Federal Court Incorporates Contractual Insurance Requirement to Be a Limit on Indemnity for Compliance With Fla. Stat. 725.06

FEDERAL COURT INCORPORATES CONTRACTUAL INSURANCE REQUIREMENT TO BE A LIMIT ON INDEMNITY FOR COMPLIANCE WITH FLA. STAT. 725.06

By: Harry Malka, Esq. and Larry Leiby, Esq.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com.

Indemnity obligations are often found in construction contracts. The function of these undertakings, generally speaking, is to pass liability through from one party to the other where one party is actively liable and the other party is vicariously liable. In the construction context, such agreements or clauses may be drafted by a general contractor with the intention of passing through to a subcontractor the liability the general contractor owes to an owner for a loss. This is certainly fair where the indemnitor is actually the party that caused the loss. There exists a common law duty of indemnity where one (e.g. subcontractor) causes the loss and the other (e.g. contractor) is responsible for the loss by contract but did nothing to create the loss. More difficult to accept is an undertaking to indemnify someone from their own negligence. Florida Statute 725.06 imposes a requirement of a commercially reasonable monetary limit with respect to enforceability of the indemnity undertaking by contractors and subs by contract for the other's negligence.

A recent case interpreted this statute to say that if insurance coverage is more than $1,000,000, that the monetary limit of indemnity was met by the insurance clause. In Lexington Insurance Company v. Morrow Equipment Company, LLC, 2010 WL 1029961 (S.D. Fla. March 16, 2010), Formworks, Inc. ("Lessee") leased a crane from Morrow Equipment Company, LLC ("Lessor"). The crane was placed in service and collapsed during Hurricane Wilma, causing damage to property owned by TW/Beach Residences-Hollywood, LLC ("Owner"). Owner and its insurer, Lexington Insurance Company ("Insurer"), sued Lessor for said damages. Lessor denied liability and sued Lessee for contractual indemnification from the claims asserted by Owner and Insurer. The lease agreement contained an Indemnity Clause, which stated:

Lessee shall defend, indemnify and hold [lessor] harmless from any and all liability arising out of the possession, uses, operation, maintenance, erection, dismantling, loading, delivery, return of equipment and/or any other action or failure to act by the Lessee, its agents or employees, or for any other reason whatsoever unless caused by [Lessor's] sole fault.

Lessee moved to dismiss lessor's action for contractual indemnification, arguing that the above indemnification provision did not comply with Florida Statute 725.06 due to the failure to provide a limit of the indemnity.

The trial court noted, however, that section 725.06 did not require the monetary limitation to be within the indemnification provision. Rather, section 725.06 simply requires that the contract contains the monetary limitation. The lease agreement also contained an insurance clause requiring lessee to furnish liability insurance with limits of not less than $5,000,000 for property damage. The trial court found that the requirement of a monetary limitation for indemnity was satisfied by the insurance clause, despite no language in the contract saying that indemnity was limited to insurance coverage. Thus, although the parties did not expressly state that lessee's exposure for lessor's liability was limited by the monetary terms of the insurance clause, the trial court interpreted the agreement that way.