Insurance Risks and Indemnification for Subcontractors

If you're a subcontractor, you're likely familiar with the concept of indemnification. For all parties involved in a construction contract, including the owner, the general contractor (GC), and the sub, indemnification is a fact of life and is included in many contracts. But what are the insurance risks and indemnification for subcontractors? How can you ensure you're doing the right thing to provide additional insurance coverage without opening yourself to unnecessary risks?

While insurance risks and indemnification are probably the most overlooked aspects of a contract, they're important to understand. For specific advice and counsel regarding your contract, contact an experienced construction law attorney for help.

What Is Indemnification?

An indemnification agreement in a construction contract is a promise made by one party (e.g., the subcontractor) to defend, indemnify, and hold harmless another party (e.g., the GC) for acts and omissions related to the project.

Indemnification agreements generally take one of three forms:

1. 1. A broad form that includes sole negligence of the contractor
   2. A moderate form, which includes all negligence except for the sole negligence of the contractor
   3. A narrow form that includes only the negligence of the subcontractor

Most states have statutes that determine which of these types of indemnification agreements are enforceable, and many states have anti-indemnity statutes that severely limit the enforceability of broad and moderate provisions. Currently, only eight states do not have statutes that prohibit certain types of indemnification agreements or limit their enforceability. These include Alabama, Maine, North Dakota, Nevada, Vermont, Pennsylvania, Wisconsin, and Wyoming.

Indemnification and Insurance Coverage

Indemnification and insurance are inseparably linked, and you must consider both together to avoid major problems later. Before entering an indemnification agreement, carefully analyze the language of the provision-don't assume it's a given. Depending on state laws, the agreement could be invalid, and if you don't have a contractual agreement to provide additional insured status to another party, your insurer may not cover them.

Don't assume a Certificate of Insurance is enough to provide additional insured status: it's not.

Despite what your broker may tell you, it is not as legally binding as an insurance endorsement, and you'll be on the hook if the GC files a claim against you that could ultimately ruin your operation.

Emalfarb Law Has Nationwide Construction Law Resources

Emalfarb Law has a wide network of legal resources across the country to help you analyze the indemnification agreement in an existing contract, or help you draft an enforceable agreement that protects you as well as the other party. You don't want to enter an agreement where you assume too much insurance risk or wind up in costly, time-consuming litigation.

For a review of your case and advice regarding your options, contact Emalfarb Law today. You can use our online consultation reservation form to request a confidential consultation with a member of our construction law team and provide us with the information we need to serve you.

For more detailed information regarding insurance risks and indemnification for subcontractors, take a look at our webinar on Avoiding One-Sided Contracts.