Monday, October 14, 2013

Have You Changed Your Indemnification Clause in Your Contracts?

It's been more than a year since the Washington State Legislature amended the provisions for what is permitted in contracts regarding indemnification.  Has your agency updated the indemnification clause in your contracts?  This blog posting is a repeat of one from April 24, 2012 with only minor changes.

With strong backing and support from the professional design community, the Washington State Legislature approved in 2012 (with only one dissenting vote) Substitute House Bill 1559 related to indemnification provisions in public contracts. Then Governor Christine Gregoire signed the bill. 

Previous Law:  The purpose of the previous law in RCW 4.24.115 was to establish a standard of concurrent negligence in indemnification clauses.  In other words, a public agency may not require a contractor to indemnify the public agency against liability for damages "caused by or resulting from the sole negligence" of the public agency.  Instead, the previous law established that indemnification is valid and enforceable only to the extent of the concurrent negligence of the contractor and public agency. 

3 Changes in Law in 2012:  SHB 1559 amended RCW 4.24.115 in the following three areas:
  • Clarification of covered parties:  The previous law stated that it applied to a contract "relative to the construction, alteration, repair, addition to, subtraction from, improvement to, or maintenance of, any building, highway, road, railroad, excavation, or other structure, project, development, or improvement attached to real estate, including moving and demolition in connection..."  [emphasis added]  Many agencies interpreted the phrase "relative to" to include contracts for architectural, engineering, landscape architectural, and land surveying services, even though the language was not explicit.  SHB 1559 specifically added contracts for these four disciplines to the protections provided for in the law.
  • No duty to defend:  One of the regular sticking points in negotiating contracts with designers relates to whether the indemnification provided by the designer covers their duty to defend the public agency in the event of a claim.  SHB 1559 explicitly prohibits language in public contracts that includes the duty to defend and the cost of such defense.
  • Extent of indemnification:  The previous concurrent negligence standard was only applicable to liability for damages related to bodily injury and property damage.  Thus, for any other type of liability, a public agency could apply a sole negligence standard.  SHB 1559 changed this.  The concurrent negligence framework expanded to cover any liability arising out of any services performed on the contract.
Have you changed your contracts?  SHB 1559, approved in 2012, became effective on June 7, 2012.  Has your agency reviewed and changed indemnification language included in both construction contracts and contracts for architectural, engineering, landscape architectural, and land surveying services?

Talk with your attorney:  Indemnification is a complicated area and attorneys are best suited to sort through and develop appropriate contract language.  If you have not already done so, public agencies should consult with their attorneys for what language may need to change in their contracts. 

More Information:  Two Seattle area law firms have written helpful articles about SHB 1559 that may help in understanding this 2012 legislation:
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

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