The Chief Judge of the United States District Court of Montana recently ruled that an indemnification provision requiring a party to fully indemnify another party even for the negligent conduct of that party is valid under Montana law. As a general matter Montana Code 28-2-702 voids any contract provision that exempts a party from responsibility for their own willful or negligent acts. Such a provision would violate public policy. However this statute only applies to exculpatory clauses and not indemnification agreements.
For example, agreements that participants were required to sign prior performing an activity such as white water rafting trips that released the company from any liability. It was argued and Chief District Judge Dana L. Christensen agreed that indemnification agreements are different. Such agreements do not cancel liability altogether but instead shift financial responsibility for a third party’s loss from one entity to another. That type of a private contract is similar to a private contract of insurance and especially when done between two sophisticated parties can be valid under Montana law.
It was next argued that the indemnification provision was invalid because in 2003 Montana enacted MCA 28-2-2111 “Construction contract indemnification provisions,” which invalidates indemnification for a party’s own negligence in construction contracts. The Court analyzed the legislative history and found that the provision did not apply retroactively to work that was performed prior the 2003 new law.
Individuals or companies who frequently negotiate indemnification provisions should be mindful of these Montana provisions. MCA 28-2-2111 provides a specific definition for “construction contract” and only applies to agreements entered into or renewed after July 1, 2003. A party should be mindful of these provisions when entering into a contract or considering choice of law provisions. A full link to the Court’s Opinion can be found below and if you have questions or need assistance please contact Anthony Nicastro.