Under Construction - June 2013: Nevada Indemnification Clauses and Additional Insured Endorsements

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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

Topics:  Additional Insured, Construction Defects, Contract Drafting, Contract Interpretation, Indemnification, Subcontractors

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