DECONSTRUCTING ANTI-INDEMNITY IN TEXAS, LOUISIANA, CALIFORNIA AND NEW YORK

TOM STILWELL & SAMEER MOHANMAY 14, 2015

Contractual Risk Transference ➢ Indemnity – a means of contractual risk transfer

▪ One party agrees to compensate another for lossesor damages that arise from the contracted action

➢ Preserves a party’s insurance limits➢ Protects a party from assuming more liability than the benefits

received from the relationship/contract➢ In construction projects, those higher on the chain demand

protection from those lower on the chain:▪ Owner seeks indemnity from the Architect, any Engineers (FEED), and the

General Contractor▪ Architect, Engineer also seek indemnity from the General Contractor▪ General Contractor seeks indemnity from the subcontractors, suppliers, and

material/equipment providers➢ Anti-Indemnity Statutes legislatively attempt to level the playing field (negotiating

power/positions of the parties) by invalidating broad form and intermediate form indemnity provisions favoring the top tier of the chain▪ Attempt to limit indemnity provisions to the fault or responsibility of the

indemnitor2

Types of Clauses: Broad Form

➢ Broad form: Indemnitor promises to indemnify the indemnitee regardless of fault▪ Including for the indemnitee's sole negligence▪ I.e. Subcontractor agrees to indemnify the General Contractor for

the General Contractor's sole fault and negligence➢ Example:

▪ The Subcontractor shall indemnify and hold harmless the Owner and Contractor and all their agents and employees from and against all claims, damages, losses and expenses, including attorney’s fees, arising out of or resulting from the performance of the Subcontractor’s work regardless of fault, whether it is caused in whole or in part by the negligence of Owner or Contractor. It is specifically understood that this indemnity shall be interpreted as indemnifying Owner, Contractor and their agents and representatives from their own sole and/or partial negligence.

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Types of Clauses: Intermediate Form

➢ Intermediate Form: Indemnitor assumes responsibility for its own sole negligence or partial negligence. If the indemnitee is solely at fault, there is no indemnity. ▪ Shifts the risk where both parties have, in some percentage, contributed to the loss▪ I.e. Both parties are jointly or contributorily at fault / responsible for the loss

➢ Two Types:▪ Full Indemnity: If the subcontractor is partially at fault, it pays all damages. An

owner or general contractor who is 99% at fault still receives indemnity.▪ Partial Indemnity: Indemnity is calculated on a sliding scale up to the indemnitor’s

percentage of responsibility for the loss. If the owner/contractor is 60% at fault, they can receive 40% indemnity from the subcontractor.

➢ Example: To the fullest extent permitted by law, the Subcontractor shall indemnify, defend, and hold harmless the Owner, Contractor, … their agents, consultants, and employees ... from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Subcontractor's work, …, but only to the extent caused in whole or in part by the negligent acts or omissions of the Subcontractor, regardless of whether or not such a claim, damage, loss or expense is caused in part by a party indemnified hereunder. This clause is not intended to indemnify and indemnified party for claims, damages, losses and expenses caused by the sole negligence of the indemnitee.

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Types of Clauses: Limited Form

➢ Limited Form: Indemnitor assumes responsibility for its own sole negligence. There is no protection for an indemnitee who is partially or contributorily at fault. ▪ Most favorable clause for subcontractors▪ Subcontractor only agrees to indemnify the General

Contractor for the Subcontractor's own sole fault / negligence➢ Example: The Subcontractor shall indemnify, defend and hold

harmless the Owner, Contractor, …, their agents, consultants and employees from and against all claims, losses, costs and damages, including but not limited to attorney’s fees, pertaining to the performance of the Subcontractor’s work, …, but only to the extent solely caused by the negligent acts or omissions of the Subcontractor, the Subcontractor's subcontractors, or anyone directly or indirectly employed by them.

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Additional Insured Provisions

➢ Indemnity agreements provide assurance of responsibility, not insurance for the loss

➢ Additional insured provision requires the indemnifying party to obtain insurance to support the indemnity obligation▪ and to obtain an endorsement naming the indemnitee

(owner/general contractor/architect) as an additional insured on the policy

➢ Separate and distinct obligation from the indemnity provision

➢ Parties may limit the scope of the insurancecoverage to the indemnitor's indemnity obligation▪ Prevents unlimited coverage for the

indemnitee beyond the scope of the contractual indemnification

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States with Anti-Indemnity Statutes

➢ 43 states possess some form of anti-indemnity statute

➢ 18 states prohibit "broad form" indemnity provisions

➢ 25 states prohibit "intermediate form" indemnity provisions

➢ Every state allows "limited form" indemnity provisions

➢ 11 states limit additional insured provisions

7March 26, 2015

State Statute Prohibits Indemnity for sole negligence of the indemnitee?

Prohibits indemnity for the partial negligence / fault of the indemnitee

Prohibits Additional Insured Clauses protecting the indemnitee

Prohibits Choice of Law Clauses nominating other jurisdictional law

Notable Provision

Texas Texas Ins. Code§ 151.102

X X X X Employee personal injury and wrongful death exclusion

Louisiana La-R.S. § 9:2780

X X X X Saves voidable indemnity clauses if the indemnitee pays for insurance to support the obligation

California Cal. Civ. Code§ 2782 (General)

§ 2782.05 (Contractor/Subcontractor)

X X X Encourages additional insured provisions

New York NY. Gen. Oblig. Law§ 5-322.1

X X Encourages additional insured provisions

4 State Comparison

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Texas: Common Law➢ Texas courts generally enforce indemnity provisions if

▪ Unambiguous, and▪ does not violate the constitution, statute, or public policy

− Prospective indemnity for gross negligence or intentional torts probably violates public policy

➢ Texas follows general contract drafting principals when interpreting indemnity language▪ If the provision is not ambiguous, the court will give effect to the stated intentions of

the parties▪ If the provision is ambiguous, the court will construe the provision in favor of the

indemnitor − strictly interpreted against the indemnitee, − meaning the indemnity provision will likely be invalidated− prevents indemnification to extend by implication or assumption beyond the

precise terms of the agreement▪ Words and phrases are given their ordinary, popular, commonly-accepted meaning

➢ Texas still follows Fair Notice Requirements▪ Anti-indemnity statute is silent as to the common law fair notice requirements▪ Practice Tip: Continue to draft indemnity clauses to meet the fair notice

requirements10

➢ Express Negligence Rule - parties must state their intention to transfer risk, and the amount and type of risk, plainly within the 4 corners of the contract▪ To indemnify for the indemnitee’s fault/negligence, Courts look for "magic language"

− Even “to the extent the claim, loss, or damage is caused by the sole, joint, concurrent, comparative, or contributory negligence or fault of the indemnitee”

− Indemnification for the indemnitee's "own negligence” − “Regardless of fault”

➢ Conspicuous - the presence of the indemnity clause must attract attention of the reader▪ Conspicuous 

− UCC definition - a term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it

• capital headings, larger font size, contrasting font color, bold type− More visible than other items on the page

▪ Not Conspicuous− Hidden on the reverse side of the document under the heading "warranty"− printed in small, light, text on the back of a delivery ticket− surrounded by unrelated terms

▪ Sometimes viewed on a sliding scale of acceptability based upon the length and complexity of the contract at issue

➢ Actual notice or actual knowledge serves as an exception to fair notice requirements

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Texas Fair Notice Requirements

Texas Anti-Indemnity Statute

➢ Texas Insurance Code § 151.102➢ “…a provision in a construction contract, or in an

agreement collateral to or affecting a construction contract, is void and unenforceable as against public policy to the extent that it requires an indemnitor to indemnify, hold harmless, or defend a party, including a third party, against a claim caused by the negligence or fault, the breach or violation of a statute, ordinance, governmental regulation, standard, or rule, or the breach of contract of the indemnitee, its agent or employee, or any third-party under the control or supervision of the indemnitee, other than the indemnitor or its agent, employee, or subcontractor of any tier.”

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Texas Anti-Indemnity Explained

➢ Effective as to indemnity provisions in construction contracts after January 1, 2012

➢ Prohibits any indemnification of the indemnitee for the indemnitee’s own negligence▪ General contractor cannot demand indemnity from

a sub for the GC’s own negligence or fault▪ Cannot obtain indemnity for GC’s partial,

concurrent, or comparative fault▪ Indemnification for percentage of fault attributable

to the indemnitor (sub) is allowed➢ Eliminates use of broad form and intermediate form

indemnity provisions13

Employee Injury Exception➢ Texas Insurance Code § 151.103: “Section 151.102 does not apply to a

provision in a construction contract that requires a person to indemnify, hold harmless, or defend another party to the construction contract or a third party against a claim for the bodily injury or death of an employee of the indemnitor, its agent, or its subcontractor of any tier.”

➢ Allows broad form indemnity for employee injury / death claims▪ Sub can still indemnify the GC for the GC’s sole or concurrent fault

if the claim is made by an employee of the sub, or any sub-subcontractor of any tier

▪ Even if the GC is wholly or partially at fault, negligent, or otherwise responsible for the loss

➢ Practice Tip: Draft bifurcated indemnity provisions in indemnity contracts▪ One clause dealing with property losses and non-employee damage

claims▪ One clause dealing with employee personal injury/death claims

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Texas Exclusions § 151.105➢ Insurance Agreements (other than additional insured provisions) including OCIP and CCIP

programs➢ Breach of contract or warranty actions

▪ Requires the breach of contract or warranty action to be completely separate from the indemnity obligation

▪ Cannot use the act to shield yourself or avoid a direct breach of contract action➢ Loan and financing documents (other than construction contracts to which lenders are a

party)➢ General agreements of indemnity required by bond sureties➢ Workers compensation agreements, benefits and protections➢ Governmental immunity protections➢ Agreements governed by the Texas Oilfield Anti-Indemnity Act➢ License or access agreements with railroad companies➢ Indemnity provisions related to copyright infringement claims➢ Construction contracts pertaining to single family homes, townhomes, and duplexes➢ Public works projects of municipalities

▪ Preserves exclusions for governmental immunity protections➢ Joint defense agreements entered after a claim is made

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Texas Construction Contract Defined

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Luminant Oak Grove, Solid Fueled Power Generating Station

Texas “Construction Contract” Defined

➢ Anti-Indemnity Statute applies to construction contracts and agreements “collateral to or affecting” a construction contract

➢ Texas Construction Contract Definition Insurance Code § 151.001(5)▪ Includes any agreement for the design, construction, alteration, renovation, remodeling,

repair or maintenance of,▪ Or furnishing material or equipment for▪ A building, structure, appurtenance, or other improvement ▪ On public or private property▪ Including moving, demolition, and excavation connected with the real property

➢ People covered in the definition: owners, architects, engineers, contractors, construction managers, subcontractors, suppliers, and material or equipment lessors.

➢ Broadly includes activities not thought of as pure construction▪ Remodeling, maintenance, moving

➢ No definition or guidance as to a “collateral” agreement▪ TOAIA - uses similar language - collateral to or affecting an agreement related to an oil or

gas well or mine. ▪ This language has been interpreted to require some connection between the contract

and the actual services performed on a well or mine.➢ Similarly, construction statute may require some connection to real property (land) and actual

services performed on the land

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Texas Additional Insured Provisions

➢ Tex. Ins. Code § 151.104 – voids any requirement for the indemnitor to obtain additional insured coverage or to provide the indemnitee with an additional insured endorsement, to the extent it requires coverage beyond scope of indemnity allowed under the statute

➢ Cannot use a separate additional insured clause to circumvent the statute

➢ Cannot require insurance for indemnitor’s own negligence or fault

➢ OCIP and CCIP (Wrap-Up Insurance) programs are allowed

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Texas: Choice of Law Not Allowed

➢ Tex. Ins. Code § 151.151 – No waiver of the statute

➢ “A provision of this chapter may not be waived by contract or otherwise.”

➢ Effectively prevents the parties from choosing another state’s law to apply to the construction project

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Texas: Architects & Licensed Engineers

➢ Texas Civil Practice & Remedies Code § 130.002➢ Voids provisions in a construction contract requiring a contractor to indemnify a

registered architect or licensed engineer for damage that:▪ Results from defects in plans, designs, or specifications prepared, approved,

or used by the architect or engineer; or▪ Negligence of the architect or engineer in the performance of his/her

professional duties, AND▪ Arises from

− Personal injury or death− Property injury− Or any other expense that arises from personal injury, death, or property

injury.➢ Also voids provisions requiring a registered architect or licensed engineer to

indemnify or hold harmless an owner from the owner’s negligence or fault▪ But Limitation of liability clauses between an owner and registered architect or

licensed engineer are specifically approved➢ Definition of a construction contract in this section includes roads, highways, bridges,

dams, and levees specifically20

Texas: Architects & Engineers - Exceptions

➢ Does not apply to certain residential construction: owners of single family or multifamily residences▪ Apartment complexes probably do not fall in this

exception➢ Does not apply to owners of interests in real property➢ Does not apply to provisions indemnifying an

architect or licensed engineer for other negligent acts

➢ Does not apply to provisions indemnifying an architect or licensed engineer from the negligent acts of a contractor or subcontractor

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Texas Practice Tips➢ Consider a bifurcated indemnity clause

▪ One clause addresses employee injury/death claims – broad form / sole negligence allowed

▪ One clause considers property claims – limited form up to indemnitor’s negligence

▪ Design professionals need a third clause indemnifying for losses such as delays/cost overruns – something other than defects in plans or professional negligence causing injury or property loss

➢ In the indemnity clauses, state that they will be applicable “to the extent allowed by law”

▪ This language may allow the court to find the parties intent to comply with the limits or provisions of the statute

➢ Make sure the clause still meets the Fair Notice requirements – express negligence rule and conspicuous

➢ Consider a multi-tier additional insured provision

▪ Additional insured provision “to the extent” of or limit of the indemnity provision

▪ Consider a separate provision relating to employee injury claims that includes coverage for the negligence of the indemnitee in employee claims

➢ Include a severability clause or savings clause that protects the indemnity, additional insured, and other limitation of liability clauses in the event that any one provision is found to be invalid

➢ Include limitation of liability clauses and waivers of consequential, indirect damages

➢ Texas law may not be avoided, but include a forum selection clause nominating a particular court or county in which the dispute must be pursued and resolved

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Louisiana: Common Law

➢ Indemnity agreements are generally enforceable➢ General contractual interpretation rules apply➢ When the common intent of the parties and the words of the contract are

clear and lead to no absurd consequences, no further interpretation may be made in search of the parties intent.

➢ The obligation to indemnify must arise from an unequivocal express agreement in the contract▪ The controlling question is whether the risk that resulted in the injury

was one contemplated by the parties to the contract.➢ Indemnification for the indemnitee's own negligence must be expressed

in unequivocal terms▪ If there is doubt, there is a presumption the parties did not intend to

indemnify the indemnitee against losses caused by the indemnitee's own negligence

➢ “Any and all liability" does not, alone, establish an intent to indemnify the indemnitee for the indemnitee's sole negligence

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Louisiana: Anti-Indemnity Statute

➢ LSA-R.S. 9:2780.1B.➢ “…any provision, clause, covenant, or agreement

contained in, collateral to, or affecting a motor carrier transportation agreement or construction contract which purports to indemnify, defend, or hold harmless, or has the effect of indemnifying, defending, or holding harmless, the indemnitee from and against any liability for loss or damage resulting from the negligence or intentional acts or omissions of the indemnitee, an agent or employee of the indemnitee, or a third party over which the indemnitor has no control is contrary to the public policy of this state and is null, void, and unenforceable.”

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Louisiana: Anti-Indemnity Explained

➢ La. Rev. Stat. Ann. sec. 9:2780.1 (applicable to contracts entered after January 1, 2011)

➢ Does not permit indemnification for the negligence or intentional acts or omissions of the indemnitee▪ Prohibits Broad form and Intermediate form indemnity

provisions▪ Sub cannot be required to indemnify GC for GC’s

negligence (full or partial) or intentional conduct➢ Does not permit indemnification for the negligence or intentional

acts of a third party over whom the indemnitor has no control➢ Allows indemnity for negligence of the promisor

▪ Contributory fault / negligence of the promisor may be indemnified

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Louisiana Construction Contract: Defined

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Mercedes Benz Superdome

➢ Construction contract definition includes agreements:▪ For the design, construction, alteration, renovation, repair or

maintenance▪ Of buildings, structures, highways, roads, bridges, water lines,

sewer lines, oil lines, gas lines, ▪ Appurtenances or improvements to real property▪ Including moving, demolition and excavation

➢ Does not include dirt or gravel roads used to access oil and gas wells and associated facilities

➢ Does not include oil flow lines and gas gathering lines from the point where product is co-mingled for transportation.

➢ Includes “design” in the definition of construction▪ One of the few references to design professionals in the

statute28

Louisiana Construction Contract: Defined

Louisiana: Insurance Exception

➢ Similar to the LaOAIA - an insurance exception exists➢ Indemnification provision is not invalid, if the contract also requires the

indemnitor to obtain insurance to insure the obligation to indemnify, defend, or hold harmless, and there is evidence that the indemnitor recovered the cost of the required insurance in the contract price.▪ Indemnity limited to the amount of insurance proceeds available

under the insurance policy the indemnitor was required to obtain by contract

➢ Provision saves an otherwise invalid indemnity clause➢ Under this exception, may also name the other party as an additional

insured to the required insurance▪ Such insurance is valid only if it applies when the indemnitor is at

least partially at fault➢ Otherwise, statute invalidates additional insured provisions that covers

the acts or omissions of the indemnitee

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Louisiana: Public Works Contracts

➢ La. R. S. 38:2195 (public contracts) - public entities are prohibited from assuming liability for damages caused by others with whom the public entity contracts ▪ Voids indemnity agreements by the state or governmental entities

➢ La. Rev. Stat. Sec. 38:2216.G (public contracts)▪ Voids indemnity agreement requiring a contractor to protect the

governmental entity from third party claims caused by the governmental entity

▪ Voids indemnity agreement protecting architects, landscape architects, engineers, or land surveyors hired /contracted by a governmental entity for damages caused by their negligence

➢ Applies to prime contractors only➢ Bars indemnity for the indemnitee's negligence, sole or partial➢ Allows indemnity for concurrent negligence, up to the percentage

attributable to the indemnitor

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Louisiana: Choice of Law

➢ La R.S. 9:2779 holds choice of forum and choice of law provisions invalid▪ When one party is domiciled in Louisiana, and▪ The work, materials, and equipment involve a

construction project in Louisiana➢ Requires the lawsuit or arbitration to occur in Louisiana➢ Voids provision requiring interpretation of the agreement

under another jurisdiction's law➢ La R.S. 9:2778 same provisions with respect to public

contracts involving the state or a political subdivision of the state

➢ Effectively prevents ability of a party to contract around application of Louisiana Construction Anti-Indemnity Statute

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Louisiana: Practice Tips

➢ Expressly state the intention to indemnify and the scope of the indemnity➢ Single global indemnity clause acceptable – no differentiation for personal injury,

property loss, or design negligence➢ To indemnify another party for their own negligence, specifically support the

provision with an insurance provision▪ State that part of the contract consideration includes the indemnitor’s

recovery of the cost of the insurance for the indemnitee▪ Utilize a separate additional insured provision stating that it applies to the

indemnitee’s own negligence➢ Use severability clauses to protect the remainder of the contract from any invalid

provision➢ Include limitation of liability clauses – waivers of consequential and indirect

damages➢ Cannot avoid La law or jurisdiction, but consider a venue provision requiring

disputes to be brought in a particular court or parish of Louisiana▪ Avoids disputes in liberal parishes▪ Nominate a federal court in Louisiana 32

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California: Common Law

➢ Agreements interpreted to give effect to the mutual intent of the parties as it existed at the time of contracting

➢ Strictly construed against the indemnitee➢ May indemnify the indemnitee for the indemnitee's

own active negligence▪ Must use sufficiently specific language▪ Must be clear and explicit

➢ In the absence of express language, the provision will be interpreted to indemnify the indemnitee only for the indemnitee's passive negligence

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California Distinguishes Between Active & Passive Negligence➢ Passive negligence -

▪ mere nonfeasance ▪ failure to discover a defect▪ failure to perform a duty

➢ Active negligence - exists where there is participation in some manner in the conduct or omission which cause the injury beyond mere failure to perform a duty imposed on him by law.▪ personal participation of the indemnitee in affirmative acts▪ failure to perform a precise duty agreed to be performed

➢ Indemnity for active negligence requires a plain, clear, and explicit statement in the clause that negligence is to be included in the indemnity and such language will be strictly construed against the indemnitee

➢ Definitions assessed on a case by case basis with each case turning on its own facts

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California’s Anti-Indemnity Statute (General Provision)

➢ § 2782 “…provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction contract and that purport to indemnify the promisee against liability for damages for death or bodily injury to persons, injury to property, or any other loss, damage or expense arising from the sole negligence or willful misconduct of the promisee or the promisee’s agents, servants or independent contractors who are directly responsible to the promisee, or for defects in design furnished by those persons, are against public policy and are void and unenforceable; provided, however, that this section shall not affect the validity of any insurance contract, workers’ compensation, or agreement issued by an admitted insurer as defined by the Insurance Code.”

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California: Anti-Indemnity Explained

➢ § 2782(a) – General Clause Prohibits indemnity for sole negligence or willful misconduct of the indemnitee, ▪ Allows Intermediate form indemnity: allows full indemnification of the indemnitee, so long as

the indemnitor is at least 1% responsible for the loss▪ Also voids agreements where a party seeks indemnification for defects in design furnished

by the indemnitee or its agents➢ § 2782(B)(2) Public Agencies – Agreements relieving a public agency of liability for the agency’s

active negligence are void and unenforceable▪ Protects contractors, subcontractors, and suppliers of goods▪ Allows Intermediate form indemnity – may indemnify to the extent of indemnitor’s

negligence ▪ In the event of passive negligence, broad form indemnity for sole negligence of the

indemnitee is allowed➢ §2782(C)(1) Private Owners of Real Estate– Agreements relieving a private owner from liability are

unenforceable to the extent of the active negligence of the owner▪ Protects contractors, subcontractors and suppliers of goods▪ Allows Intermediate form indemnity – may indemnify for indemnitor’s negligence ▪ In the event of passive negligence, broad form indemnity is allowed▪ Private owner exceptions:

− when the private owner is acting as a contractor or supplier of materials or equipment to the work (2782(c)(1)or is a homeowner performing an improvement on his or her single family dwelling (2782(c)(3)). 37

California’s Anti-Indemnity Statute (Contractor/Subcontractor)➢ § 2782.05 “…provisions, clauses, covenants, and agreements contained

in, collateral to, or affecting any construction contract and amendments thereto entered into on or after January 1, 2013, that purport to insure or indemnify, including the cost to defend, a general contractor, construction manager, or other subcontractor, by a subcontractor against liability for claims of death or bodily injury to persons, injury to property, or any other loss, damage, or expense are void and unenforceable to the extent the claims arise out of, pertain to, or relate to the active negligence or willful misconduct of that general contractor, construction manager, or other subcontractor, or their other agents, other servants or other independent contractors who are responsible to the general contractor, construction manager, or other subcontractor, or for defects in design furnished by those persons, or to the extent the claims do not arise out of the scope of work of the subcontractor pursuant to the construction contract. This section shall not be waived or modified by contractual agreement, act, or omission of the parties. Contractual provisions, clauses, covenants, or agreements not expressly prohibited herein are reserved to the agreement of the parties….”

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California: Anti-Indemnity Explained

➢ § 2782.05 - Agreements between General Contractors, Construction Managers, or Subcontractors

➢ Agreements indemnifying or insuring a general contractors, construction manager, or other subcontractor, by a subcontractor are void and unenforceable to the extent the claims arise out of or relate to ▪ the active negligence or willful misconduct of the general contractor,

construction manager, or subcontractor, or▪ Defects in design furnished by the general contractor, construction

manager, or subcontractor or▪ Claims that do not arise out of the subcontractor’s scope of work

➢ For active negligence▪ Bars broad form indemnity provisions▪ Permits Limited form indemnity provisions, up to negligence of indemnitor

➢ For passive negligence – allows full indemnity under a broad form provision➢ No Alternate Choice of Law: the statute prohibits its waiver by contractual

agreement, act or omission of the parties➢ Limitations of liability are permitted and reserved to the agreement of the parties

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California: Exceptions

➢ § 2782.05 (a) protecting subcontractors does not apply to:1. Contracts for residential construction2. Direct contracts with a public agency3. Direct contracts with owners of privately owned real estate4. Wrap-up insurance programs (OCIP / CCIP)5. Breach of warranty claims existing independently of the indemnity

obligation6. Additional insured provisions7. Loan and financing documents8. Indemnities required by sureties9. Workers compensation agreements / benefits10. Governmental immunity laws / benefits11. Provisions requiring the purchase of insurance12. Contracts with design professionals

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California: Construction Contract Defined

Centinela Solar Power Plant

California: Construction Contract Defined

➢ Very broad definition➢ Activities Included: construction, surveying, design, specifications, alteration, repair,

renovation, maintenance, removal of or demolition of➢ Projects: buildings, highways, roads, parking facilities, bridges, water lines, sewer

lines, oil line, gas line, electric utility transmission or distribution line, railroad, airport, pier or dock, excavation

➢ Or other structure, appurtenance, development or other improvement to real or personal property,

➢ Collateral Activities Included: Agreements to perform any portion thereof or any act collateral thereto, or to perform any service reasonably related thereto, including, ▪ the erection of all structures or performance of work in connection therewith, ▪ electrical power line clearing, tree trimming, vegetation maintenance, ▪ the rental of all equipment, ▪ all incidental transportation, moving, lifting, crane and rigging service ▪ and other goods and services furnished in connection therewith.

➢ Covers incidental activities that may support construction, but are not typically or traditionally considered construction

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California: No Waiver

➢ California prohibits choice of law clauses to avoid the effect of the statute

➢ Cannot circumvent the statute by nominating another state’s law in the contract

➢ § 2782.05(c): “Notwithstanding any choice of law rules that would apply the laws of another jurisdiction, the law of California shall apply to every contract to which this section applies.”

➢ § 2782.05(d): “A waiver of the provisions of this section is contrary to public policy and is void and unenforceable.”

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California: Encourages Additional Insured Provisions

➢ California’s anti-indemnity statute does not invalidate additional insured provisions

➢ §2782.05(n) “Nothing in this section shall be construed to affect the obligation, if any, of either a contractor or construction manager to provide 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 pursuant to a construction contract with a public agency …or an owner of privately owned real property to be improved….”

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California: Design Professionals

➢ Contracts between Design Professionals and Public Agencies▪ Agreements requiring a design professional to indemnify a

public agency are unenforceable except for claims that arise out of the negligence, recklessness, or willful misconduct of the design professional− Does not distinguish between active and passive

negligence− Allows a Limited form indemnity clause, indemnifying the

public agency for the design professional’s responsibility for the loss/claim

➢ Design professionals include licensed architects, licensed landscape architects, registered professional engineers, and licensed professional land surveyors.

➢ This provision may not be waived or modified by contract, act, or omission of the parties

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California: Drafting Suggestions

➢ Separate indemnity clauses to account for active and passive negligence of the parties▪ Active negligence - each party only indemnifies for its own fault▪ Passive negligence – indemnity flowing to owners (public or private) or contractor

(upper tier contractor), full indemnity regardless of fault allowed➢ For GC/Sub relationships, limit indemnity to sub’s scope of work

▪ Draft broad scope of work clauses for all subs− Remember ancillary activities such as trucking to site/deliveries on site

➢ Consider a catchall indemnity meeting 2782 general provision▪ Where no other specific indemnity provision applies, indemnitor will fully

indemnify indemnitee if the indemnitor is alleged to be solely or partially at fault/negligent, whether active or passive.

➢ Include broad additional insured provisions▪ Only way to protect against design defect claims – indemnity prohibited

➢ Include limitations of liability clauses▪ §2782.5 permits “allocation, release, liquidation, exclusion, or limitation” for

− Design defects− Promisor’s liability under a construction contract

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New York: Common Law

➢ Contractual agreements to indemnify are enforceable in New York▪ Strictly construed

➢ Will not be enforced unless there is manifestation of "clear and unmistakable intent to indemnify.”

➢ If the intent is unclear from the writing, the court is required to consider extrinsic evidence of intent▪ the intent must be "unattended by danger of misconception in the

purport of the contract itself, and concerning which there is not reasonable basis for a difference of opinion.”

➢ If there is "unmistakable intent" to indemnify an indemnitee for its own negligence, the Court will enforce it.▪ An agreement to indemnify "whether ... damages or injuries be

attributable to negligence of the contractor or his employees or otherwise" extends indemnity for the indemnitee's own negligence.

➢ Where the indemnitee is actively negligent, greater scrutiny is applied to the indemnification clause.

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New York: Anti-Indemnity Statute

➢ New York General Obligations Law § 5-322.1➢ “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 indemnify or hold harmless the promisee against liability for damage arising out of bodily injury to persons or damage to property contributed to, caused by, or resulting from the negligence of the promisee, his agents or employees, or indemnitee, whether such negligence be in whole or in part, is against public policy and is void and unenforceable; provided that this section shall not affect the validity of any insurance contract, workers’ compensation agreement or other agreement issued by an admitted insurer. This subdivision shall not preclude a promisee from requiring indemnification for damages arising out of bodily injury to persons or damage to property caused by or resulting from the negligence of a party other than the promisee, whether or not the promisor is partially negligent.”

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New York: Anti-Indemnity Explained

➢ NY Gen. Oblig. Law sec. 5-322.1➢ Applies to all contracts to provide construction services after July 16,

2009.➢ Applies promises and agreements in connection with or collateral to a

contract for the construction, alteration, repair, or maintenance of a building, structure, appurtenances and appliances including moving, demolition, and excavating connected therewith

➢ Prohibits indemnification of a party for their own actual negligence▪ In whole or in part

− Bars indemnification for indemnitee's sole or concurrent/partial negligence

▪ Allows indemnification up to the fault attributable to the indemnitor

➢ Effectively prohibits Broad Form and Intermediate Form indemnity provisions

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New York: Exceptions

➢ Anti-Indemnity statute does not prohibit or void a requirement to purchase insurance indemnifying another person for their own negligence▪ Additional insured provisions are allowed

− No limitation on the scope of an additional insured provision

▪ New York encourages the use of insurance to allocate risk➢ Statute does not prevent a GC from requiring a sub to

indemnify the GC for the acts of an owner, architect, engineer, (upper tier entity) or a material supplier, equipment provider, or sub-subcontractor (lower tier entity)▪ Prohibition on indemnity solely prevents an entity from

receiving protection for his/her own negligence (fault)

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New York: Design Professionals

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New York: Design Professionals

➢ NY Gen. Oblig. Law sec. 5-324➢ Includes architects, engineers, and surveyors➢ Applies to such professional seeking indemnity for liability arising out of

defective maps, plans, designs or specifications prepared, acquired, or used by the architect, engineer, or surveyor▪ Does not have to be an original document created by the professional▪ Applies to documents “acquired” OR “used” ▪ Could be furnished by another party in the chain

➢ Bars indemnity of the architect, engineer, or surveyor for liability that arises out of defects in the maps, plans, designs or specifications▪ Architect, Engineer, Surveyor are strictly liable for all defects▪ Prohibits indemnity for professional’s sole negligence▪ Prohibits indemnity for professional’s concurrent/partial negligence▪ Prohibits indemnity for an innocent professional if the loss is alleged to

be attributable to the defects in the maps, plans, designs, or specifications

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New York: Drafting Considerations

➢ NY does not prohibit choice of law clauses. Consider the law being chosen to govern the contract▪ Include a clear choice of law provisions nominating favorable law▪ Include a clear forum selection provision nominating a venue in which a dispute must be

pursued/resolved➢ Broad indemnity agreement covering all types of loss is permissible

▪ Limit indemnity to each party’s own negligence, but specify the duty to indemnify occurs even when the indemnitee is partially negligent/at fault

▪ “To the fullest extent of law” will save an indemnity clause− Courts will interpret the parties’ intent as to comply with the statute

➢ Consider separating indemnity for contractors vs. architects, engineers, and surveyors and treat design defect claims separately▪ Cannot indemnify for design defect claims / protect risk through additional insured clause

➢ Require as broad an additional insured clause as possible▪ If applicable, specifically include protection for architects, engineers, and surveyors for

design defect claims ➢ Include a severability / savings clause to prevent any one provision from invalidating all

provisions➢ Include waivers of consequential and indirect damages

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These materials have been prepared by Baker & Hostetler LLP for informational purposes only and are not legal advice. The information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional counsel. You should consult a lawyer for individual advice regarding your own situation. ©2015 Baker & Hostetler LLP. All Rights Reserved.

Tom StilwellTelephone: 713-646-1378Mobile No: 832-274-6749tstilwell@bakerlaw.com