North Carolina’s New Law Alters Indemnification Provisions in Construction Contracts Part 1
North Carolina’s anti-indemnity statute, General Statute 22B-1, was created to prevent a party from shifting liability for damages resulting from its own negligence to another party. With regard to the construction industry, this can occur when a contractor or government entity attempts to “self-indemnify” or require the other party to hold them harmless for damages. This statute is of incredible importance because it can determine whether or not a contractor is responsible for damages and legal fees in the event of a legal dispute. For this reason, it’s imperative that contractors stay up to date on laws that affect G.S. 22B-1.
In this two-part series, we will discuss House Bill 871. Approved by the General Assembly and signed into law on July 8, 2019, House Bill 871 became effective on August 1, 2019. This law introduces several new provisions that amend G.S. 22B-1 and further prohibits indemnification provisions. These provisions hereafter apply to all drafted, amended, and renewed construction contracts. To ensure that your future contracts are compliant with state law, consult with a Charlotte construction lawyer at Cotney Attorneys & Consultants.
Cross-indemnification agreements apply to all parties, regardless of fault. In these agreements, each party agrees to hold harmless the other party for each other’s acts. Subsection (b) of 22B-1 now makes cross-indemnification clauses unenforceable unless the promisor (the indemnifying party) is a proximate cause of the “loss, damage, or expense indemnified.”
What does this mean for contractors? To put it plainly, a government entity cannot be held liable for damages unless they were a proximate cause for the damages. Vice versa, a contractor cannot be held liable for damages unless they or their derivative parties were a proximate cause for damages. Subcontractors, agents, employees, and other entities that a contractor may be responsible for are considered derivative parties. Of note, this provision applies to both construction and design professional contracts. Consult with a Charlotte construction attorney for information regarding what constitutes a design professional under G.S. 22B-1.
For more information on House Bill 871 and how it alters indemnification provisions in construction contracts, read part two.
If you would like to speak with an attorney from our Charlotte construction law firm, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.