IREON Insights: The hidden dangers of broad indemnification clauses - a dual perspective from legal counsel and insurance professionals

Part one of two 

This two-part article examines the hidden risks embedded in broad indemnification clauses commonly found in construction contracts.

In part one, “The Attorney’s Perspective”, legal counsel explores how overreaching indemnification language can dramatically expand liability exposure for contractors and subcontractors — often beyond what was intended or understood at signing.

Part two, “The Insurance Broker’s Perspective”, will continue the discussion from the insurance broker’s perspective, focusing on coverage gaps and risk transfer pitfalls.

The Attorney’s Perspective
As attorneys who specialize in commercial litigation, we consistently advise our clients to maintain thorough and accurate records. In litigation, proper documentation often makes the difference between success and failure. At the most fundamental level, every client should have a written contract that has been reviewed by counsel to ensure it accurately reflects the parties’ agreement and expectations.

Despite this, it is mindboggling multi-million-dollar contracts are sometimes based solely on a handshake or an oral agreement. Such arrangements are extraordinarily difficult to enforce and typically devolve into a credibility contest. Before stepping foot on a job site, parties should insist on a fully executed written contract.

One provision that warrants particularly close scrutiny is the indemnification clause. These clauses are often overlooked, yet they can shift substantial risk and liability from one party to another.

Recently, there is a form of indemnification language that contractors and subcontractors should be aware of. Traditionally, construction contracts require a subcontractor to indemnify and hold harmless the general contractor for claims involving personal injury, property damage, or wrongful death arising from negligence on the job site. Under those circumstances, the subcontractor typically consults with its insurance broker to confirm appropriate coverage and proceeds accordingly.

However, we recently reviewed an indemnification and hold harmless clause that reads as follows:

“Contractor will indemnify and hold harmless owner and construction manager, their officers, directors and employees from and against any and all claims, suits, liens, judgments, damages, losses and expenses, including reasonable attorneys’ fees and costs, arising in whole or in part and in any manner from the acts, omissions, breach or default of contractor in connection with the performance of any work by contractor pursuant to this contract. Contractor will defend and bear all costs of defending any actions or proceedings brought against owner and/or construction Manager arising in whole or in part out of any such acts, omissions, breach or default.”

This clause is both dangerous and insidious. Unlike traditional indemnification provisions limited to personal injury or property damage, this language effectively converts contractual disputes into indemnifiable events. It allows the owner or construction manager to withhold payment and shift legal defense costs to the subcontractor — often without meaningful limitation.

Most subcontractors are already familiar with retainage, backcharges, and delayed payment justified by alleged deficiencies or fabricated excuses. The critical distinction here is that this clause grants advance consent to such conduct. In effect, the subcontractor authorizes the withholding of funds and assumes broad financial responsibility well beyond what was likely contemplated when entering into the agreement. Worse, this type of contractual indemnification is not normally covered under an insurance policy.

For these reasons, parties should not gloss over indemnification provisions. Such clauses may contain obligations far exceeding the scope of the actual work or the risks the contractor intended to assume. Careful review by counsel before signing is essential to ensure that the indemnification language aligns with the parties’ true agreement — and does not expose one side to unforeseen and potentially devastating liability.

Part two of two will appear in the March 31, 2026 issue of the NYREJ IREON Insights page.

Stuart Zisholtz, Esq. is a partner in the commercial & construction litigation practice; Richard Zisholtz, Esq. is a partner in the commercial & construction litigation practice with Zisholtz & Zisholtz, LLP, Garden City, NY; and Jeffrey Rubin is an executive vice president with HUB Healthcare & Client Advisory, Manhattan, N.Y.