Legislature Considering "Additional Insured" and Indemnity Limitations for Construction Contracts

By Henry L. Goldberg

Within the pathetic, ethics-impaired legislative session that just came to a close this year in Albany, there are two bright spots I would like to note. Two bills have been championed by the construction industry that would limit the "cram down" of additional insured and indemnity requirements to downstream parties in construction contracts. These are particularly important pieces of legislation for the contracting community's legislative agenda. They could result in much needed insurance cost relief and more manageable risk exposure in the already extremely "hard" construction insurance market in New York. This relief would, of course, apply to GC's and CM's with regard to their prime contracts with owners and developers, as well as subcontractors, at all tiers, with regard to their respective subcontracts.

The first bill (S.2925; A. 4259) would limit the "additional insured" requirements in construction contracts.

There already is, under New York Law, a statutory prohibition against indemnifying a party for its own negligence, and, therefore, any indemnification provision that requires you to indemnify another party for its own negligence would be void and unenforceable. Similar to legislation passed in several other states, however, the proposed bill would make void any provision in a construction contract that would require a contractor to provide "additional insured" coverage (as distinguished from indemnity) for another party for its own negligence. In other words, if you cannot be required to indemnify another party for its own negligence, you should not be required to provide them with insurance coverage for its own negligence.

G&C COMMENTARY

With the end of the 2015 legislative session, hardly to be noted for its productivity, it is clear that this legislative insurance coverage reform will not be achieved this year. However, it will no doubt be taken up again next year with significant industry support. Meanwhile, for now you should seek, to the extent possible, language in the insurance and indemnity provisions of your construction contracts (both prime and subcontract) to include these same limitations. Overly broad indemnification clauses are epidemic in both public and private construction agreements, with no reasonable justification for such utilization other than the relative negotiating positions of the parties. It is because of this disparity in bargaining positions among owners, developers, general contractors, construction managers, and subcontractors, that this legislation is necessary. Barring this reform legislation, you should currently otherwise seek to manage these risks through the contract negotiation process. Often these issues are simply not deemed a priority and do not receive the critical attention they deserve during contract negotiations when other issues loom larger.

Given the crisis in New York regarding liability insurance pricing, as well as the difficulty of obtaining required coverages at any price, these insurance-related provisions should receive the attention they desire. Much can be accomplished at the contract stage, long before any serious casualty could, unfortunately, occur on a project.

If you, or your insurance professional, would like a copy of these legislative bills, please feel free to contact me directly.

Henry L. Goldberg is the Managing Partner of Goldberg & Connolly and may be reached at (516) 764-2800 or hlgoldberg@goldbergconnolly.com.

This article has been prepared for informational purposes only. It is not a substitute for legal advice addressed to particular circumstances. You should not take or refrain from taking any legal action based upon the information contained herein without first seeking professional, individualized counsel based upon your own circumstances.