law, Whitfield & Eddy, P.L.C., construction professionals in Iowa can learn what indemnity is, the different types, what Iowa’s anti-indemnity statute is, and more.

What is Indemnity?

Let’s begin by first understanding what indemnity is. This is a common word used in construction and often misunderstood. An Iowa Supreme Court case defines indemnity as:

• Indemnity shifts the entire liability or blame from one legally responsible party to another. In short, indemnity is a redistribution of risk.
• Another term which contrasts with the concept of indemnity is ‘contribution’. This term is used when the blame or risk is shared by the parties involved.  

So, if you have the indemnity provision in your construction contract, then you need to be careful because it will shift the entire liability on to you if you are obligated to do that.  

What are the Different Types of Indemnity?

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There are different types of indemnity:

• Contractual Indemnity

When an implied obligation to indemnify arises from an existing contractual relationship, it is often said to involve an implied-in-fact obligation, or implied contractual indemnity.  

• So even if your contract does not have a standalone indemnity provision that explicitly requires indemnity, you can still have a contractual implied obligation to indemnify, and it kind of depends on what your obligations are as per the contract.

• Implied Equitable Indemnity

When indemnity arises outside of a contractual setting, it is often referred to as an obligation implied-in-law, or equitable indemnity.

• Sometimes, however, the term implied indemnity is used to include both implied contractual indemnity and equitable indemnity, which can lead to considerable confusion.

What are the Different Types of Indemnity Agreements?

The Iowa Supreme Court allows indemnity in four general scenarios:

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• Express Contract

This is one of the most common types of indemnity agreements which you will see in construction context. So, you will often see them in standard form contracts, AIA< other contracts that have standard indemnity obligations, etc.  

• Vicarious Liability

This means that a person who is vicariously liable is legally liable, but it is based on the actions of someone else.  

• For example, the owner of an automobile is liable for damage caused by the driver of that automobile if the driver was driving it with permission. So, a parent who owns a car and their teenage son or daughter is driving that car gets in an accident, the parent is vicariously liable under these statutes that are called owner liability statutes.  
• So, an owner could have an indemnity claim against the driver, if the driver is the one that caused damages that caused the owner to get sued.

• Breach of independent duty to the indemnitee

This is a general kind of broad term where the duty can be based on contract or tort law.

• Primary (active) as opposed to secondary (passive) liability

This scenario is no longer applicable in Iowa.

Types of Express Indemnity Agreement

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The express indemnity agreement can be further broken down into three general categories:

• Limited-form Indemnity

This requires indemnitor to indemnify only for indemnitor’s own fault/negligence.

• An indemnitor is the person who has the indemnity obligation.
• An indemnity is the person who is receiving indemnity from the other party.  
• For example, if the driver of a vehicle gets in an accident, causes damage, and the owner of the vehicle gets sued and wants indemnity, the indemnitor is the driver, the one who caused the damage, who's providing the indemnity coverage or obligation. So, the driver is the indemnitor, and the owner of the vehicle is the indemnity in that situation.  

Absent contractual provisions stating otherwise, this is generally the default rule.

• Intermediate-form Indemnity

This requires indemnitor to indemnify for indemnitor’s own gault/negligee, and for indemnitee’s fault/negligee. This is not triggered if the indemnitor is fault-free, and indemnitee is solely at fault.

• For example, there is a construction project where one of the employees of the general contractor comes in and does something and solely causes some damage. In this case, the subcontractor is not going to have to indemnify them for that because they are not at fault.  
• If the subcontractor and the general contractor were both at fault, then under the intermediate-form indemnity, the subcontractor would have to indemnify the general contractor for their fault.
• In Iowa, the courts apply a special rule that must be clear and unambiguous in the contract that you have an intermediate-form indemnity.
• If there is any ambiguity, then you can only file for a limited-form indemnity.

• Broad-form (fault free) Indemnity

This requires indemnitor to indemnify for indemnitor’s own fault/negligee, and for indemnitee’s fault/negligee. This is triggered even if the indemnitor is fault free and indemnitee is solely at fault.

• For example, even if the general contractor is solely at fault and wants to indemnify the subcontractor, and the subcontractor has no fault, the subcontractor would be required to indemnify the general contractor, even though they are not at fault.
• The same rule applies where it should be clear and unambiguous in the contract that you have a broad-free indemnity.  

What is Iowa’s Anti-Indemnity Statute?

Iowa’s anti-indemnity statute is found at Iowa Code Section 537A.5. There are a couple of key takeaways from this statute:

• The main takeaway from the first paragraph is that the information applies specifically to construction contracts and not to other types of contracts. Construction contracts encompass a wide range of agreements within the construction industry.
• There is one exception to this. It does not apply to “public agreements relating to highways, roads, and streets”.
• The second paragraph makes the intermediate-form indemnity and broad-form indemnity agreements void and unenforceable. So, even if you have a clear and unambiguous intermediate-form indemnity or broad-form indemnity agreement in your contract, if you are on a construction contract that is covered by the statute, then it is going to be void and unenforceable. It will only allow for limited-form indemnity.

• Paragraph three states some exceptions to the statute. It does not apply to the indemnification of a surety by principal on any surety bond, an insurer’s obligation to its insureds under any insurance policy or agreement, a borrower’s obligation to its lender, or any obligation of strict liability otherwise imposed by law.  

What is Iowa’s Statute of Repose?

Iowa’s statute of repose applicable to construction projects is located at Iowa Code Section 614.1(11) and is entitled “Improvements to real property.”

If you have a claim that's based on the unsafe or defective condition of a project, for example, you are working on a project and someone gets injured down the road or their property gets damaged for something and they're going to sue for negligence or for the damage to the persons or the property, there's a statute of repose.

There are three main sections

• For an action arising from or related to a nuclear power plant licensed by the United States nuclear regulatory commission or an interstate pipeline licensed by the federal energy regulatory commission, it is 15 years.
• For an action arising from or related to residential construction, as defined in section 572.1, it is 10 years.
• For an action arising from or related to any other kind of improvement to real property, it is 8 years.

The statute of repose is different than the statute of limitations. For example, in a commercial construction project, if it's 10 years, down the road, and nobody knew of this defect, and nobody could have known about it, it was a hidden latent defect, and it didn't arise until 10 years after the project's done, the statute of repose is going to eliminate that claim, even though nobody knew about it.

An exception to this is if there's any fraudulent concealment or intentional misconduct.

• So, if someone on the commercial project does something defective and knowingly does it and hides it, and if that is revealed down the road, then you will get a 15-year statute of repose instead of the 8-year.  
• Another kind of exception is that is, for example, it’s a commercial project, and you discover an issue at seven and half years, then since it is within the last year of the statute, you will get an additional year. So, the eight years will turn into nine years.
• Paragraph (d) states that this subsection does not bar an action against a person solely in the person’s capacity as an owner, occupant, or operator of an improvement to real property.

• For example, someone built a splash park, and a child gets injured, they can sue the owner of the splash park and the statute doesn't bar that, suing the owner, even though the owner might not know anything about it, or if the operator of the splash park doesn't know anything about it, they can still be sued.

Indemnity & Attorney Fees

In Iowa, generally, unless authorized by statute or contract, attorney fees are not allowed. So, how does this affect indemnity?

• For example, a general contractor and a subcontractor have a written subcontract and it includes the indemnity provision and it states that will have to indemnify the general contractor including attorney fees, expert fees, etc.
• Now, if the general contractor and the subcontractor get into a dispute which is only between them and does not involve anyone else, then that indemnity provision is not going to allow either of them to recover attorney fees.

The indemnity provision essentially protects a party from a third-party.  

• So, if we take the above example of the child getting harmed at the splash park, if the parents of that child sue the contractor and the contractor has to hire an attorney to defend against that, they can then go after the subcontractor, let's say who caused the defective condition, and recover attorney fees because it's a third party suing the general for that.

• The indemnity is going to cover that third party claim.
• However, if the claim is just between the general contractor and the sub who have the subcontract provision or the indemnity provision, then it doesn't apply.

Key Takeaway

So, as construction professionals, it is vital that you are aware of the indemnity provision included in your contract and the rules and exceptions to it. Because remember that if you have an indemnity obligation in your contract, that's going to shift the entire liability to you if you're obligated to do that.

If you find yourself facing issues, don't hesitate to reach out for guidance and support. SunRay can provide valuable assistance and expertise to help you navigate the complexities of construction payment disputes in Iowa. Call 800-403-7660 today and get paid what you deserve!

Common Questions Iowa Contractors Ask

Are indemnity clauses enforceable in Iowa?

Yes, indemnity clauses are generally enforceable in Iowa. However, they must be clearly written and specific to be upheld in court.

Can an indemnity clause be negotiated?

Yes, indemnity clauses can and should be negotiated to ensure fair risk allocation. Contractors should seek legal advice to negotiate terms that are reasonable and protective of their interests.

How does an indemnity clause impact subcontractor?

Subcontractors may be required to indemnify the general contractor and the project owner for certain liabilities. It’s crucial for subcontractors to understand the scope of these obligations before signing the contract.

Can an indemnity clause be voided in Iowa?

Indemnity clauses can be challenged in court if they are found to be overly broad or unfairly burdensome. Iowa courts may void such clauses if they are against public policy or if they indemnify a party for their own negligence.

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