As owners of property, school districts and community colleges are spending millions of dollars annually to contract with general contractors and service vendors who agree to undertake construction projects or provide maintenance services on campus property. Too often, however, the applicable contract documents do not include adequate protection for the owner's liability. Several recent Illinois Supreme Court rulings have clarified the enforceability of contractual indemnification, contribution and waiver provisions, and provide important guidelines which educational institutions can follow to shift risk and avoid liability. Additionally, in October of 1997, the Illinois Supreme Court affirmed that an Illinois school district, as a local governmental entity, enjoys absolute immunity from liability based on a claim of failure to supervise a construction project on its premises.
INDEMNIFICATION
When educational institutions expend large amounts of public funds to improve or maintain public property, they should be concerned with obtaining express protection or indemnification from liability and costs incurred as a result of the contractor's acts or omissions. However, owners must avoid overbroad indemnification clauses. In recent years, much legal and public policy controversy has arisen regarding provisions for total indemnification, which allowed owners to avoid taking necessary precautions for safety on their property.
In 1971, the Illinois legislature enacted a statutory provision entitled Construction Contract Indemnification for Negligence Act, 740 ILCS 35/0.01 et seq. Section I of the Act, often called the Anti-Indemnity Act, provides:
With respect to contract or agreements, either public or private, for the construction, alteration, repair or maintenance of a building, structure, highway, bridge, viaduct, or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise or agreement to indemnify or hold harmless another person from that person's own negligence is void as against public policy and wholly unenforceable.
From 1971 forward, courts construing indemnification provisions in construction contracts often deemed any indemnification provision as unenforceable, without bothering to review the facts and circumstances of each case of analyzing the particular language of the contract itself. General contractors were spared from indemnification owners for costs incurred due to construction-related litigation, largely because the overbroad indemnification clauses were deemed unenforceable. Consequently, owners were left to defend against construction-related accidents, incurring costly attorneys' fees which could never be recovered.
After years of litigation addressing the enforceability of such indemnification provisions, two recent Illinois Supreme Court cases make it clear that indemnification clauses are enforceable, as long as the indemnification clauses do not seek indemnification for the owner's own negligence or wrongdoing. In Liccardi v. Stolt Terminals, Inc., 178 Ill.2d 540, 687 N.E.2d 968, 227 Ill. Dec. 486 (1997), the Supreme Court makes it clear that competent parties are free to contract with one another, as long as the agreement does not violate public policy. The Liccardi ruling, similar to the Supreme Court's decision in Braye v. Archer-Daniels-Midland Co., 175 Ill.2d 201, 676 N.E.2d 1295, 222 Ill.Dec. 91 (1997), holds that indemnification clauses in construction contracts which protect against costs, fees, losses or payments incurred or awarded against the owner as a result of the wrongful acts or omissions of the general contractor are enforceable. If the contract clearly states that indemnification and/or contribution is merely being sought for the contractor's negligent acts or omissions, not the owner's negligence, such language does not run afoul of public policy.
Therefore, before publishing bid specifications or entering into a contractual agreement, educational institutions should always make sure there is enforceable indemnification/contribution language in their contracts. Legal counsel should review provisions for appropriate protective language.
"KOTECKI" WAIVERS
A second equally important issue addressed in Liccardi is the enforceability and validity of contractual language in which the contractor agrees to waive any limitation on its liability. The Illinois Supreme Court ruled seven years ago that an employer's liability for a worker's injuries had certain limitations. In Kotecki v. Cyclops Welding Corp., 146 Ill. 2d 155, 585 N.E.2d 1023, 166 Ill. Dec. 1 (1991), the Court held that an employer's contribution liability is limited to the amount of its liability to its employee, the plaintiff, under the Workers' Compensation Act. This limitation on contribution liability is sometimes referred to as the Kotecki cap.
Thus, contractor's employees who are injured on an educational institution's site are limited to receiving workers' compensation benefits from their employer. Insured workers seeking larger recovery -- and almost all do -- file suit against the educational institution for negligence. Depending on the injury, educational institutions can face enormous potential liability.
To combat the limitations of Kotecki, language began appearing in construction contracts, suggesting a waiver of the contractor's limitations on liability, including worker's compensation limitations. In Liccardi, Braye and a recent intermediate appellate court case, Herrington v. J.S. Alberici Construction Co., 266 Ill.App.3d 489, 639 N.E.2d 907, 203 Ill. Dec. 348 (5th Dist. 1994), the courts have held that an employer can, by contract, elect to waive the contribution limit available to it under Kotecki.
In light of these recent rulings, every set of bid specifications/contract documents should include Kotecki waiver language to ensure that the contractor it not allowed to limit its liability by way of the Kotecki cap. Prior to executing any construction or service contract, educational institutions should consult with legal counsel to ensure inclusion of appropriate protective language.
DUTY TO DEFEND
In addition to the foregoing indemnification/contribution and waiver provisions, every set of bid specifications/contract documents should include a duty to defend clause. The enormous cost of defending against a construction accident claim should not be an expenditure that an educational institution if forced to incur throughout the life of the litigation, which may go on for years. Even if the educational institution may be able to seek indemnification after final disposition of a case, the reality of indemnification settlements translates into a less than dollar for dollar reimbursement. Attorney costs are real, immediate and expensive and may be avoided if the educational institution can tender the defense of a construction accident or service contract complaint under a duty to defend clause.
INSURANCE
An additional protection which should always be included in the insurance portion of the bid specifications/contract documents is the requirement that the educational institution, its officers, directors, agents, and employees be named as additional insureds on all of the contractor's insurance policies for the project. An owner's representative should confirm the validity of the certificate of insurance and applicable bonds to insure that they comport with contract requirements.
TORT IMMUNITY
Finally, the Illinois Supreme Court has recently provided a very important ruling which validates the applicability of the Local Government and Governmental Employees Tort Immunity Act in construction cases. Epstein v. Chicago Board of Education, 178 Ill. 2d 370, 687 N.E.2d 1042, 227 Ill. Dec. 560 (1997), verifies that absolute immunity for failure to supervise on public property, cited at 3-108(a) of the Tort Immunity Act, is applicable in construction cases.
The Illinois Supreme Court previously made it clear in Barnett v. Zion Park District, 171 Ill.2d 378, 665 N.E.2d 808, 216 Ill. Dec. 550 (1996) that the plain language of 3-108(a) does not express any limitations, exceptions or conditions on the type of supervision or activity on public property which is immunized.
Reading these two important cases in tandem, supervision of any activity on public property is subject to immunity if failure to supervise is the claim of wrongdoing. To take full advantage of the immunity described in Epstein, it is very important that bid specifications make clear that the contractor is in full control and in charge of the construction or service project and not the educational institution.
Educational institutions should carefully review and revise all bid specifications/contract documents to avoid language which would lead to an inference that the educational institution actually retains control over the means, methods and techniques of implementing the construction of service projects. Absolute immunity for failure to supervise is a blockbuster defense and great care should be taken in drafting bid specifications to allow invocation of this immunity.
CONCLUSION
In conclusion, each contract will present unique interpretation issues. Careful drafting can work to limit educational institutions' exposure to liability. Although many educational institutions use form contracts drafted by architects' or service vendors' attorneys, it is important that educational institutions understand that the architects' and vendors' interests are not the same as the interest of the educational institution. Therefore, before making any form contract a part of the bid specifications/contract documents, it is wise to make material revisions and include these with the bid documents.