As a general rule, parties are liable for damages caused by their own negligence. Parties to construction
contracts nevertheless often mutually agree to shift the risk using what’s known as an indemnification clause, a tool usually providing that a party, which might otherwise bear liability, can be held harmless for its negligence or may at least customize the risk for which it is willing to be liable. However, the New Jersey Legislature has limited the enforceability of this liability-shifting tool in the construction context, citing the rationale that clauses indemnifying a party from its own “sole negligence” are contrary to public policy and, therefore, void. Specifically, N.J.S.A. 2A:40A-1 provides in part that “[a] covenant. . . purporting to indemnify or hold harmless a [party] against liability for damages arising out [of] . . . or resulting from the sole negligence of the [same party] . . . is unenforceable[.]”
Despite clear legislative intent to disallow risk-shifting in construction contracts using indemnification
clauses, sophisticated contracting parties often include them, because, while these clauses might not be enforceable in a court of law, the benefit of their inclusion – and the likelihood that they will be enforced– remains significant. The likelihood of an indemnification clause being unenforceable is largely dependent, however, on the ...
To read the full article, click the link below.