June 25, 2019

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Illinois: When Indemnitor Is Off the Hook For Contractual Indemnity

Contractual indemnification clauses are among the most overused and misunderstood rights that parties argue over and negotiate for.  Although nothing in Illinois law prohibits parties from specifically contracting to provide for indemnity in non-construction related contracts, “[i]t is quite generally held that an indemnity contract will not be construed as indemnifying one against his own negligence, unless such a construction is required by clear and explicit language of the contract or such intention is expressed in unequivocal terms.” Buenz v. Frontline Transportation Co., 227 Ill. 2d 302, 316 (2008) (citing Westinghouse Electric Elevator Co. v. La Salle Monroe Building Corp., 395 Ill. 429, 434-35, 70 N.E.2d 604, 607 (1946)).  If the agreement does not expressly provide contractual indemnity for the indemnitee’s own negligence, it is unenforceable as a matter of law.

In order for an indemnity agreement to be enforceable for something other than pro rata allocation in contribution, it must provide that the obligation to indemnify include liability for the indemnitee’s own negligence.  This rationale derives from the legal distinction between contribution and indemnity.  As the Illinois Supreme Court has observed:

There is an important distinction between contribution, which distributes the loss among the tortfeasors by requiring each to pay his proportionate share, and indemnity, which shifts the entire loss from one tortfeasor who has been compelled to pay it to the shoulders of another who should bear it instead.

Virginia Sur. Co. v. Northern Ins. Co., 362 Ill.App.3d 571, 574, 840 N.E.2d 1271, 1274 (3d Dist. 2005) (quoting Prosser, Law of Torts, sec. 51, at 310 (4th ed. 1971)).  An “indemnity provision” that requires the indemnitor  to “indemnify and hold harmless” the indemnitee for only the indemnitor’s negligence is not really indemnity at all, but is actually a form of contractual contribution (sometimes labeled “partial indemnity.”).  See Stevens v. Silver Manufacturing Co., 70 Ill. 2d 41, 46 (1977) (“Although stated in terms of partial indemnity rather than contribution, the prayer for relief clearly seeks contribution based on the relative degree to which the employer’s misuse of the product or assumption of the risk contributed to cause plaintiff’s injuries”); Estate of Willis, supra, 357 Ill.App.3d at 1006.

Stated differently, unless the indemnitee is shifting liability for its own negligence to the indemnitor (i.e., the entire loss), the contractual indemnification clause is not really “indemnity” in its true sense.  The courts recognize that if the indemnitee becomes liable to the Plaintiff, then its liability is based on its own negligence.  In order to transfer its liability under an indemnification clause for “its own negligence,” the indemnity clause must so provide explicitly. 

If the indemnitee’s liability to the third party arises from its own negligence, the indemnitee cannot enforce the contractual indemnity clause against the indemnitor. Absent language expressly providing indemnification for the indemnitee’s negligence, indemnification will be limited to the liability arising out of the indemnitor’s negligence only, which is nothing more than an allocation provided by the Contribution Among Joint Tortfeasor’s Act. See Hankins v. Pekin Insurance Co., 305 Ill.App.3d 1088, 1093, 239 Ill. Dec. 394, 713 N.E.2d 1244, 1248 (1999); McNiff v. Millard Maintenance Service Co., 303 Ill.App.3d 1074, 1077, 239 Ill. Dec. 802, 715 N.E.2d 247, 249 (1999); see also Liccardi v. Stolt Terminals, Inc., 178 Ill. 2d 540, 549-50, 227 Ill. Dec. 486, 687 N.E.2d 968, 972-73 (1997); Braye v. Archer-Daniels-Midland Co., 175 Ill. 2d 201, 217-18, 222 Ill. Dec. 91, 676 N.E.2d 1295, 1303-04 (1997).

In the hypothetical case, if the contract does not provide for “true” indemnity, but only “partial indemnity,” that only creates a right to contribution.  For example, if the agreement provides that “[Indemnitor] will indemnify the [Indemnitee] for claims relating to or arising from [Indemnitor’s] negligence or breach of this Agreement,” that does not give rise to an enforceable right to indemnification. That language does not contain any rights indicating that the indemnitee has agreed to provide indemnification for claims arising out of the indemnitee’s own negligence.   Because such an agreement does not provide contractual indemnity for the indemnitee’s own negligence, its claim for contractual indemnity fails.

© 2019 Neal, Gerber & Eisenberg LLP.


About this Author

Jill B. Berkeley, Partner, Neal Gerber law firm

Jill B. Berkeley chairs the firm’s Insurance Policyholder practice group. Chambers USA reports that clients describe her as “a breath of fresh air in litigation,” and “an outstanding lawyer with encyclopedic knowledge of case law.” She is recognized by her peers as having “great stature nationally” and being “a pillar of the policyholder community.” Jill represents policyholders and claimants in insurance coverage disputes involving toxic torts and hazardous wastes, environmental pollution, construction, products liability, intellectual property, first-party property, business...

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