The Best Strategy: Making Your Indemnification Clause Enforceable in New Jersey

Indemnification clauses can present real challenges in the New Jersey legal system. These elements of contract law are also referred to as “hold harmless” clauses and are intended to protect one of the parties to the contract from liability caused by the actions or negligence of the other party. In some cases, parties to these contracts have attempted to interpret indemnification clauses in a variety of ways to benefit their side of a legal argument. Understanding how to construct an indemnification clause properly can prevent unwanted legal consequences for parties to the contract.

Improperly Constructed Clauses May Be Unenforceable

In several fairly recent cases, New Jersey courts have ruled that indemnification clauses could not be enforced because of inadequate precision of language or failure to adhere to other aspects of the contract:

In Azurak v. Corporate Property Investors, the Supreme Court of New Jersey handed down a 2002 decision that found that an indemnification provision was unenforceable because of vague and imprecise language in the original contract. The case involved a dispute over liability between Planned Building Services (PBS), a janitorial firm hired by Corporate Property Investors (CPI) to provide cleaning services for a mall. Mary Azurak was injured when she slipped on a slick substance in that mall and was awarded a molded judgment that amounted to more than $6,000. CPI argued that the entire portion of their liability should be assumed by PBS based on this clause:

• “Contractor [PBS] shall indemnify, defend and hold harmless each Indemnitee [the Mall] from and against any claim (including any claim brought by employees of Contractor), liability, damage or expense (including attorney’s fees) that such Indemnitee may incur relating to, arising out of or existing by reason of (i) Contractor s performance of this Agreement or the conditions created thereby (including the use, misuse or failure of any equipment used by Contractor or its subcontractors, servants or employees) or (ii) Contractor’s breach of this Agreement or the inadequate or improper performance of this Agreement by Contractor or its subcontractors, servants or employees.”

The court ruled that the omission of a similar clause explicitly addressing liability for the negligence of CPI invalidated the indemnification clause and allowed for the assignment of liability to CPI and PBS respectively in this case. In their decision, the justices noted that the liability of PBS did not negate the liability of CPI. Because the clause was constructed to include only the liability of PBS, it was unenforceable in a case where negligence was present on the part of both parties to the contract.

On November 21, 2014, the New Jersey Superior Court, Appellate Division ruled in the case of James Fulmore v. Westmount-Arlington that the indemnification clause included in the lease agreement between Westmount and their tenant, PetValue, was invalidated because of a failure to maintain compliance with other requirements of the contract. The case involved an injury to the hand of James Fulmore, which occurred when the wind caused an exterior door of the PetValue premises to close suddenly on the plaintiff’s hand. Section 5.5A of the lease agreement submitted as evidence by Westmount included the following language:

• “Tenant agrees to indemnify and save Landlord . . . harmless from and against any and all claims and demands (except such that result from the act, omission or negligence of Landlord . . .) for, or in connection with, any accident, injury or damage whatsoever caused to any person . . . arising, directly or indirectly, out of the business conducted in or the use and/or occupancy of, the Premises or occurring in, on or about the Premises . . . or arising directly or indirectly, from any act or omission of Tenant . . . and from and against any and all reasonable cost, expenses and liabilities incurred in connection with any such claims and/or proceedings brought thereon. The comprehensive general liability coverage maintained by Tenant . . . shall specifically insure the contractual obligations of Tenant as set forth in this Section and/or as provided in this Lease.”

Once again, the indemnification clause fails to make provision for the negligence or failure to maintain the property by the landlord. This is in addition to the fact that the original contract required Westmount to install hardware on the door in question and that this work was never completed. According to the ruling, an indemnification clause cannot be used to indemnify a party against its own negligence unless that is specifically and explicitly stated in the contract signed by both parties.

An Enforceable Indemnification Clause

While there is no single standard for indemnification clauses, the courts have generally looked more favorably on contracts that include specific and limited indemnification and those that assign indemnification to both parties for the negligence of the other. In 2008, the American Bar Association published the following example of what they consider an enforceable indemnification clause:

• “Tenant will reimburse Landlord and its property manager, and their respective owners, officers, directors, shareholders, affiliates, agents, employees, and representatives (collectively, “Landlord Parties”) for and will indemnify, defend, and hold harmless Landlord Parties from and against any and all loss or damage sustained by, liability or charges imposed on, and claims or causes of action asserted against, Landlord Parties arising in whole or in part out of or by reason of (i) any accident or occurrence in or on the Premises, any use of or business conducted in or on the Premises, or any hidden or apparent defect in the Premises; or (ii) any damage to or loss of any property of Tenant or any person occupying the Premises or any of their respective officers, directors, shareholders, affiliates, agents, employees, or contractors (collectively, “Tenant Parties”), whether this damage to or loss of property occurs on the Premises or on any other part of the Property; or (iii) any act, negligence, or fault of Tenant Parties, whether occurring on the Premises or on any other part of the Shopping Center. Tenant’s reimbursement and indemnity obligations will include, but not be limited to, any and all penalties, assessments, fines, damages, interest, settlement amounts, judgments, losses, reasonable attorneys’ fees, and other expenses, and will survive the expiration or other termination of this Lease.”

It is worth noting that even this extensive and specific indemnification clause could be found unenforceable in New Jersey if the contract does not also include language that specifies explicitly the conditions under which the landlord would be held responsible for negligence on their own part.

New Jersey contract law is complex. Working with a law firm with proven experience in contract creation and civil litigation cases is almost always the most practical approach to drawing up lease agreements and other contracts. By enlisting the help of an experienced and knowledgeable civil litigation attorney, your company can reduce the risk of adverse decisions in the court system of our state. Call us today at 973-354-5783 for a consultation.