Arizona Legislature Adds New Limits On Indemnification In Public Construction Contracts

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For many years, the Arizona Little Miller Act and the Arizona Procurement Code (A.R.S. § 34–226 and A.R.S. § 41-2586, respectively) prohibited a party from being indemnified, held harmless or defended to the extent of its own negligence. This prohibition applied to an owner, design professional, contractor or subcontractor agreement relating to a public works project. Any agreement that attempted to provide indemnity for an indemnified party’s own negligence was deemed to be void because it was contrary to public policy. Under these statutes, each party was required to be responsible for its own negligence.

Although there was a limit on the ability to transfer risk of party’s own negligence, the public works statutes did not prohibit the party providing the indemnity from naming the indemnified party as an additional insured. The result was that even though indemnity for negligence could not be directly provided by a contractual provision, the party downstream might be required to provide insurance coverage for such negligence with a proper additional insured endorsement. Thus, for example, even if the contract general conditions stated that the indemnity obligations of the contractor do not apply to any claims “arising from the negligent acts or omissions” of the owner, if the insurance provision required the owner to be named as an additional insured under the contractor’s liability policy, the owner would be insured for its own negligence by the contractor...

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