On January 1, 2012, a new law will go into effect that is known as the Anti-indemnification Bill (HB 2093). This will affect most construction contracts that are currently being used.
Currently, most contracts that the General Contractor requires sub-contractors to sign have an indemnification clause that limits the GC’s own liability and holds it squarely in the hands of the sub-contractor. The great news is that those parts of any contract signed after January 1, 2012 will be void (with a few exceptions of course).
Here is a more thorough breakdown of how this law will change the way contracts need to be written:
- A GC can no longer require a subcontractor to indemnify the GC of their own sole or partial negligence. Indemnity clauses violating this prohibition will be void and unenforceable.
- Unless you enter into a “Joint Defense Agreement” after a claim has been asserted, a GC’s contract can no longer require a subcontractor to defend the GC from claims based on the GC’s own negligence.
- Additional Insured endorsements to a subcontractor’s liability insurance policy that purport to provide coverage for the GC’s sole or partial negligence, so long as the claim arises from the Subcontractor’s work, are also no longer enforceable. It is very likely that ISO specific Additional Insured endorsement forms will be prepared to cover this in Texas (but see below).
- NOTE: These restrictions on indemnification (both with regard to claims and defense of claims) and on Additional Insured endorsements do NOT apply to on-the-job employee personal injury claims. Accordingly, a GC can still make a Subcontractor defend and indemnify the GC for the Subcontractor’s own sole or partial negligence for a personal injury claim by an employee of the GC (or even other subcontractors of the GC). This means that the current broad form intermediate or additional insured endorsements will still be enforceable in situations where personal injuries occur on the job in Texas.
The good news is that, so far, it looks like the lawmakers got it right this time. They finally put some laws in place to give equal bargaining power to general contractors and subcontractors. If you are a General Contractor and you are depending on these provisions to protect yourself, as of January 1st, you need to think again. And as for Subcontractors, you no longer have to sign contracts with these provisions in them.