The Issue: The extent of indemnification available from lower-tier contractors varies from state to state. Utilizing indemnification language that is not permitted in the state in which the contract is executed will derail your desired outcome to have your subcontractors fully responsible for their activities and liabilities that may emerge from those activities.
Why It’s Important: This is an overall risk management issue, not simply an insurance challenge. As party to the construction project, you seek to make sure you are held responsible for those things that occur on the project that you can control and are within your operational jurisdiction. This is the essence of the crafting of the indemnification provision. If the language in it is at odds with what is acceptable under a state’s law, your effort to shield and protect yourself from liabilities created “downstream” may well be disallowed, leaving you “holding the bag” for someone else’s failure(s).
Short Answer: Having proper indemnification in place is step one. To complete the process of insulating yourself, it is critical to make sure all downstream parties have secured the full insurance requirements established. Insurance steps in to fulfill the financial requirements established by the indemnification. Without the requisite insurance, you are relying on the financial wherewithal of downstream parties. As an overall risk management issue of significance, it is important to collaborate with both your legal counsel and your insurance professional. Take time to tend to the details. Seemingly small or inconsequential issues tied to indemnification and connected insurance provisions have been known to open up avenues to litigation and create unexpected expenses that could tank the profitability of a project, or worse.
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