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On June 17, 2011, Governor Rick Perry signed into law, effective January 1, 2012, House Bill 2093, a Bill that bars the use of indemnity agreements in certain construction contracts if the contracts are signed on or after January 1, 2012.  The highlights of the Bill include:

(1)        Any provision in a “Construction Contract”[1] that requires an indemnitor[2] (usually a subcontractor or vendor) to hold harmless or defend a party (usually the property owner, developer, or general contractor) against a claim caused by the fault of the indemnitee (usually a property owner, developer or contractor) is void and unenforceable.

(2)        An exception to the rule stated above is made for bodily injury claims filed against the indemnitee by an employee of the indemnitor in which the employee seeks money damages from the indemnitee.

(3)        A provision in a construction contract that requires the purchase of “additional insured” insurance coverage by the indemnitor is also void and unenforceable if it requires or provides coverage that is otherwise barred by paragraph (1) above.

The unequal bargaining power of property owners, developers and general contractors in their negotiations with subcontractors and vendors has caused a shift of responsibility for providing liability insurance coverage for that groups’ liability exposure to the subcontractors and vendors hired by them.  This Bill stops that practice in the construction contracts described herein that are executed after January 1, 2012.

Click here to read House Bill 2093 in its entirety.

[1] “Construction contract” means a contract, subcontract, or agreement, or a performance bond assuring the performance of any of the foregoing, entered into or made by an owner, architect, engineer, contractor, construction manager, subcontractor, supplier, or material or equipment lessor for the design, construction, alteration, renovation, remodeling, repair, or maintenance of, or for the furnishing of material or equipment for, a building, structure, appurtenance, or other improvement to or on public or private property, including moving, demolition, and excavation connected with the real property.  The term includes an agreement to which an architect, engineer, or contractor and an owner’s lender are parties regarding an assignment of the construction contract or other modifications thereto.

[2] “Indemnitor” means a party to a construction contract that is required to provide indemnification or additional insured status to another party to the construction or to a third party.