Mass Appellate Court Provides Another Reason to Ensure Indemnification Provisions Include Survival Clauses

Last week, the Massachusetts Court of Appeals ruled that a contractual indemnification clause does not necessarily survive termination, absent a survival clause keeping the obligation in force. While the Court applied Georgia law in reaching its decision, the principles that the Court applied would likely yield the same result using Massachusetts law.

In Fraco Products, Ltd. v. Bostonian Masonry Corporation, C.A. No. 12-P-933 (Mass. App. Ct., Sept. 26, 2013), an equipment manufacturer sold a piece of equipment to a masonry subcontractor on an installment payments basis. The contract included a “Transfer of Risk and Insurance” clause requiring the masonry subcontractor to indemnify the manufacturer from any losses caused by the equipment. The Transfer of Risk and Insurance clause did not state that it would survive the termination of the contract (while another section dealing with risk noted that that clause would survive termination).

After the final payment was made, there was an accident involving the equipment killing a passerby and two construction workers. The estate of one of the workers sued the manufacturer, and the manufacturer sued the subcontractor for indemnification.

The Court of Appeals dismissed the claim for contractual indemnity, stating that “Courts are to construe the language of an indemnification contract strictly against the party seeking indemnification.” The court went on to note that the “Transfer of Risks and Insurance” provision was “not followed by a survival clause.” Accordingly, since the “contract terminated by its own terms when [the subcontractor] made the final installment payment (sometime before the accident), the ‘Transfer of Risks and Insurance’ provision is not relevant here.”

This is another good reminder to contractors to make sure that their standard subcontracts include express language in their indemnification provisions that make clear that the subcontractor’s indemnification obligation survive termination.