Originally posted Friday, 10 February 2012

Written by John Sier

Indemnification is a common element in an effective construction risk management program. However, the scope of that indemnification requirement can become a matter of great controversy. Many states are addressing broad indemnification clauses by limiting the effect, and many times prohibiting indemnification from one’s own negligence. In late June, Texas joined the list of states that prohibit broad contractual indemnification from one’s own negligence, whether sole or concurrent. The Texas statute also prohibits requiring an additional insured endorsement if the effect would be to indemnify another party from their own negligence in violation of the anti-indemnity law. The prohibition does not apply to residential or municipal construction projects. Tex. Ins. Code Section 151.102 et seq.

Texas formerly allowed very broad form indemnification as long as it was clearly and unequivocally stated in the contract. Any non-exempt contract will need to be closely reviewed for projects in Texas on or after January 1, 2012. If an Owner in Texas is using the ConsensusDOCS, then Article 11 of either the ConsensusDOCS 200 [General Contracting] or ConsensusDOCS 500 [CM at Risk] will need to be examined and coordinated with the local legal requirements.

The same bill that prohibited broad form indemnification language also mandated that wrap-up insurance programs (called a “consolidated insurance program” in the statute) providing general liability insurance for a project must also provide completed operations coverage for not less than three years. Tex. Ins. Code Section 151.051. While some Owners may benefit from this defined period on a wrap-up insurance program, the required coverage period is short of the ten-year statute of repose for claims on a construction project. Tex. Civil Prac. and Rem. Code Section 16.008

When addressing contractual risk allocation and developing a risk management program for any construction project, an Owner must be familiar with the state laws and must be sure to modify any form document appropriately. Even documents developed as recently as a few years ago for use in a particular state will need to be examined for changes in the legal environment that could affect the enforceability of any clause.