Construction projects involve high risk. Multiple contractors and subcontractors working on a project site—often with heavy equipment and hazardous conditions—creates the potential for significant injuries, property damages, and delays. To allocate that risk, indemnification provisions are standard in construction contracts. Whether you are a project owner, general contractor, subcontractor, or supplier, chances are your contracts have indemnification provisions that require you, or the party with which you are contracting, to provide indemnification for and a duty to defend against claims and losses arising from any negligence, breach, or other wrongdoing on the project. These clauses are often very broadly written to push down risk to lower tiers requiring indemnification for any type of loss or claim, regardless of fault. In this blog, we cover how construction contractors can identify and manage contract indemnification provisions to better protect their business from unnecessary risk and liability. Visit this link to access Parts 1 and 2 in this blog series.
Generally, there are three types of indemnification forms:
- Broad Form Indemnity – requiring another party to provide indemnification for all losses, even if the indemnified party is solely negligent.
- Intermediate Form Indemnity – requiring another party to provide indemnification for all losses, except if the loss arises from the sole negligence of the indemnified party.
- Limited Form Indemnity – requiring another party to provide indemnification only for losses caused by its own negligence.
While a general contractor may push the broadest form of indemnification down to a subcontractor eager for the work and often without equal bargaining power, many states have stepped in to create laws that promote fairness and prevent shifting excessive risk to another party. Many states have anti-indemnification statutes, some particular to construction, that prohibit contract clauses requiring a party to indemnify another party for that party’s own negligence. These laws vary significantly from state to state. Some states—such as Alaska, Arizona, Georgia, Hawaii, Idaho, Indiana, Maryland, Massachusetts, Michigan, New Jersey, South Carolina, South Dakota, Tennessee, and West Virginia—only prohibit indemnification provisions that shift the loss for “sole” negligence, allowing indemnification provisions that require a party to indemnify another for claims arising from concurrent negligence. Under these laws, an indemnifying party could be required to indemnify and defend another party even though it was 99% responsible for the claim or loss. Perhaps, recognizing this issue, other states—such as Arkansas, California, Colorado, Connecticut, Delaware, Illinois, Iowa, Kentucky, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, Texas, Utah, and Washington—have laws that prohibit indemnification provisions that shift the loss for concurrent negligence. Case law is instructive in the interpretation and application of many anti-indemnification statutes and should be consulted. For instance, in Virginia, the Supreme Court in Uniwest Construction v. Amtach Elevator Svs. interpreted the anti-indemnity statute under Va. Code § 11-4.1, which, upon cursory review, would appear to only prohibit broad form indemnity provisions, to include intermediate form indemnity provisions as being void and unenforceable.[1]
Anti-indemnity laws can vary based upon particular types of contracts or projects, e.g., design and professional services, residential, public, and private. In addition, anti-indemnity statutes vary on obligations to tender a defense for claims arising from an indemnitee’s sole or concurrent negligence. Depending upon the law, you may still be required to tender a defense to claims against an indemnified party even in a state with an anti-indemnification statute. Given the cost of litigation, the “duty to defend” language in a contract should be carefully reviewed and negotiated with an understanding of the applicable law.
Finally, because insurance requirements in construction contracts often require an indemnified party to be an “additional insured” on insurance policies, it is important to comport the indemnification obligations with the insurance requirements of a contract. While a few states—such as Arkansas, California, Georgia, Kansas, Louisiana, Minnesota, Montana, New Mexico, Oklahoma, Oregon, and Texas—extended anti-indemnity statutes to additional insured coverage, others have not done so, or the law is unsettled in that regard. Thus, in some states, while a party may not be required to indemnify another for losses or claims arising from that party’s concurrent negligence, an indemnifying party may be required to afford coverage to that party for such losses or claims.[2]
Given the risks of construction, it is important to carefully negotiate indemnification and insurance coverage requirements with an understanding of the laws that will govern. While the goal of anti-indemnity statutes is to promote fairness, prevent shifting excessive risk, and encourage responsible safety practices on construction projects, the party with whom you are contracting may not share that goal.
Attorneys in PilieroMazza’s Construction Group are well versed in construction contract indemnification provisions and related risks. If you have questions or need assistance, please contact Jessica duHoffmann or another member of the Group.
[1] 280 Va. 428, 441-442, 699 S.E.2d 223, 229-230 (2010), withdrawn in part, by Uniwest Const., Inc. v. Amtach Elevator Svs., Inc., 281 Va. 509 (2011).
[2] While it goes beyond the scope of this article, generally, standard additional insureds coverage does not provide coverage for the sole negligence of the additional insureds.
