Letter from the Editor

Welcome to our summer 2013 issue on indemnity and additional insured provisions in the Southwest. While contractual provisions that define liability in the event of accidental damage or loss affect most construction projects, the articles in this issue demonstrate how the laws and rules concerning indemnity and additional insured provisions can vary greatly from state to state. In the opening article, Eric Spencer and I explain pertinent concepts of indemnity and insurance and emphasize how important it is for owners, contractors, subcontractors and design professionals to be aware of indemnity agreements, additional insured provisions and applicable law. Though we work through some of the potential requirements of and restrictions on indemnity and additional insured provisions in the state of Arizona, the subsequent articles regarding these types of agreements in Nevada, California, New Mexico, Colorado and Utah make one thing clear: regardless of where a project occurs, it is imperative that all interested parties review their contractual obligations and understand the applicable law.

As Leon Mead explains in our second article, Nevada has no statutory prohibition on indemnification agreements for construction projects. After discussing a number of significant rulings made by the Nevada Supreme Court regarding indemnification, Mead makes a call to professionals in the construction industry in Nevada to come together to reach a compromise on indemnification and defense obligations.

In our third article, Stuart Einbinder and Jeff Singletary discuss changes in the California laws governing indemnification in the construction industry. Einbinder and Singletary speculate that one “peculiar” exception will be interesting to monitor as it is addressed by the California courts over the next several years.

In our fourth article, Josh Grabel provides an overview of the New Mexico Anti-Indemnity Act, which attempts to hold each party accountable for its actions on a construction site. Grabel notes that any public or private contract that involves the construction, alteration, repair or maintenance of any real property physically located in New Mexico is likely to be affected by this Act.

In our fifth article, Jonathan Allen discusses the significance of Colorado’s anti-indemnification statute, which attempts to void, with some exceptions, any construction contract that imposes broad indemnification obligations that extend beyond the negligent party.

For our final article, Jeremy Stewart reviews Utah’s anti-indemnification statute and outlines the primary requirements of Utah Code § 13-8-1 as well as some of its key exceptions.

I hope you enjoy and find the articles in this issue informative and useful. If you have any ideas for future articles or issues, please feel free to e-mail me with your suggestions. Enjoy the summer!

Best Regards,

Jim Sienicki

Indemnity and Insurance in Arizona: Key Concepts for Owners, Contractors and Design Professionals

Accidents and losses unfortunately happen on construction projects. Thus, it is prudent, on the front end of a project, to prospectively determine which party or parties will ultimately pay in the event accidental damage or loss occurs.

This risk is often allocated through an interlocking set of contractual obligations between owners, design professionals, general contractors and subcontractors on a particular project, and through insurance coverage. The parties normally allocate this risk not to the party who can most afford it, but to the party that, at least theoretically, can best control whether the damage or loss occurs in the first place. Thus, for example, general contractors usually require their subcontractors to indemnify them for property losses or personal injury that result from or arise out of the subcontractor’s work. The contract also may require that the subcontractor purchase insurance, and in most cases, name the general contractor as an additional insured on the policy purchased by the subcontractor. Owners, general contractors, design professionals (e.g. architects and engineers) may have similar arrangements in their respective contracts.[1]

When entering into these agreements, it is important to understand what you are getting and what you are giving up when it comes to indemnity and insurance. These provisions often determine who will be picking up the check if something goes wrong. Therefore, these provisions should be carefully negotiated, if possible. Alternatively, if you must bear some risk of loss, it is prudent to fully understand the ramifications of the obligations that have been assumed, and also to exercise foresight to have or obtain insurance coverage to cover the risk of loss. Many parties assume they bargained for certain protection or limitations but later realize, when those contract provisions are tested in court, that their supposed protection or limitations are less than optimal.

This article summarizes Arizona law regarding key indemnity and insurance issues affecting construction projects. We can by no means comprehensively cover the subject here; however, this article covers items that can help reduce the chances of being surprised by an indemnity or insurance obligation or limitation down the line.

Contractual Indemnity Is Key. The first step of any indemnification analysis is to read the contract provisions.

If there is no contract provision addressing indemnification, a party still may be entitled to indemnity under common law legal principles. It is difficult to obtain common law indemnity because the party seeking common law indemnity cannot in any way be “actively” at fault for the damages or loss—and that is rarely the case on a construction project. A party who is merely “passively” at fault may still be entitled to common law indemnity, but drawing the line between active and passive negligence is easier said than done.  Even the most diligent owner, contractor or design professional has likely made some mistake somewhere along the way. Therefore, an owner may be forced to engage in costly litigation in order to establish its common law right to indemnity, while the general contractor need only show that the owner was merely 1% at fault to avoid any common law indemnity liability. Thus, it is important to address indemnification in your contract in order to avoid this unpredictable and potentially costly scenario.

Is the Indemnity Clause Enforceable Under Arizona Law? Like most states, Arizona has set some basic parameters on what type of indemnity agreements can be enforceable. Because, as a matter of public policy, all parties should have an incentive to operate with due care, no party to a construction contract can be indemnified for its sole negligence. A.R.S. § 32-1159. In other words, if a party is 100% at fault for the loss or injury in question, that party cannot shift that loss to another via an indemnification provision. (Insurance is a different matter, however).

Parties working on a public construction project are further restricted. While a party may be indemnified for its partial negligence on a private project, one cannot be indemnified for its own fault on a public project. A.R.S. §§ 34-226; 41-2586. For example, a private owner who is 75% at fault may be fully indemnified by its general contractor under the right circumstances, and with the right indemnity provisions, while a public owner will be capped at 25% under the anti-indemnity statutes regardless of what its indemnity provisions provide.

In light of these restrictions, many indemnity clauses begin with the phrase “to the extent permitted by law” in order to enhance their ability that they will be enforceable. Thus, an indemnity provision that provides that a party is entitled to be indemnified for “all” damage or loss it suffers on a public project will probably be interpreted to only cover those damages or losses caused by the other party or parties.

Do the Indemnity Provisions Enable a Party To Be Indemnified? Rarely will you encounter a scenario where the party giving indemnity (the “indemnitor”) is completely at fault. Thus, a good indemnity provision needs to account for more complex scenarios likely to be encountered, such as when multiple parties—including the party seeking indemnity (the “indemnitee”)—are negligent to some degree.

If the indemnification clause does not specifically state that the indemnitee can be indemnified for its own negligence, then the indemnitee cannot be indemnified if it is (actively) negligent. Of course, a generalized indemnity provision is preferable over no indemnity provision because having a contract right dispenses with the necessity for a judge or jury to determine, as a matter of equity, whether you truly “deserve” indemnity. However, securing a more specific indemnification agreement is usually the goal of any party seeking to be indemnified for its own negligence on a private construction project.

In order to create the requisite level of specificity, the contract must state clearly that the indemnitee will be indemnified for damages or losses caused in part by its own negligence. For example, Arizona courts have found the following clause to be sufficiently clear: “To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner . . . against all claims . . . caused in whole or in part by any negligent act or omission of the Contractor, . . . regardless of whether or not it is caused in part by a party indemnified hereunder.” Washington Elem. School Dist. No. 6 v. Baglino Corp., 169 Ariz. 58, 817 P.2d 3 (1991) (emphasis added).  Thus, an owner invoking this provision may be indemnified for all damage or loss even when it is 99% responsible for the damage or loss.

Because the determination of fault is inherently unpredictable, a more specific indemnity clause provides broader protection against losses that occur on private projects. Having an attorney review indemnity provisions in a construction contract ahead of time can enhance the probability that the clause will enable a party to be indemnified as the indemnitee, or the party’s knowledge regarding what risks it is taking on as the indemnitor. That way, the party can know what changes to the clause should be negotiated before signing the contract. And, especially if the party is the indemnitor, the party should confirm that it has insurance coverage to protect itself against indemnity risks before signing the contract.  

Even If the Indemnity Provisions Enable the Party To Be Indemnified, To What Extent Will It Be Indemnified? Unfortunately, drafting an indemnity provision that specifically addresses a party’s own negligence still may not be sufficient to provide the desired indemnity protection. The fact that a party is able to be indemnified despite its own negligence has nothing to do with how much it is entitled to be indemnified.

The above example from the Baglino case involved an agreement where the owner was entitled to indemnification for damages “caused in whole or in part” by its own negligence. This language would permit an indemnitee to recover all its damages. Thus, an owner 25% at fault can be indemnified for 100% of its damages or losses under such a broad agreement.

However, using a different example, an indemnification clause that requires a subcontractor to indemnify the general contractor for damages and losses only “to the extent caused by negligent acts of the subcontractor” has a narrowing effect, such that the subcontractor is only obligated to provide indemnification for that portion of the loss that was caused by the particular subcontractor. MT Builders, L.L.C. v. Fisher Roofing Inc., 291 Ariz. 297, 197 P.3d 758 (App. 2008). Thus, a general contractor that uses this narrower clause in its contract indemnity provisions could not be indemnified for the damages or losses it caused.

Right-Sizing the Indemnity Obligations. It is important to understand how indemnity obligations dovetail with other indemnity obligations assumed by others on the project.

For example, assume that a private project owner enters into an agreement with its general contractor that specifically states the owner is to be indemnified despite its own negligence, but the general contractor enters into an indemnification agreement with its subcontractor that doesn’t state that the general contractor is entitled to indemnity for its own negligence. A third-party suffers a loss and sues the owner, general contractor and relevant subcontractor. A jury determines that all three parties were actively negligent according to the following percentages: owner 40%, general contractor 10% and subcontractor 50%.

In light of the more specific indemnification agreement between owner and general contractor, the general contractor will be obligated to indemnify the owner for the 40% of damages attributable to the owner. However, the general contractor will not be able to seek any indemnity from the subcontractor.

Thus, agreeing to a mismatched indemnity obligation can potentially be very costly for the contracting party caught in the middle, as it may find that it has liabilities passed on to it, but it cannot pass these liabilities on. This same caught in the middle scenario can apply to subcontractors who further subcontract their work or architects who contract with engineer subconsultants, for example. Therefore, a party should strive to reduce the indemnity coverage it is giving and/or strive to get as much indemnity coverage as it is giving.

Insurance Coverage—A Necessary Backstop. Who will be legally responsible according to an indemnity agreement is only the first part of the inquiry when a loss has occurred. Insurance coverage is equally critical. Insurance is important not only as a potential source to pay an indemnity obligation, but it can be used as a back-door way to achieve indemnity-type protection that would otherwise be unavailable.

An owner, for example, may have purchased a general liability policy and may also have additional insured status on the policy purchased by another party (the general contractor for example). The first place the owner will look for coverage will be the general contractor’s policy because the loss, if paid by the general contractor’s policy, is less likely to affect the owner’s future insurance premiums. That is why a party would want another’s policy to be the primary policy, and the insurance provisions in a contract should state whose policy is primary.

To determine whether a party is covered under another’s insurance policy, obtaining a copy of the certificate of insurance is helpful, but keep in mind that certificates are not binding on the insurance company unless an endorsement is issued identifying the party as an additional insured. Thus, at the time of contracting, especially if this is the first time you have contracted with this party, you should request the actual policy—including all endorsements—from the party who purchased the insurance.

Even if a party is covered by another’s policy, it is certainly possible for that policy to fall short in covering the indemnification obligations. This can leave a party with significant financial exposure. It is prudent to discuss this issue with an insurance broker before signing a contract. The reverse can be true as well: the insurance coverage may exceed or supplant the indemnity duty. Thus, for example, if an owner is not entitled to indemnity from its general contractor for one reason or another, insurance coverage under the general contractor’s policy nonetheless may be triggered due to the owner’s additional insured status. In other words, the owner may end up with some recourse after all if the general contractor’s insurer is obligated to defend the owner and/or contribute insurance proceeds towards a settlement or judgment.

Whether any insurance (yours or another policy) will cover the loss depends on the breadth of the indemnification clause and the breadth of the insurance coverage. If one agrees to indemnify another party only for claims arising from death, personal injury, or property damage, for example, a commercial general liability (CGL) insurance policy will likely cover such damages or losses. If, on the other hand, one agrees to indemnify the other party for additional economic losses, such claims will likely not be covered by a CGL policy. Thus, indemnitors should consider excluding this up front (before signing the contract). In fact, the safest approach would be to attempt to delete any indemnity obligations for which there is not going to be insurance coverage to back-up the indemnity obligations.

Conclusion. Whether you are an owner, general contractor, subcontractor or design professional, you will almost always seek indemnity from, or be asked to provide indemnity to, another party on a construction project. It is therefore important to carefully address indemnity obligations through contracts and insurance policies. Attorneys and insurance brokers can help with these issues.  As with any significant business endeavor, careful review of all indemnity and insurance obligations and limitations on the front end is a worthwhile “ounce of prevention” to take in order to avoid incurring “a pound of cure” on a construction project.

[1] One notable exception is that one cannot be named as an additional insured on a design professional’s Errors & Omissions (E&O) policy, but can be named an additional insured on a design professional’s Commercial General Liability (CGL) policy.

Nevada Indemnification Clauses and Additional Insured Endorsements

Unlike many states, Nevada has no statutory prohibition on indemnification agreements within the construction context. This has been an issue of significant concern every legislative session since 1995, with 2013 being no exception. See AB367, 77th Legislative Session (2013).[1] In general, Nevada courts will enforce any type of indemnification provision, so long as it is specifically drafted in a manner to convey plainly the intent of the parties and the limit, if any, of the indemnitor’s responsibilities. Divisions within the Nevada Construction Industry have so far thwarted nearly every attempt at reform.

As a result, most recent changes in Nevada’s indemnity law have come from the Nevada Supreme Court, usually in the context of residential construction defect litigation. It appears the Nevada Supreme Court is reacting with some concern to the situation where a subcontractor who is otherwise without liability for actual performed defective work is nevertheless assessed portions of the developer’s costs of defense and damages. The Court has recently exacted a more stringent and specific language obligation on the indemnified party, and has emphasized the need for an indemnitor to have notice of its obligation at the time of agreement. In 2010, the Court disallowed third party indemnification for an actor’s sole negligence by general, “catch-all” type language, and required instead “an express or explicit reference to the indemnitee’s own negligence” in the indemnity provision. Brown v. Star Ins. Co., 237 P.3d 92, 97 (Nev. 2010). This express language requirement was extended to type 2 indemnification provisions (which requires full indemnification even though the indemnitee had contributory negligence liability with the indemnitor) in 2011 in the case of Rayburn Lawn & Landscape v. Plaster Dev. Co., Inc., 255 P.3d 268 (Nev. 2011). Still further, the Court refused to allow any indemnification by a landowner against its consultant arising out of claims against a landowner under the Americans with Disabilities Act of 1990 (“ADA”), even though the  ADA consultant was specifically hired to ensure the landowner’s ADA compliance. The Court held that federal law had completely preempted state law in the ADA context. See Rolf Jensen & Assc., Inc. v. Dist. Ct., 128 Nev.Adv.Op. 42 (2012).

This focus on express and explicit language has also found its way into the concept of the obligation of Defense, separate and apart from Indemnity obligations. In United Rentals Highway Tech., Inc. v. Wells Cargo, Inc., 128 Nev.Adv.Op. 59 (2012), the Nevada Supreme Court held that the obligation language to indemnify and defend an indemnitee from damage claims “to the extent caused” by the indemnitor, including the obligation of naming the indemnitee an additional insured on the indemnitor’s insurance policy, was insufficient to impose an obligation of either indemnity or defense absent a showing that the indemnitor was a proximate cause of the injury. The clause was strictly construed. The Court noted that “accordingly, unless specifically otherwise stated in the indemnify clause, an indemnitor’s duty to defend … is limited to those claims directly attributed to the indemnitor’s scope of work and does not include defending against claims arising from the indemnitee’s own negligence.” United, Id., at 16. The Court held that the indemnitee was not entitled to indemnity and was not entitled to be covered by the insurance coverage under the indemnitor’s policy, even though the indemnitee was named an additional insured.

It remains a divisive issue in Nevada’s construction industry that indemnity and defense clauses are broadly enforceable, and will continue to impair the ability to pass substantive legislative issues until resolved. It’s time for the industry to collectively address indemnification and defense obligations among its members, so that a compromise solution can be found.

[1] http://leg.state.nv.us/Session/77th2013/Reports/history.cfm?ID=829

California’s Anti-Indemnification Statute and Additional Insured Provisions

California law governing indemnification in the construction industry has recently undergone a major overhaul. Previously, a broad indemnity provision that effectively transferred the risk of loss down the chain from the owner or general contractor to the downstream contractor or subcontractor could be enforceable so long as the provision did not require the downstream contractor or subcontractor to indemnify an owner or upstream contractor against liability caused by the indemnitee’s “sole negligence or willful misconduct.” In other words, under the previous law, as long as the indemnitor was at least partially responsible for the loss, then the indemnity provision could be enforceable. Thus, for example, a subcontractor who had only five percent responsibility for a loss could be required to indemnify a general contractor who had 95% responsibility for the loss.

Under current law, this type of broad indemnity provision is no longer enforceable in most situations. Under California Civil Code Sections 2782 and 2782.05, indemnity clauses in favor of owners, contractors, construction managers and subcontractors are generally unenforceable to the extent the clause requires indemnity for the “active negligence” of the indemnitee. Exactly what constitutes “active negligence” is not entirely clear, and we expect this issue to be clarified by the courts over the next several years. But at a minimum, this should eliminate the ability of a party, who is primarily responsible for a loss, to be indemnified from a party who had only a minor, non-active role in the loss.

The intent of California’s new anti-indemnity law is to “ensure that every construction business in the state is responsible for losses that it, as a business, may cause.” It applies to most construction contracts, and the parties cannot opt out of these provisions by using a non-California choice of law provision in their contract.

That said, there is an exception to California’s anti-indemnity law as it applies to agreements to “insure or indemnify, including the cost to defend, a general contractor, construction manager, or subcontractor.” The exception excludes from the law’s application any “provision in a construction contract that requires the promisor to purchase or maintain insurance covering the acts or omissions of the promisor, including additional insurance endorsements covering the acts or omissions of the promisor during ongoing and completed operations.” These type of “additional insured” provisions typically require the downstream party to purchase liability insurance naming the upstream party as an additional insured. Based upon this exception, it is arguable that a well-drafted “additional insured” provision can be used to partially circumvent California’s anti-indemnity law. This exception is peculiar because it seems to conflict with the broad scope and mandate of California’s anti-indemnity law. Much like the undefined use of the term “active negligence,” we expect this conflict to be clarified by the courts over the next several years.

New Mexico’s Anti-Indemnity Act and Additional Insured Provisions

The New Mexico Anti-Indemnity Act related to construction projects was adopted to “promote safety in uniquely hazardous work place environments,” like construction sites, by holding each party accountable for its actions on a construction site. See N.M.S.A. § 56-7-1 (“the Act”). The Act reads, in pertinent part:

  1. A provision in a construction contract that requires one party to the contract to indemnify, hold harmless, insure or defend the other party to the contract, including the other party's employees or agents, against liability, claims, damages, losses or expenses, including attorney fees, arising out of bodily injury to persons or damage to property caused by or resulting from, in whole or in part, the negligence, act or omission of the indemnitee, its officers, employees or agents, is void, unenforceable and against the public policy of the state.
     
  2. A construction contract may contain a provision that, or shall be enforced only to the extent that, it:
    1. requires one party to the contract to indemnify, hold harmless or insure the other party to the contract, including its officers, employees or agents, against liability, claims, damages, losses or expenses, including attorney fees, only to the extent that the liability, damages, losses or costs are caused by, or arise out of, the acts or omissions of the indemnitor or its officers, employees or agents; or
       
    2. requires a party to the contract to purchase a project-specific insurance policy, including an owner's or contractor's protective insurance, project management protective liability insurance or builder's risk insurance.

N.M.S.A §§ 56-7-1(A) & (B) (emphasis added). The Act also broadly states its intent to apply to any public or private contract that relates to the construction, alteration, repair or maintenance of any real property in New Mexico, and that it is intended to void any contractual provision that would require a party to name another as an “additional insured” in a way that would indemnify the “additional insureds” own negligence. See N.M.S.A. §§ 56-7-1(E) & (F).[1]

What does this mean, in practical terms, for those involved in construction in New Mexico?  Simply put, it means the New Mexico Anti-Indemnity Act is a broad statement of public policy intended to invalidate any provision of any construction contract that would seek to require one party (the indemnitor) to defend, indemnify, hold harmless or insure another party (the indemnitee) for the indemnitee’s own negligence. The two exceptions to this are those listed in the Act:  (1) indemnity for the indemnitor’s own negligence; or (2) a contractual requirement that a party purchase a project specific insurance policy, including an OCP (owner’s or contractor’s protective), PPLM (project management protective liability) or builder’s risk insurance policy. See N.M.S.A. §§ 56-7-1(B)(1) & (2). In fact, New Mexico courts have gone so far as to hold that a contractual provision seeking indemnity for an indemnitor’s own negligence is severable from a provision seeking indemnity for a party’s own negligence. See Holguin v. Fulco Oil Services, L.L.C., 149 N.M. 98, 107, 245 P.3rd 42, 51 (N.M. App. 2010).

Moreover, to the extent the Act does not address the issue (and it likely does), New Mexico choice of law rules have been held to prevent a contracting party from avoiding the Act through a forum selection clause or by entering a contract in a foreign jurisdiction.  See Tucker v. R.A. Hanson Co., Inc., 956 F.2d 215, 217-18 (10th Cir. 1992) (New Mexico’s public policy preventing indemnity provisions on construction projects requires the statute be applied to any construction project based in New Mexico, regardless of where the contract was entered). Thus, the Act will likely control any project that is physically located in New Mexico.

[1] The Act was amended in 2003 to clarify the scope of the Anti-Indemnity Act. Before 2003, the Act (which was originally adopted in 1971) voided any provision within any construction Contract that sought indemnity for an indemnitee’s own negligence, even if it also sought indemnity for the indemnitor’s negligence. Thus, if a particular contract predates July 2003, the earlier version of the Act may apply. If you have any question about this issue, you should consult with counsel.

Colorado’s Anti-Indemnity and Additional Insured Law

The Colorado anti-indemnity statute significantly affects the enforceability of indemnification provisions in Colorado construction contracts.  With some limited exceptions, construction contracts imposing broad indemnity obligations—i.e., obligations requiring a party to a construction agreements to cover losses associated with another party’s own negligence—are void.

Colorado’s anti-indemnity statute does not apply to property owned or operated by railroads or public districts; nor does it apply to rental agreements.  However, for virtually all other types of construction contracts entered into after July 1, 2007, “any provision in a construction agreement that requires a person to indemnify, insure, or defend in litigation another person against liability for damage . . . caused by the negligence or fault of the indemnitee . . . is void.” 

Colorado statues do provide for allocation of liability between tortfeasors, which some trial courts will follow even in the case of a breach of contract claim.  As such, a party can be indemnified to the extent some other party was found to be the cause of a plaintiff’s damages.  But, as noted, only in very rare circumstances can a party to a construction contract be indemnified for its own negligence.

It does bear noting, however, that this statutory provision does not invalidate contract clauses that require a party to purchase insurance and to name the other party as an additional insured.  As such, given the broad restrictions on contract provisions that indemnify a party for its own negligence, it is important that parties address insurance requirements in their contracts.

Finally, parties cannot avoid Colorado’s broad anti-indemnity statute by selecting a different choice of law in their contracts. Under C.R.S. § 13-21-111.5(g), “[n]otwithstanding any contractual provision to the contrary, the laws of the state of Colorado shall apply to every construction agreement affecting improvements to real property within the state of Colorado.” 

Utah’s Anti-Indemnification Statute and Additional Insured Provisions

In Utah, an agreement to indemnify in a construction contract is governed by Utah’s anti-indemnification statute, Utah Code Ann. § 13-8-1. Utah’s anti-indemnification statute defines an “indemnification provision” as an agreement between any combination of construction managers, general contractors, subcontractors, sub-subcontractors or suppliers (collectively, “construction workers”) “requiring the promisor to insure, hold harmless, indemnify, or defend the promisee against liability” arising out of bodily injury, property damage or economic loss if “the damages are caused by or resulting from the fault of the promisee” or others. See Utah Code Ann. § 13-8-1(1)(a)-(b). Utah’s anti-indemnification statute declares that any such indemnification provision—that requires indemnity for either the sole or partial negligence of the indemnitee—“is against public policy and is void and unenforceable.”  See Utah Code Ann. § 13-8-1(2).

Utah’s anti-indemnification statute provides an exception for indemnification agreements that require construction workers to hold the owner (who is not acting as a construction worker) harmless against joint or concurrent liability. See Utah Code Ann. § 13-8-1(3). Such an indemnification provision is enforceable as long as the owner was not operating as a “construction worker” at the time the liability arose. See Utah Code Ann. § 13-8-1(3)(b). In such a case, Utah’s anti-indemnification statute mandates that if the owner has protected itself in this manner, the portion of the damages caused by the owner “shall be apportioned among the [construction workers] pro rata based on the proportionate share of fault of each of the [construction workers].”  See Utah Code Ann. § 13-8-1(3).

Importantly, Utah’s anti-indemnification statute does not prohibit agreements requiring one party in a construction contract to purchase insurance that covers liability stemming from the other party’s negligence. Such “additional insured” provisions are common in construction contracts and typically require one party to purchase insurance naming the contractor, owner or others as an insured party in, for example, a CGL (Commercial General Liability) policy. In Meadow Valley Contractors, Inc. v. Transcontinental Ins. Co., 2001 UT App 190, the defendant insurance company argued that Utah’s anti-indemnification statute voids all such “additional insured” provisions because it prohibits any “agreement . . . requiring the promisor to insure . . . .”  See 2001 UT App ¶ 18; see also Utah Code Ann. § 13-8-1(1)-(2). The Utah Court of Appeals held, however, that “the plain meaning of the statute voids only agreements requiring one party in a construction contract to personally insure against liability stemming from the other party’s negligence.” 2001 UT App ¶ 18 (emphasis supplied). An agreement to procure insurance is not an agreement to insure, but merely an agreement to allocate the cost of procuring insurance from third parties, and does not, therefore, violate Utah’s anti-indemnification statute. Id. ¶¶ 18-19.

Topics:  Additional Insured, Construction Disputes, Contractors, Indemnification, Insurers, Loss Coverage, Subcontractors

Published In: General Business Updates, Construction Updates, Insurance Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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