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VIEWpoint Issue 1 | 2023
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Texas House Bill 2093, the Construction-Related Anti-Indemnification and Anti-Additional Insured Act has been in effect for more than a year now, impacting many facets of the construction industry. Although less so for companies handling residential or municipal work, the act does contain an important exception as it relates to a subcontractor’s employees being injured on the job. Charles Comiskey of risk management firm Brady Chapman Holland & Associates explains the “Third Party Over Action” concept, the risk it poses and what you should do to protect your business.
The Construction-Related Anti-Indemnification and Anti-Additional Insured Act (the act) declared any requirements to defend, indemnify or hold harmless another party for their negligence (whether joint, concurrent, sole, strict, gross, etc.) or that of anyone for whom they are responsible (agents, employees, anyone under the control or supervision of the Indemnitee) are void and unenforceable. It further declared that any additional insured requirements covering the same issues are also void and unenforceable.
So unless you are in one of the types of business excluded by this act (residential or municipal work), you’re in the clear, right? Well, not exactly.
The act contains an important exception applicable to injury or death of employees of the Indemnitor (the downstream party), its agents or subcontractors. Indemnification and additional insured requirements that remain permissible under Texas law include the required assumption of the Indemnitee’s (the upstream party) joint, concurrent and/or sole negligence with regard to this exception.
Assume a subcontractor’s employee is injured on the job. He makes a workers’ compensation claim and is prohibited by law from suing his employer. He can, however, bring suit against upstream parties, who then tender the suit back to that employer for defense and indemnification under the employer’s general liability insurance. This process is commonly referred to as a “Third Party Over Action.”
Contractual indemnification arises from liability assumed in a contract. It applies to liability not normally imposed by law – you are liable only because you have agreed to be liable. There are a variety of insurance issues pertinent to this exposure that require your attention. From the standpoint of the contractual liability insurance provided by a general liability policy, there are four:
In this last example, who wins? Not the Indemnitee, who thought it was getting the benefit of a full $1 million limit, only to find that the remaining limit is substantially reduced. Not the Indemnitor (the downstream contractor) who (1) not only have paid dearly for this coverage, but (2) is now having to share its limits with the upstream party, and (3) even worse, is having those limits rapidly eroded by defense costs.
Who wins? The insurance company, which now is having to pay far less, saving money with every dollar paid to defend an Indemnitee.
There are two:
Additional insured issues abound, but there’s good news on the horizon.
Charles E. Comiskey, CPCU, CIC, CPIA, CRM, PWCA, CRIS, CCM, is Sr. V.P. of Brady Chapman Holland & Associates. Comiskey is a nationally recognized expert and frequent speaker on risk management and insurance issues to various legal, construction and real estate associations and similar groups across the country. He has served as a pre-trial consultant/expert witness in approximately 200 matters in State and Federal courts, serving in behalf of both the defense and plaintiff. He can be contacted at 713.979.9706 or email@example.com.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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