Most Midwest states have a statute the bars indemnity for construction related projects. Iowa, Kansas and Missouri do not. However, Nebraska, North Dakota, South Dakota and Minnesota do.
All parties to any contract that involves any type of construction or design must be aware of these statutes. If not, AIA or other standard contract provisions on indemnity may not be upheld or enforceable in a court of law.
Is there another way to obtain indemnity for the negligent work of your sub-contractor or construction or design vendor? YES!
Depending upon the state statute, you can bypass the strict prohibition on indemnity in construction contracts by including a clause that requires insurance. Your Agreement should specify that the contractor must obtain insurance in a certain amount, and that you want to be named as an additional insured on that policy in order to cover losses that are connected to the work being performed.
Let’s look at Nebraska as an example. Courts have recognized that the anti-indemnity statute carves out a valid exception for an “insuring agreement.” Nebraska courts have interpreted that exception to allow indemnity – if it is expressly tied to an insurance policy and the promise to insure is set out in the contract. See, Anderson v._Nashua_Corp ., 251 Neb. 833, 838, 560 N.W.2d 446, 449 (1997) (stating that Neb. Rev. Stat. § 25-21,187 does not render an agreement invalid because it provides an exception for insurance instead of indemnity).
Minnesota also has a specific exception that allows insurance coverage. Minn. Stat. § 337.02 bars indemnification agreements in which a party assumes responsibility to pay for damages that are not caused by the party’s own wrongful conduct. But the legislature established a narrow exception in Minn. Stat. § 337.05 (2012) for situations in which the promisor agrees to provide specific insurance coverage for the benefits of others. See e.g. Engineering & Const. Innovations_Inc. v. LH Bolduc Co. Inc., 825 N.W.2d 695, 711 (Minn. 2013).
Compare these two rules with the statute in South Dakota. The South Dakota legislature requires every construction or design contract in that state to contain specific language regarding indemnity as set forth by statute:
Construction contracts, plans and specifications which contain indemnification provisions shall include the following provision: The obligations of the contractor shall not extend to the liability of the architect or engineer, his agents or employees arising out of: (1) The preparation of approval of maps, drawings, opinions, reports, surveys, change orders, designs or specifications, or (2) The giving of or failure to give directions or instructions by the architect, or engineer, his agents or employees provided such giving or failure to give is the primary cause of the injury or damage.
If an agreement in that State does not contain this precise language, the contract is unenforceable. South Dakota’s statutes explicitly provide that “[a]ny indemnification provision in a construction contract in conflict with § 56-3-16 shall be unlawful and unenforceable.” S.D. Codified Laws Ann. § 56-3-17 (1980).
For a deeper discussion, see Henningson_Durham_And_Richardson_Inc_v_Swift_Bros_Const_Co., 739 F.2d 1341, 1344 (8th Cir. 1984). The 8th Circuit followed the South Dakota statute and denied a claim that the parties had agreed otherwise by contract.
…(I)t is plain that liability was based on HDR’s contractual duty to review and approve shop drawings for conformity with the specifications and its approval of drawings in breach of that duty…. It clearly follows that the liability arose out of ‘approval of…drawings’ as the terms are used in the indemnity provision and statute. We are not persuaded by HDR’s attempt to establish these terms as inapplicable. Accordingly, HDR’s claim for contractual indemnity is barred by § 56-3-16….
TAKE AWAY: Check the state statutes on indemnification before drafting language in your construction, design or maintenance contracts. Add a separate insuring clause.
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