Effective this month, the State of Texas joins the list of states with both anti-indemnity and anti-additional insured statutes. In legislation signed last summer by Gov. Rick Perry but not effective until January 1, 2012, Texas — previously viewed by construction law practitioners as a permissible venue which it came to risk shifting and indemnification — joined the now long list of states prohibiting clauses in construction contracts requiring indemnification of indemnitees for their negligence.[1] Moreover, in so doing, Texas also joined the small but growing list of states prohibiting additional insured requirements – such as requirements in subcontracts requiring subcontractors to add contractors, construction managers and owners as additional insureds to the subcontractors’ policies. Other states on that list include: Colorado[2], Kansas[3], Montana[4], New Mexico[5], Oklahoma[6], Oregon[7] and Utah[8].
The anti-indemnity prohibition includes elements of particular note such as its (1) application to agreements with architects and engineers, (2) application to attempted indemnity for indemnitee’s breach of contract in addition to negligence, (3) application to contracts “collateral to or affecting a construction contract”, (4) non-application to claims for bodily injury or death of an employee of the indemnitor or its agent or subcontractor of any tier, (5) non-application to municipal contracts, and (6) non-application to particular types of other agreements, not the least of which include insurance policies.
The bill started out as a means to address contractor concerns for coverage under controlled insurance programs (e.g. wrap-up, OCIP or CCIP) which can be limited when it comes to completed operations coverage. The bill requires that such programs include completed operations coverage for a minimum of three years. Although attempts were made to have such programs cover the applicable statute of repose, that extended term and other insurance provisions did not garner approval.
The anti-indemnity and additional insured provisions had been the subject of a bill in the prior legislature, but that got held up and was never put to a vote. The Senate chamber then used the controlled insurance bill as a means to put the anti-indemnity and additional insured provisions into play in an amendment that ultimately won approval of the House.
As noted above, the additional insured prohibition is a growing trend spear-heading by subcontractor trade associations throughout the country which started only a few years ago and may be coming to a state near you sometime soon. If that lowers insurance costs at the contractor level and the subcontractor level, then perhaps it’s a win-win all around.
[1] Tex. Ins. Code §151.001, et seq. See here and here.
[2] Col. Rev. Stat. §13-21-111.5(6)(b)
[3] Kan. Stat. Ann. 16-121(c)
[4] Mont. Code Ann. §28-2-2111
[5] N.M. Stat. §56-7-1
[6] Okla. Stat. §15-221(b)
[7] Or Rev Stat. §30.140
[8] Utah Code Ann. §13-8-1