The Four Legs of Good Anti-Indemnity Legislation
Not all anti-indemnity legislation in the U.S. is created equal. Some state statutes offer strong protections for contractors, while others are full of loopholes, rendering them almost meaningless. For contractors, the most dangerous risk transfer agreement in a construction contract is the indemnity clause, which can shift the liability for bodily injury, property damage, and even death from one party to another. Understanding the different forms of indemnities and how anti-indemnity statutes protect—or fail to protect—you is critical.
The Three Types of Indemnities in Construction Contracts
Broad Form Indemnity: This type transfers the liability for bodily injury, death, or property damage caused by one party’s sole negligence to the other party.
Intermediate Form Indemnity: Similar to broad form, but the negligent party is not 100% responsible. Even if a party is 99% at fault, the other party must cover the liability.
Limited Form Indemnity: This is the fairest type of indemnity. Each party is only responsible for the liability arising from their own negligence.
In practice, there is little difference between broad and intermediate form indemnities. Both can impose enormous financial liabilities on contractors, and worse, these obligations are uninsurable without a reasonable financial cap. A contractor agreeing to these terms without insurance protection could easily be bankrupted by a large claim.
Why Anti-Indemnity Legislation Matters
Recognizing the unfairness of broad and intermediate indemnities, lawmakers in 37 states (as of 2022) have enacted some form of anti-indemnity legislation that limits or voids these clauses in public and private construction contracts. However, the strength of these laws varies widely. Here’s what to watch out for:
Broad Form Indemnities Only: Some statutes only outlaw broad form indemnities but allow intermediate indemnities, which still leave contractors exposed to significant risk.
Indemnities with Insurance Loopholes: Some laws prohibit broad and intermediate indemnities but allow the indemnity to be covered through additional insured status on a contractor’s general liability insurance. This means that while the indemnity itself is void, the contractor’s insurance must cover it anyway.
Stronger Statutes: The best anti-indemnity laws outlaw both broad and intermediate indemnities and prohibit requiring additional insured status on the contractor’s insurance policies to cover the indemnity.
Venue and Choice of Law Loopholes: Some statutes don’t address or allow change of venue or choice of law clauses, which can shift disputes to states with weaker anti-indemnity protections.
On a scale from 0 to 10—where zero represents weak legislation and ten represents strong, protective legislation—states that fall under the first four bullet points get a 0. States that outlaw broad and intermediate indemnities, prohibit requiring additional insured status, and block change of venue get a 10. This is gold star legislation!
The Four Legs of Good Anti-Indemnity Legislation
To be truly effective, anti-indemnity statutes should include these four key components:
Void Broad Form Indemnities: Broad form indemnities should be deemed against public policy and therefore unenforceable.
Void Intermediate Form Indemnities: Intermediate form indemnities should also be prohibited as they still unfairly transfer liability to contractors.
Prohibit Insurance Coverage for Indemnities: The law should outlaw requirements for contractors to provide additional insured status to cover broad or intermediate indemnities on their general liability insurance. This closes the “insurance loophole”.
Prohibit Venue and Choice of Law Clauses: To avoid "contractual rendition," the law should forbid any contractual requirement to resolve disputes in another state that lacks strong anti-indemnity protections.
These four provisions ensure contractors aren’t unfairly burdened with uninsurable liabilities and don’t get trapped by venue or choice of law clauses that shift disputes to unfavorable jurisdictions.
Understanding the States' Anti-Indemnity Laws
As of 2022, the following states have enacted some form of anti-indemnity legislation:
Strong Legislation: Colorado and Texas have the strongest anti-indemnity statutes, prohibiting broad and intermediate indemnities as well as requirements for additional insured status. They set the standard for gold star legislation.
Moderate Legislation: Many states, including California, Florida, and New York, offer some protections but still leave contractors exposed through intermediate indemnities or insurance requirements.
Weak Legislation: Some states only prohibit broad form indemnities but allow intermediate indemnities or fail to address venue and choice of law issues, leaving contractors vulnerable.
Protect Yourself
When negotiating the commercial terms and conditions of a construction contract, it’s essential to understand the anti-indemnity laws in the state where the project is located. In some states, venue and choice of law clauses may render your state's protections meaningless if the contract moves disputes to another state with weaker legislation.
Final Thoughts
Anti-indemnity legislation is complex and constantly evolving. It’s crucial to consult with an attorney or contract professional who is up to date on the latest changes in state laws. By doing so, you can better negotiate the terms of your construction contracts and protect your business from unfair risk transfer agreements.
Understanding the four legs of good anti-indemnity legislation—voiding broad and intermediate indemnities, closing insurance loopholes, and blocking venue or choice of law manipulations—can save your company from potentially crippling liabilities.
States with Anti-Indemnity Legislation (2022)
Alaska, Arizona, California, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Virginia, Washington, West Virginia, Louisiana, Arkansas, Georgia, Wyoming, New Hampshire, Oklahoma, Wisconsin.
Stay informed, protect your business, and make sure the contracts you sign reflect fair and enforceable terms. Colorado and Texas are leading the way with their gold star legislation—other states should follow suit.
