Indemnity vs. Limitation of Liability in California Construction Contracts: What’s Allowed and What’s Void

In California, the rules governing indemnity clauses and limitation-of-liability clauses are especially strict in the context of construction contracts. While these provisions appear in many types of agreements, the analysis described here applies specifically to contracts that fall within California’s construction-contract statutes.

That distinction matters, because California law imposes public-policy limits on how risk can be shifted in construction-related agreements—limits that do not necessarily apply in other commercial contexts.

Limitation-of-Liability Clauses in Construction Contracts

A limitation-of-liability clause caps or restricts the damages one contracting party may recover from another. It limits exposure rather than shifting responsibility. These clauses are common in construction-related professional services agreements, where the risk profile may far exceed the fee involved.

California law generally permits limitation-of-liability provisions in construction contracts where the parties have negotiated and expressly agreed to them. Civil Code section 2782.5 expressly allows parties to allocate, limit, or cap liability by agreement, including liability arising from design-related services.

Importantly, a limitation-of-liability clause does not require one party to defend or indemnify another. It simply defines the maximum liability between the parties to the contract.

Indemnity Clauses in Construction Contracts

Indemnity clauses operate very differently. They impose an affirmative obligation on one party to protect another from claims, damages, or liabilities, often including third-party claims. Rather than limiting liability, indemnity provisions shift it.

Because of their impact, indemnity clauses in construction contracts are strictly construed. California courts require that indemnity obligations be stated clearly, explicitly, and unequivocally. Courts will not infer an indemnity obligation from general language, indirect references, or strained interpretations of unrelated clauses.

When Indemnity Clauses Are Void in Construction Contracts

California law draws a firm line in construction contracts. Civil Code section 2782(a) renders void and unenforceable any provision that requires one party to indemnify another for the indemnitee’s sole negligence or willful misconduct.

This prohibition reflects a strong public policy: parties involved in construction may not contractually force others to bear responsibility for their own negligence. If an indemnity clause attempts to do so, it is not merely disfavored—it is void.

Why the Definition of “Construction Contract” Matters

These rules apply only if the agreement at issue qualifies as a construction contract. California law defines that term broadly, covering not only agreements for physical construction work but also contracts for services that are connected to or performed in support of construction activities.

As a result, agreements that might not intuitively be thought of as “construction contracts”—including certain professional or inspection services—may still fall within these statutory limits.

Key Takeaway

In California construction contracts, indemnity clauses and limitation-of-liability clauses are governed by very different rules. One shifts responsibility and is tightly regulated; the other limits exposure and is generally enforceable when properly negotiated. Because “construction contract” is defined broadly, these issues arise more often than parties expect—and careful drafting is essential to avoid provisions that are unenforceable from the start.