Contractual agreements between owners and general contractors and/or between general contractors and subcontractors routinely include “indemnity” and/or “additional insured” provisions. Indemnity provisions typically require one party (typically the subcontractor or general contractor, or the “indemnitor”) to indemnify the other (typically the general contractor and/or owner, or the “indemnitee”) for any losses or claims arising out of the indemnitor’s actions. “Additional insured” provisions typically require one party to purchase insurance naming a contractor, owner or others as an insured party on the Commercial General Liability policy. These provisions are typically disfavored by subcontractors because these provisions shift financial responsibility to the subcontractor even when the subcontractor may not be at fault for the loss. Moreover, subcontractors have argued that indemnitees may not have the incentive to exercise care to avoid losses because the indemnified party is not responsible for its own actions.
Based upon these concerns, along with the idea that subcontractors may not have equal bargaining power in their negotiations with general contractors, most state legislatures have enacted statutes limiting the scope of legal liability that one party may contractually transfer to another. These statutes, also known as “antiindemnity statutes,” work differently depending on the specific language in each state statute. For example, most state statutes forbid indemnification when the negligence alleged arises from the indemnitee’s sole negligence. On the other hand, many antiindemnification statutes allow indemnitees to contractually assign their liability to indemnitors if the indemnitees are only partially responsible for the loss. This subtle but substantial difference in statutory language can result in significant difference regarding who pays the loss under contractual indemnification clauses.
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