Anti-Indemnification Statute Held Inapplicable to Construction Equipment Rental Agreements

This August, the U.S. District Court for the Western District of Virginia considered whether Virginia’s anti-indemnification statute, which voids certain indemnification provisions in construction contracts, applies to rental equipment contracts.

In RSC Equip. Rental, Inc. v. Cincinnati Ins. Co., No. 6:14-CV-3, 2014 WL 3890588 (W.D. Va. Aug. 7, 2014), a subcontractor’s employee, who had sustained serious head trauma when struck by a light post being moved by a forklift operated by another subcontractor, filed suit in state court against several parties, including the forklift company, RSC Equipment Rental, Inc. (“RSC”). The forklift rental agreement between RSC and the general contractor, M.V.E., Inc. (“MVE”), contained a provision which required MVE to indemnify RSC “from and against all…liabilities…including, without limitation, [for] bodily injury, death, property damage or other damage arising out of any use of the [forklift]….” When the contractor’s insurer challenged MVE’s obligation to indemnify RSC under Virginia’s anti-indemnification statute, RSC and the insurer brought the issue to federal court.

On MVE’s and its insurer’s motion to dismiss, the court began its analysis by examining Va. Code § 11-4.1, which voids any indemnity provision that is intended to protect a party for its sole negligence.  Under this statute, Virginia courts will void any provision:

[R]elating to the construction, alteration, repair or maintenance of a building….[which] purports to indemnify or hold harmless another party to the contract against liability for damage arising out of bodily injury to persons or damage to property suffered in the course of performance of the contract, caused by or resulting solely from the negligence of such other party…. 

The court noted that this statute is an exception to the general public policy of Virginia, which allows parties broad freedom to contract, and thus its application must be narrowly construed. Turning to whether Va. Code §11-4.1 applied to rental equipment agreements, the court considered whether a rental agreement to supply construction equipment “related to” the construction of a building.  The court looked to an unreported Fourth Circuit decision from 1991 for guidance, which had held that a contract for the sale of roofing materials to a roofing contractor for its general use in repairing and installing roofing materials was not a construction contract for the purposes of Va. Code § 11-4.1. While MVE attempted to distinguish the Fourth Circuit decision on the grounds that the roofing supplies in that case were not sold for one specific project, as was the forklift in the instant case, the court found that such a distinction was immaterial. Instead, the focus for determining whether a contract “related to” construction was on the type of the agreement itself, not the ultimate purpose for the agreement.  Here, the rental agreement was solely for the renting of equipment ultimately to be used for construction, not to physically perform construction. Therefore, the court determined that the rental agreement was not subject to the anti-indemnification statute, and denied MVE’s and its insurer’s motion to dismiss.

Interestingly enough, while the court determined that a rental agreement was not related to a construction contract, the court did not consider in its opinion the other instances in which the Virginia legislature and courts have permitted rental companies access to unique construction-related remedies. For instance, the Virginia Mechanic’s Lien law permits rental companies a mechanic’s lien for rental equipment used on a construction project, and the Virginia Little Miller Act expressly includes rental equipment within the list of materials for which a claimant can recover. Under both remedial statutes, a claimant is required to have a contract specifically related to the construction project in question. While the holding in RSC Equipment is clear, it does not address the inconsistency that results from permitting a renter of construction equipment the benefits of these construction-related remedies, while at the same time excluding them from the obligations imposed on other construction project participants on the grounds that the rental agreement does not “relate to” construction.