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VOLUME 5 Summer 2004 | ||||||
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INDEMNIFICATION – WILL THE NEW JERSEY COURTS ENFORCE THIS CONTRACT PROVISION? Jennifer L. Hechler, Esq. Indemnification provisions in contracts are common, but until recently, whether or not the Courts would enforce such provisions when the indemnitee was negligent, had been a coin toss. Previously, the New Jersey Courts had relied on the “broad”, rather than the “limited”, forms of indemnification provisions, as outlined in the 1976 case of Doloughty v. Blanchard Construction Company, when deciding whether to enforce an indemnification provision of a contract. Over the years, however, the Courts have issued numerous conflicting judicial opinions on the issue, resulting in confusion by all parties when drafting these contract provisions. Due to numerous conflicting judicial opinions, the Appellate Division recently revisited this issue. In Azurak v. Corporate Property Investors, the Court re-examined previously conflicting case law and simplified the matter by holding that in order to be indemnified for a party’s own negligence, the contract must contain “explicit contractual language” expressing the parties’ intent to provide for such indemnification. Although the Court simplified the previously confusing issue, the Court left a “loophole.” The Court noted specifically that it did not impose the requirement of “explicit terms” stating that indemnification shall include the indemnitee’s own negligence. The Court held that the parties must draft contracts to reflect this intention in a manner that is clear to the Court. Although the Court does not require “explicit terms,” the easiest way to state the parties’ intention is with “explicit terms.” When Party A is entering a contract in which it seeks Party B to defend and indemnify it from any and all occurrences, the provision must state clearly and explicitly that Party B agrees to indemnify Party A for Party A’s own negligence. Although the Court has left this “loophole” for now, the most proactive approach to avoid extensive motion practice is to use “explicit terms” when drafting indemnification provisions. The “loophole” may not last for long, so do not rely on it. More importantly, do not rely on judges to find “explicit language” absent “explicit terms.” |
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