Most Midwest states have specific statutes that bar one party from asking for indemnity from another party in a construction related contract. 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, your AIA or other contract provisions on indemnity may not be upheld or enforceable in a court of law. This is especially true if your project is being completed in one state, but your contract is signed in another.
Is there another way to obtain indemnity from the negligent work of your sub-contractor or construction or design vendor? YES! Depending upon the state statute, if you include an insuring clause in your contract that specifies that you want the contractor to obtain insurance in a certain amount, and that you want to be named an additional insured on that policy to cover losses that are connected to the work being performed, you can bypass the strict prohibition on indemnity in construction contracts.
For example in Nebraska, 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 tied to an insurance policy. Anderson v. Nashua Corp., 251 Neb. 833, 838, 560 N.W.2d 446, 449 (1997) (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 in Minn.Stat. § 337.05 (2012), the legislature established a narrow exception if the promisor agrees to provide specific insurance coverage for the benefits of others.” See also Eng’g & Const. Innovations, Inc. v. L.H. Bolduc Co., Inc., 825 N.W.2d 695, 711 (Minn. 2013).
Compare this law with the statutes in South Dakota. That states does not carve out an insuring agreement. Every construction or design contract in South Dakota must contain specific language regarding indemnity. If it does not, the contract is unenforceable. See, S.D. Codified Laws Ann. § 56-3-16 (1980). South Dakota statutes further 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 & Richardson, Inc. v. Swift Bros. Const. Co., 739 F.2d 1341, 1344 (8th Cir. 1984).
WHAT IS THE TAKE-AWAY HERE? If you are a party to a construction or design contract, and you want indemnity from a sub-contractor or anyone else connected to the project, make sure your agreements contain a separate clause asking for insurance coverage. Also make sure that you be named as an additional insured on the other party’s policy.
Your attorney can review the laws in the state where the project is located in order to make sure your agreement complies. Also your insurance broker can recommend a specific endorsement that would provide you with the coverage you expect and intend as an additional insured.