The Purpose of Indemnity Provisions
Indemnity provisions are often used in contracts and other agreements to allocate the risk of loss or damages that may arise. They are intended to make a party whole, or as close to it as possible, and hold them harmless from loss on some obligation which they have incurred or are about to incur.
It has always been the case that any provision in a construction or design professional contract that requires a party (promisor) to indemnify another (promisee) for the promisee’s or its derivative parties’ own negligence, whether in whole or in part, is against public policy, void and unenforceable (N.C. Gen. Stat §22B-1).
N.C. Gen Stat §22B-1(f) specifically defines “design professional” to include the following types of licensed design professionals: architects, landscape architects, engineers, land surveyors, geologists, and soil scientists.
Recent NC Legislation Changes and Impacts
In 2019, North Carolina broadened its “anti-indemnity” statute, to place additional restrictions on the scope of indemnity clauses applicable to any construction contract or design agreement entered, amended, or renewed on or after August 1, 2019. Key highlights under the revised statue:
- Prohibits contractual provisions requiring design professionals to defend others against claims allegedly caused by the professional negligence of either party to the agreement or their derivative parties.
- A party may still use an indemnity clause to recover attorneys’ fees and other litigation costs but only those actually incurred in defending against third-party claims (once a determination that the fees and costs were proximately caused by the fault of the party required to pay such costs or the fault of others for whom that party is responsible)
- For an indemnity clause to be valid, the fault of the person making the promise to indemnify (or its derivative party) must have caused the loss or damage, at least in part.
- Applies to loss, damage or expense and is not limited to liability for bodily injury or property damage. Actual costs may only include attorneys’ fees, litigation or arbitration expenses, and court costs (N.C. Gen Stat §22B-1 (b) and (d)).
Sentinel's Prepaid Legal Services Plan
It is critical to note that these restrictions to indemnity provisions are drafted broadly; however, certain agreements and claims are specifically excluded from its scope. These exceptions include insurance contracts, workers’ compensation, other insurer agreements, and lien or bond claims asserted under General Statutes Chapter 44A.
To help better serve clients in an engaged capacity for employment and contract related advice, guidance, and counsel, Sentinel has partnered with Executive Legal Services to offer a Prepaid Legal Services Plan. This plan encompasses Employment Law, Human Resources and Contractual Risk Transfer. Contact your Sentinel Client Executive or Account Advisor to learn how to incorporate Prepaid Legal Services into your comprehensive risk management plan.