Rachel Burkhart | Faegre Baker Daniels | April 12, 2019
A common feature of construction contracts is the indemnity or “hold harmless” provision, which transfers the risk of loss due to a third-party claim from one party to another. Several states have enacted laws that limit the enforcement of indemnity provisions in construction contracts. Colorado’s anti-indemnity statute, enacted in 2007, is relatively broad compared to other states’ statutes. Before assuming that the Colorado anti-indemnity statute applies to your contract, however, you should consider some of its key provisions.
Forms of Indemnity Prohibited in Colorado
Anti-indemnity statutes can be categorized based on the types of indemnity provisions that they target. Although indemnity provisions vary from contract to contract, they typically fall within one of three categories. The first type is the “fault-free” provision, which requires indemnification so long as the indemnitor’s mere work or presence is involved, or where the loss arises out of the indemnitee’s sole fault. The second category includes provisions that require indemnification where the negligence or fault of the indemnitor was a partial cause of the loss, even though the loss may also have been due in part to the indemnitee. The third category of indemnity provisions requires indemnification only where the loss is due entirely to the indemnitor’s negligence.
In Colorado, the anti-indemnity statute addresses the first and second categories of indemnity provisions. Under the anti-indemnity statute, an indemnitor can only be held responsible for damages caused by the fault or negligence of the indemnitor and its subcontractors, suppliers and agents. The extent of an indemnitor’s liability is limited to the degree or percentage of its own negligence or fault. Colorado’s anti-indemnity statute prohibits indemnity provisions that require an indemnitor to pay for damages caused by the indemnitee’s own fault or negligence, or that of its agents. Such provisions are void as against public policy and not enforceable.
Limitations on the Scope of Colorado’s Anti-Indemnity Statute
In many respects, Colorado’s anti-indemnity statute is quite broad. For example, the statute addresses “construction businesses” as a whole and does not distinguish between indemnification of owners, designers, contractors, subcontractors and their agents. Colorado’s statute is also unusual in that it prohibits provisions that require the indemnitor to obtain insurance coverage for losses caused by an indemnitee’s own fault or negligence.
However, before you assume that these broad prohibitions apply to your contract, you should consider whether it falls under one of the statute’s exceptions.
For instance, Colorado defines a “construction agreement” as almost any and every contract in the construction industry, including design contracts. But some courts have still found categories of agreements that fall outside the definition, such as operation agreements and master services agreements. The statute also expressly exempts agreements affecting property owned by railroads, sanitation districts and water districts, as well as lease agreements between landlords and tenants.
Colorado’s anti-indemnity statute is also limited to “liability for damage arising out of death or bodily injury to persons or damage to property caused by the negligence or fault of the indemnitee or any third party under the control or supervision of the indemnitee.” Theoretically, certain categories of damage — such as emotional distress — may escape the prohibition. Indemnification may also be upheld when reimbursement of expenses is sought for a claim that has not yet reached final adjudication or settlement, which is when liability typically attaches. It is also unclear whether the statute applies to indemnification for third party claims based on a theory of strict liability where fault is not an element of the claim.
Overall, Colorado’s anti-indemnity statute contains a relatively broad prohibition against indemnification for indemnitee-caused losses, but some construction contracts may still fall outside its scope, depending on the circumstances.