Joe Virene – June 20, 2013
Indemnifying someone for their own negligence is a tough pill to swallow. Yet, such clauses, often referred to as “broad form indemnities”, have been common for many years in Texas construction contracts.
In 2011, Texas passed a new law dramatically limiting such clauses in construction contracts.
The New Rule
In a nutshell, the new law makes an indemnity provision in a construction contract void if it requires the indemnitor to indemnify, defend, or hold harmless the indemnitee for a claim caused in whole or in part by that indemnitee’s own negligence. The new law also bars any construction contract provision that requires the purchase of additional insurance that would cover the indemnitee’s own negligence. In other words, the change prevents an owner or a general contractor from requiring a contractor or subcontractor to provide insurance for the owner’s or general contractor’s own negligence.
What is a “construction contract”?
The term “construction contract” is broadly defined in the statute. It means:
“a contract, subcontract, or agreement, or a performance bond assuring the performance of any of the foregoing, entered into or made by an owner, architect, engineer, contractor, construction manager, subcontractor, supplier, or material or equipment lessor for the design, construction, alteration, renovation, remodeling, repair, or maintenance of, or for the furnishing of material or equipment for, a building, structure, appurtenance, or other improvement to or on public or private real property, including moving, demolition, and excavation connected with the real property. The term includes an agreement to which an architect, engineer, or contractor and an owner’s lender are parties regarding an assignment of the construction contract or other modifications thereto.”
This will cover many contracts including some (e.g., maintenance contracts) that may not traditionally be thought of as construction contracts.
Oil and Gas Contracts
The new law, however, specifically exempts out contracts covered by the Texas Oilfield Anti-Indemnity Act which will exclude most contracts related to oil and gas. However, contracts related to pipelines may be covered by the new construction statute because such contracts are not covered by the Texas Oilfield Anti-Indemnity Act and arguably do fit the definition of “construction contracts.”
Some Other Important Exceptions
The statute enumerates several other exceptions. For instance, this new law does not apply to claims “for the bodily injury or death of an employee of the indemnitor, its agent, or subcontractor of any tier.” Residential construction contracts are also excluded.
Note that the express negligence rule should still apply to these exceptions. That is, indemnity clauses that cover the indemnitee’s own negligence should be clear and conspicuous.
The Bottom Line
This new law is largely a good thing for subcontractors and suppliers in the construction industry because their contracts frequently contain broad form indemnities to the general contractor. This also benefits general contractors who also are sometimes required to provide broad form indemnities to the owner.
via Broad Form Indemnities In Construction Contracts | Looper Reed & McGraw, P.C. – JDSupra.