A Review and Update of Anti- Indemnity Statutes

Transcription

1 A Review and Update of Anti- Indemnity Statutes Kamy Molavi Freeman Mathis & Gary LLP 100 Galleria Parkway, Suite 1600 Atlanta, GA (770)

2 Kamy Molavi is a construction lawyer. He holds bachelors and masters degrees in Civil Engineering from the Georgia Tech, and a law degree from Emory University School of Law. Before he became a lawyer, he worked for general contracting firms as a project manager and estimator. Mr. Molavi taught a graduate course on construction law at Southern Polytechnic State University. He is an arbitrator on the panel of the American Arbitration Association. Selected as one of Chambers America s Leading Business Lawyers, he was also included in Law & Politics Super Lawyers

3 A Review and Update of Anti-Indemnity Statutes Table of Contents I. Background II. Policy Behind Anti-Indemnity Legislation III. Extent of the Indemnitee s Fault A. Sole Negligence Statutes B. Any Negligence Statutes IV. Effect on Design Professionals V. Effect on Insurance Requirements VI. Additional Considerations VII. Recent Case Law Trends VIII. Implications/Advice A Review and Update of Anti-Indemnity Statutes Molavi 261

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5 A Review and Update of Anti-Indemnity Statutes I. Background It is quite common for parties involved in construction projects to include indemnity provisions within their construction contracts. For example, the owner of a construction project may require the other construction participants, such as the general contractor, to indemnify the owner for certain claims. In recent years, many states have enacted statutes that affect the validity of these provisions. This paper explores the different types of anti-indemnity statutes that have emerged, recent trends, and general considerations when reviewing anti-indemnity statutes. II. Policy Behind Anti-Indemnity Legislation An indemnification agreement in construction contracts is a common mechanism by which one party can shift the risk of its negligence to another construction participant. In many instances, the party seeking to be indemnified has a superior bargaining power to the party that is providing the indemnification. As a result of the increasing use of indemnification provisions in standard contracting agreements, many in the construction contracting community lobbied their local legislatures for laws to restrict these indemnification provisions. Bruner & O connor Construction Law 10:77. Public policy in many states urges courts to prevent the party with superior power from requiring a party with inferior power to be the former s insurer, especially when the party with inferior bargaining power is not at fault for the loss. Scott C. Turner, Contractual Liability Coverage May Circumvent Anti-Indemnity Statutes, Insurance Coverage of Construction Disputes 10:11, (June 2012). This has led many courts and legislatures to reject, modify, or invalidate such risk-shifting provisions. Bruner & O Connor Construction Law 10:71. Another popular method for parties in construction to transfer risk is by requiring a contractor to name another party as an additional insured on the contractor s general liability insurance policy. While the protection provided by an indemnity agreement and the coverage provided to an additional insured on a contractor s insurance policy may overlap, they are separate and distinct risk-transfer tools. Ann Rudd Hickman, Additional Insured Status: It s not what it used to be, American Agent & Broker, Vol. 77, Issue 7, 2005 WLNR (July 1, 2005). Legislatures and courts generally distinguish between contract provisions that require one party to indemnify the other, and contract provisions that require on party to obtain indemnity (insurance) through a third party for the other. Bruner & O Connor Construction Law 10:82. In other words, a contract for indemnity may be rendered void by some of the anti-indemnity statutes discussed below, while a contract requiring one construction participant to obtain insurance for the other may survive them. Bruner & O Connor Construction Law 10:82. III. Extent of the Indemnitee s Fault A majority of states have enacted anti-indemnity statues that restrict, modify, or invalidate indemnification agreements in construction contracts. With respect to the degree of fault against which indemnity may be barred, two types of anti-indemnity statutes have emerged across the nation. In this article these two types are referred to as sole negligence statutes and any negligence statues. This article also discusses variations as to the application of statutes to design professionals. Finally, we address some state statutes that also invalidate insurance agreements, including additional insured provisions. A Review and Update of Anti-Indemnity Statutes Molavi 263

6 A. Sole Negligence Statutes Nearly half of the state anti-indemnity laws void provisions that attempt to require the indemnitor to indemnify the indemnitee for the indemnitee s sole negligence or willful misconduct. Bruner & O Connor Construction Law 10:90. A loss is said to arise from the sole negligence of a party if no other party s negligence contributed to the damage. Jeffrey M. Hummel and Z. Taylor Shultz, Indemnification Principles and Restrictions on Construction Projects, Construction Briefings No (August 2005). Indemnity in Sole Negligence states is allowed when the indemnitor and indemnitee are each partially at fault, or a portion of fault can be attributed to a third person. Bruner & O Connor Construction Law 10:90. Stated another way, under these statutes an indemnitor may have to pay for the injury even if the indemnitee is 99 percent responsible for the injury. Dwight G. Cogner, et al., Construction Accident Litigation 6:23 Anti-indemnity statutes (June 2012). Further, in most states that only invalidate sole negligence provisions in indemnity contracts, workers compensation and insurance agreements are not affected by the sole negligence indemnity prohibition in the statute. Gerald A. Melchiode and Meagan E. Messina, The Trend of Anti- Indemnity Law, A Cognitive Illusion. However, several state statutes are silent on these issues. More on these topics will be discussed below. Examples of typical sole negligence anti-indemnity statutes are those enacted in Alaska and Georgia. The Alaska anti-indemnity statute, Alaska Stat , provides: A provision, clause, covenant, or agreement contained in, collateral to, or affecting a construction contract that purports to indemnify the promisee against liability for damages for (1) death or bodily injury to persons, (2) injury to property, (3) design defects, or (4) other loss, damage or expense arising under (1), (2), or (3) of this section from the sole negligence or wilful misconduct of the promisee or the promisee s agents, servants, or independent contractors who are directly responsible to the promisee, is against public policy and is void and unenforceable; however, this provision does not affect the validity of an insurance contract, workers compensation, or agreement issued by an insurer subject to the provisions of AS 21, or a provision, clause, covenant, or agreement of indemnification respecting the handling, containment, or cleanup of oil or hazardous substances as defined in AS 46. (Emphasis added). The Georgia statute, O.C.G.A (b), is also a sole negligence statute, but has slightly different language: A covenant, promise, agreement, or understanding in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair, or maintenance of a building structure, appurtenances, and appliances, including moving, demolition, and excavating connected therewith, purporting to require that one party to such contract or agreement shall indemnify, hold harmless, insure, or defend the other party to the contract or other named indemnitee, including its, his, or her officers, agents, or employees, against liability or claims for damages, losses, or expenses, including attorney fees, arising out of bodily injury to persons, death, or damage to property caused by or resulting from the sole negligence of the indemnitee, or its, his, or her officers, agents, or employees, is against public policy and void and unenforceable. (Emphasis added). While these two statutes are similar, they highlight the distinctions that may exist amongst sole negligence state statutes. For example, the Alaska statute on its face is much broader. In contrast to the Georgia statute, the Alaska statute applies not only to the sole negligence of the indemnitee, but also to its willful misconduct. Thus, both types of conduct would preclude indemnification. The Alaska statute also applies to 264 Construction Law Seminar September 2012

7 losses resulting from bodily injury, damage to property, design defects, and other loss, whereas the Georgia statute only applies to bodily injury and property damage. While these distinctions are apparent on the faces of the statutes, it is always prudent to research the relevant case law in the jurisdiction to determine how the courts interpret the statute at issue. B. Any Negligence Statutes Under statutes that only prohibit indemnification of another person s sole negligence, a significant amount of risk shifting can still occur. Bruner & O Connor Construction Law 10:77. Several states have enacted versions a different variety of anti-indemnity statute, referred to by this author as any negligence states. This type of anti-indemnity statute voids contract provisions that require indemnification for losses or damages arising out of the indemnitee s negligence, whether sole or partial. Allen Holt Gwyn and Paul E. Davis, Fifty-State Survey of Anti-Indemnity Statues and Related Case Law, The Construction Lawyer, pg. 26 (Summer 2003). Thus, this type of anti-indemnity statute would necessarily include sole negligence prohibitions. In states that have any negligence anti-indemnity statutes, the indemnitor is more restricted from shifting the risk onto a non-negligent party than in sole negligence states. There are also variations among any negligence anti-indemnity statutes. For example, the differences between Massachusetts and Mississippi laws are noted below. The Massachusetts anti-indemnity statute, Mass. Gen. Laws, ch. 149, 29C, provides as follows: Any provision for or in connection with a contract for construction, reconstruction, installation, alteration, remodeling, repair, demolition or maintenance work, including without limitation, excavation, backfilling or grading, on any building or structure, whether underground or above ground, or on any real property, including without limitation any road, bridge, tunnel, sewer, water or other utility line, which requires a subcontractor to indemnify any party for injury to persons or damage to property not caused by the subcontractor or its employees, agents or subcontractors, shall be void. (Emphasis added). Similarly, the Mississippi anti-indemnity statute, Miss. Code , states: With respect to all public or private contracts or agreements, for the construction, alteration, repair or maintenance of buildings, structures, highway bridges, viaducts, water, sewer or gas distribution systems, or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise and/or agreement contained therein to indemnify or hold harmless another person from that person s own negligence is void as against public policy and wholly unenforceable. (Emphasis added). Thus, pursuant to the language of the Massachusetts statute, an agreement to indemnify an indemnitee for the indemnitee s negligence or the negligence of other third parties would be void. In contrast, the Mississippi statute only voids contract provisions in which the indemnitee seeks indemnification for their own negligence. It is noteworthy that the Massachusetts statutes bars certain indemnification clauses in subcontracts, but does not affect such clauses in prime contracts. It may apply to design agreements only to the extent they can be construed as being connected to one of the enumerated contracts. Based on its wording, applying the Mississippi provision to an agreement for design or other services ancillary to construction would seem even more tenuous. The chart summarizes our review of the anti-indemnity statutes in the 50 states. For similar charts that have been compiled by other authors, please see Anti-Indemnity Statutes in the 50 States, The Founda- A Review and Update of Anti-Indemnity Statutes Molavi 265

8 tion of the American Subcontractors Association, Inc. (2009) and Allen Holt Gwyn and Paul E. Davis, Fifty-State Survey of Anti-Indemnity Statues and Related Case Law, The Construction Lawyer, pg (Summer 2003). State Bars Indemnity for Sole Negligence Bars Indemnity for Any Negligence Comments Alabama No statute Alaska X Alaska Stat Exception for Hazardous substances. Arizona X (private work) X (public work) Ariz. Rev. Stat , , Exception for entry onto adjacent land. Arkansas X Ark. Code , California X X (residential construction defect only) Civ. Code 2782 [AB 758 (2005)], Exception for entry onto adjacent land. Colorado X Colo. Rev. Stat , Connecticut X Conn. Gen Stat k. Delaware X Del. Code, Title 6, D.C. No statute Florida X (public work) Fla. Stat Georgia X O.C.G.A Hawaii X Hawaii Rev. Stat. 431: Idaho X Idaho Rev. Stat Illinois X Ill. Compiled Stat., 740 ILCS 35/1-3. Indiana X Ind. Code , Ind. Code dangerous instrumentality exception Iowa X Iowa Code 537A.5. Kansas X Kansas Stat Kentucky X Kentucky Rev. Stat Louisiana X (only protects prime contractor on public works) La. Rev. Stat. 38:2216.G Maine No statute Maryland X Md. Code. Ann., Cits & Jud. Proc Construction Law Seminar September 2012

9 State Bars Indemnity for Sole Negligence Bars Indemnity for Any Negligence Comments Massachusetts X Mass. Gen. Laws, ch. 149, 29C. Michigan X Mich. Comp. Laws Minnesota X Minn. Stat , Exception that owner may indemnify for strict liability under environmental laws. Mississippi X Miss. Code Missouri X Mo. Rev. Stat Montana X Montana Rev. Code Nebraska X Neb. Rev. Stat , 187. Nevada No statute. But see Reyburn Lawn & Landscape Designers, Inc. v. Plaster Development Co., Inc., 255 P.3d 268 (Nev. 2011) (stating that, while the parties are free to contractually agree to indemnify another for its own negligence, an express or explicit reference to the indemnitee s own negligence is required ). New Hampshire X N.H. Rev. Stat. 338-A:1 and 338-A:2. New Jersey X N.J. Stat 2A:40A-1 New Mexico X N.M. Stat New York X N.Y. Gen. Oblig. Laws North Carolina X N.C. Gen. Stat. 22B-1. North Dakota No statute for typical construction contracts. But see N.D. Cent. Code Contract cannot make contractor liable for errors or omissions of owner or owner s agent. Ohio X Ohio Rev. Stat Oklahoma X 15 Okl. Stat Oregon X Or. Rev. Stat Pennsylvania No statute for typical construction contracts, but Pa. Stat., Title , construction contracts that indemnify design professionals are against public policy Rhode Island X R.I. Gen. Laws South Carolina X S.C. Code South Dakota X S.D. Codified Laws A Review and Update of Anti-Indemnity Statutes Molavi 267

10 State Bars Indemnity for Sole Negligence Bars Indemnity for Any Negligence Comments Tennessee X Tenn. Code Texas X (public work) Utah X Tex. Stat. Civ. Prac. & Rem. Code Utah Code exception permits indemnity of owner Vermont No statute Virginia X Va. Code Washington X Wash. Rev. Code West Virginia X W. Va. Code Wisconsin X Wis. Stat Wyoming No statute regarding typical construction contracts; Wyoming Stat , 132. prohibits contracts pertaining to any well for oil, gas, water or mine for any material from indemnifying indemnitee for his own negligence IV. Effect on Design Professionals In terms of the effect of their anti-indemnity statutes on design professionals, the states fall into four categories, as follows: In the first group of states, there are statutes that expressly void only indemnification for design professionals. Allen Holt Gwyn and Paul E. Davis, Fifty-State Survey of Anti-Indemnity Statues and Related Case Law, The Construction Lawyer, pg. 27 (Summer 2003). Some of the states in this group also have separate anti-indemnity statutes that apply to parties other than designers, and some do not. For example, Pennsylvania s anti-indemnity statute, Pa. Stat., Title , applies only to design professionals: Every covenant, agreement or understanding in, or in connection with any contract or agreement made and entered into by owners, contractors, subcontractors or suppliers whereby an architect, engineer, surveyor or his agents, servants or employees shall be indemnified or held harmless for damages, claims, losses or expenses including attorneys fees arising out of: (1) the preparation or approval by an architect, engineer, surveyor or his agents, servants, employees or invitees of maps, drawings, opinions, reports, surveys, change orders, designs or specifications, or (2) the giving of or the failure to give directions or instructions by the architect, engineer, surveyor or his agents, servants or employees provided such giving or failure to give is the primary cause of the damage, claim, loss or expense, shall be void as against public policy and wholly unenforceable. (Emphasis added). Whereas New Hampshire has two separate anti-indemnity statutes, one for design professionals and one for other parties to construction contracts: 268 Construction Law Seminar September 2012

11 N.H. Rev. Stat. 338-A:1: Any agreement or provision whereby an architect, engineer, surveyor or his agents or employees is sought to be held harmless or indemnified for damages and claims arising out of circumstances giving rise to legal liability by reason of negligence on the part of any said persons shall be against public policy, void and wholly unenforceable. (Emphasis added). N.H. Rev. Stat. 338-A:2: Any provision for or in connection with a contract for construction, reconstruction, installation, alteration, remodeling, repair, demolition, or maintenance work, including without limitation, excavation, backfilling or grading, on any building or structure, whether underground or above ground, or on any real property, including without limitation any road, bridge, tunnel, sewer, water, or other utility line, which requires any party to indemnify any person or entity for injury to persons or damage to property not caused by the party or its employees, agents, or subcontractors, shall be void. (Emphasis added). In each of the second group of states, the general anti-indemnification statute expressly includes design professionals within its plain language and scope. Allen Holt Gwyn and Paul E. Davis, Fifty-State Survey of Anti-Indemnity Statues and Related Case Law, The Construction Lawyer, pg. 27 (Summer 2003). These statutes can apply to agreements to indemnify a design professional for either its sole negligence or for any negligence on its part. Jeffrey M. Hummel and Z. Taylor Shultz, Indemnification Principles and Restrictions on Construction Projects, Construction Briefings No (August 2005). For example, the South Carolina statute, S.C. Code , expressly includes design professionals in it s statute prohibiting indemnification for sole negligence : Notwithstanding any other provision of law, a promise or agreement in connection with the design, planning, construction, alteration, repair or maintenance of a building, structure, highway, road, appurtenance or appliance, including moving, demolition and excavating, purporting to indemnify the promisee, its independent contractors, agents, employees, or indemnitees against liability for damages arising out of bodily injury or property damage proximately caused by or resulting from the sole negligence of the promisee, its independent contractors, agents, employees, or indemnitees is against public policy and unenforceable. (Emphasis added). While North Carolina, N.C. Gen. Stat. 22B-1, expressly includes design professionals in its statute prohibiting indemnification for any negligence : Any promise or agreement in, or in connection with, a contract or agreement relative to the design, planning, construction, alteration, repair or maintenance of a building, structure, highway, road, appurtenance or appliance, including moving, demolition and excavating connected therewith, purporting to indemnify or hold harmless the promisee, the promisee s independent contractors, agents, employees, or indemnitees against liability for damages arising out of bodily injury to persons or damage to property proximately caused by or resulting from the negligence, in whole or in part, of the promisee, its independent contractors, agents, employees, or indemnitees, is against public policy and is void and unenforceable. (Emphasis added). The third group of states have general anti-indemnity statutes that do not expressly address designers but can be (or have been) interpreted to apply to design professionals. Georgia is one of the states in this group. A Review and Update of Anti-Indemnity Statutes Molavi 269

12 In the final group are states with anti-indemnity statutes that arguably do not apply to design professionals, either expressly or impliedly. Examples of States whose anti-indemnity statute do not appear to apply by their express terms to design professionals are the Massachusetts and Mississippi statutes cited above. V. Effect on Insurance Requirements An insurance policy procured by the indemnitor could provide protection to the indemnitee for the indemnitee s negligence. Bruner & O Connor Construction Law 10:90. The majority of anti-indemnity laws do not expressly affect the validity of an agreement for insurance covering the negligence of a party other than the named insured. Most indemnification statues allow agreements that shift a risk to a party s insurance company even though requiring the same party to indemnify another against the same risk may not be permissible. Bruner & O Connor Construction Law 10:91. The Arkansas statute, Ark. Code , addresses insurance in detail. A portion of that statute provides as follows: The parties to a construction contract or construction agreement may enter into an agreement in which: (1) The first party indemnifies, defends, or holds harmless the second party from the first party s negligence or fault or from the negligence or fault of the first party s agent, representative, subcontractor, or supplier; (2) The first party requires the second party to provide liability insurance coverage for the first party s negligence or fault if the construction contract or construction agreement requires the second party to obtain insurance and the construction contract or construction agreement limits the second party s obligation to the cost of the required insurance; (3) The first party requires the second party to provide liability insurance coverage for the first party s negligence or fault under a separate insurance contract with an insurance provider; or (4) The first party requires the second party to name the first party as an additional insured as a part of the construction agreement or construction contract. (Emphasis added). The Arkansas statute expressly allows contracts for insurance, with some limitations, whether the agreement is for separate insurance or to name the indemnitee as an additional insured under the indemnitor s insurance contract. Thus, a party wishing to be indemnified sometimes will attempt to circumvent anti-indemnity statues by requiring another party to name the former as an additional insured under the latter s insurance policy. One of the main reasons an additional insured arrangement is used is so that the additional insured will not be limited to the coverage that the insurer owes for the liability of the named insured. Federated Service Ins. Co. v. Alliance Constr., LLC, 282 Neb. 638, 805 N.W.2d 468 (2011). This mechanism can succeed if the anti-indemnity statute in the controlling jurisdiction does not foreclose the additional insured approach. For example, in October 2011, the Supreme Court of Nebraska recognized the common practice for contract provisions to require the subcontractor to name the owner and general contractor as additional insureds under the subcontractor s commercial general liability policy. Id. at 282 Neb. 648, 805 N.W.2d 477. The Court explained that, when an additional insured agreement is in place, the coverage is not limited to what the insurer owes for the subcontractor s contractual liability under the indemnity agreement. Id. Therefore, even if the indemnity agreement is found invalid, the coverage extended to another party under an additional insured endorsement in not affected. Id. 270 Construction Law Seminar September 2012

13 A variant of the insurance approach to risk management is requiring a party to the contract to purchase a separate insurance policy in the name of another. Finally, courts in some jurisdictions have found that their anti-indemnity statutes do not apply where the underlying contract couples the indemnification clause with one that requires one party to obtain contractual liability insurance. Scott, C. Turner, Contractual Liability Coverage May Circumvent Anti-Indemnity Statutes, Insurance Coverage of Construction Disputes 10:11 (June 2012). Interestingly, this exception to the anti-indemnity statutes sometimes applies even if the party charged with obtaining the insurance coverage fails to do so, so long as this failure would constitute a breach of contract. Id. Thus, an indemnification clause that would not be enforceable by itself may be enforced as a result of failure by the indemnitor to comply with the corollary obligation to procure contractual liability insurance. In contrast to the Arkansas statute discussed above, which expressly allows for risk-shifting to an insurance company, some states have expanded their anti-indemnity statutes to also void contract provisions that seek to transfer risk via additional insured coverage. See States curb ability to shift contractor risk; Antiindemnity changes cut additional insureds from some CGL policies, Business Insurance, Volume 46, Issue 18 (April 30, 2012); Paul Primavera, Evolving AI Endorsement Interpretations Create More Headaches for Contractors, National Underwriter Property and Casualty, 2009 WLNR (February 23, 2009). These states presumably find it equally inequitable to allow a party to shelter itself against the consequences of its own negligence whether this is done by mandating that another party insure procure insurance or by an indemnification clause covering the same negligence. Ann Rudd Hickman, Additional Insured Status: It s not what it used to be, American Agent & Broker, Volume 77, Issue 7, 2005 WLNR (July 1, 2005). States that have chosen to expand their anti-indemnity laws to apply to additional-insured endorsements have left many contractors without the traditional risk-transfer tools to which that they may be accustomed. Paul Primavera, Evolving AI Endorsement Interpretations Create More Headaches for Contractors, National Underwriter Property and Casualty, 2009 WLNR (February 23, 2009). While each states statute may appear to be clear with regard to insurance, it is also important to analyze the case law in each state to determine how Courts are interpreting the statutes. For example, in Peeples v. Detroit, 297 N.W.2d 839 (Mich. App. 1980), the Court of Appeals in Michigan found that while the state s antiindemnity statute was silent with regards to insurance, it was contrary to public policy for a party to insulate itself from liability by requiring someone else to purchase insurance for the former. Common law in other jurisdictions distinguishes between agreements for insurance that are embedded within the agreement for indemnity in the contract and those agreements for insurance that are separate. For example, the Court of Appeals in Illinois has stated that a contract requiring one party to obtain insurance for another may be invalid where the contract for insurance obligation is inextricably intertwined with a void indemnity provision. W.E. O Neil Constr. Co. v. General Cas. Co. of Ill., 321 Ill. App. 3d 550, 748 N.E.2d 667 (Ill. App. 2001). VI. Additional Considerations Some states have addressed the effect of workers compensation laws on indemnity provisions. The majority of states that address this issue have found that indemnification is not affected by any workers compensation laws or immunity. Gwyn, Allen Holt Gwyn and Paul E. Davis, Fifty-State Survey of Anti-Indemnity Statues and Related Case Law, The Construction Lawyer, pg. 27 (Summer 2003). Also, some states differentiate between private and public construction works. For example some state statutes provide that agreements that purport to indemnify for sole negligence are invalid for public construction projects, but not for private projects. An illustration of this occurs in Arizona and Florida: A Review and Update of Anti-Indemnity Statutes Molavi 271

14 Arizona has separate anti-indemnity statutes for private and public construction contracts. Section of the Arizona Statutes applies to private contracts and invalidates indemnity provisions that seek to indemnify the indemnitee for its sole negligence. Whereas, Sections and invalidate indemnity provisions in public contracts that purport to indemnify the indemnitee from damages resulting from any negligence of the indemnitee. See Ariz. Rev. Stat ; and Florida s anti-indemnity statute incorporates language applicable to both public and private construction contracts. Section (1) limits, but does not bar, indemnity provisions in contracts for private works by invalidating indemnity provisions in such contracts unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any. Indemnity provisions in public contracts, however, may only require a party to indemnify the other party to the extent the damage is caused by the indemnifying party. See Fla. Stat (2), (3). VII. Recent Case Law Trends Recent case law addressing anti-indemnity laws has highlighted some of the fine points in the statutes and public policies of the states. One current issue is whether the contract qualifies as a construction contract and thus is subject to state s anti-indemnity statute. All of the states that have analyzed this issue recently have decided that the term construction contract in the anti-indemnity statutes should be interpreted broadly. Georgia courts, for example, have interpreted the anti-indemnity statute broadly to apply to assignment agreement transferring the maintenance and repair of a residential subdivision to the homeowners association. Kennedy Development Co., Inc. v. Camp, 290 Ga. 257, 719 S.E.2d 442 (2011) (broadly interpreting the and interpreting language to hold another party harmless of any and all damages no matter the origin of the claim or who is at fault as indemnification for sole negligence in violation of the statute). Likewise, New Mexico has interpreted the applicability of its anti-indemnity statute to encompass maintenance activities in improving a property and agreements for rental equipment to be used in construction activities. Holguin v. Fulco Oil Services L.L.C., 149 N.M. 98, 245 P.3d 42 (N.M. App. 2010) (looking to the plain language of maintenance and finding that language of statute does not limit its application to maintenance activities required during a construction project; concluding that work on an improvement to real property that is required to keep that improvement in a good state of repair and operating properly is within the scope of the construction anti-indemnity statute ); United Rentals Northwest, Inc. v. Yearout Mechanical, Inc., 148 N.M. 426, 237 P.3d 728 (N.M. Supreme Ct. 2010) (interpreting relating to construction broadly to include agreements for rental equipment designed or intended to be used in construction activities and holding that the anti-indemnity protections of the statute apply to such agreements). Another recent trend involves the interplay between indemnity and insurance, and specifically those statutes which contain an insurance savings clause. These situations arise in states where the anti-indemnity statute expressly prohibits contractual provisions that require the indemnitor to indemnify the indemnitee for the indemnitee s negligence, and also expressly state that the code section does not affect the validity of an insurance contract and/or any other agreement issued by an insurer. See Chrysler Corp. v. Merrell & Garaguso, Inc., 796 A.2d 648, (Del. 2002) (citing Heat & Power Corp. v. Air Products & Chemicals, Inc., 320 Md. 584, 578 A.2d 1202 (1990)). An example of an insurance savings clause is contained in the Alaska statute cited above, the applicable portion stating, this provision does not affect the validity of an insurance contract, workers compensation, or agreement issued by an insurer. Alaska Stat The interplay between 272 Construction Law Seminar September 2012

15 these two statutory provisions has not uniformly interpreted among the various jurisdictions. See Chrysler Corp. v. Merrell & Garaguso, Inc., 796 A.2d 648, (Del. 2002). As one example in a coverage dispute, the Delaware Supreme Court found that despite the public policy against indemnification for someone else s negligence, whether the indemnification is direct or indirect, the insurance savings provision is enforceable. Id. The Delaware Supreme Court stated that insurance companies are sophisticated and should not be able to use the anti-indemnity statute as a shield to decline coverage after it is purchased. Id. Some states are statutorily silent with respect to the validity of indemnity agreements in construction contracts, but their courts recently have addressed the issue. For example, the Nevada Supreme Courts recently found that a party can be contractually required to indemnify another for the indemnitee s negligence, but only if the contract for indemnity contains an express or explicit reference to the indemnitee s own negligence. Reyburn Lawn & Landscape Designers, Inc. v. Plaster Development Co., Inc., 255 P.3d 268 (Nev. 2011). Thus, a general statement requiring the indemnitor to indemnify the indemnitee for any and all claims is not sufficient in Nevada. Id. VIII. Implications/Advice In sum, participants in construction contracts and their counsel should carefully review the applicable statutes in their states, the corresponding case law, and the language of the contracts that they are entering into. While an anti-indemnity statute may appear clear on its face, the relevant case law may have interpreted the statute in an unexpected way. For larger construction projects, a wrap-up policy may be a way to make sure all participants are protected and insured from their own negligence and the negligence of others on the project, thus hopefully avoiding some indemnity and coverage disputes because a single carrier is responsible for all claims. Joanne Wojcik, Wrap-up Liability Coverage Offers Additional Protection, Business Insurance, Vol. 46 Issue 18, 2012 WLNR (April 30, 2012). Typically an administrator is engaged to function as the control point for all claims and streamline the claims process. Using wrap-up insurance programs, project owners can ensure that there are no gaps in coverage with regard to general liability and workers compensation, as well as sufficient specific coverage for the contractors. The most common type of wrap-up program is the Owner Controlled Insurance Program (OCIP), whereby the owner procures insurance covering multiple parties. The basic wrapup concept has been adopted more recently by contractors and is referred to as a Contractor Controlled Insurance Program (CCIP). A Review and Update of Anti-Indemnity Statutes Molavi 273

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