Legal Alert: Changes to Georgia Law on Indemnity Provisions
An important change in Georgia law effective June 1, 2016 makes indemnity agreements in contracts with engineering, architectural, or land surveying (collectively, “Design”) services void and unenforceable, except for indemnification for any damages resulting from the negligence, recklessness, or intentionally wrongful conduct of the indemnifying party or its agents or employees. A copy of HB943, amending O.C.G.A. § 13-8-2, as passed, is attached.
Prior to this recent amendment, Georgia law barred only indemnification agreements in construction contracts that purported to indemnify for a loss caused by the sole negligence of the indemnified party. This rule remains applicable today.
Georgia law now also bars any agreement to indemnify, hold harmless, insure, or defend a party to a contract for Design services for something more than losses that were caused by the indemnifying party.
While an earlier version of this bill included construction contracts, the enacted version only applies to Design contracts.
Under the new law, overly broad indemnification language in Design contracts that purports to indemnify for something more than the indemnifying party’s own negligence will be void. This can pose a significant risk that contracts which do not comply with this requirement could be stripped of any indemnity protection, even for damages caused by the potentially indemnifying party.
Practitioner’s Note: The standard indemnity language found in Design contracts needs to be immediately revised. In addition, however, and somewhat less obvious, parties must revisit attorney fee shifting and duty to defend clauses in Design contracts since the statute voids more than indemnity clauses. (“agreement … to … hold harmless, insure, or defend … against … claims for damages, losses, or expenses, including attorney fees, is against public policy and void and unenforceable…”) Similarly, insurance policies “collateral to” Design contracts ought to be re-examined.
We foresee many issues arising from the application of the revised statute. For example, we question whether design-build contracts may have two different indemnity clauses, one for the design aspect (more restrictive indemnity) and one for the construction (less restrictive indemnity where one can still be responsible for 100% the construction losses even if only 1% at fault). The legislative history suggests that the legislature did not mean to apply the new indemnity bar to construction contracts. However, given the broad language of the revised statute (which applies to ban overly broad indemnity clauses in an “agreement…in connection with or collateral to a contract…for engineering, architectural, or land surveying services purporting to require that one party …shall indemnify…”), such attempts at broad indemnification clauses are very risky. Predicting how the Courts will ultimately interpret the revised statute is problematic.
Another foreseeable issue concerns agreements where a subcontractor designs as well as constructs a particular system, such as a sprinkler system. We suggest a close evaluation of such issues in connection with or collateral to any contracts involving Design services.
Proposed language for contracts with Design elements:
The [Designer] shall indemnify and defend the [Contractor/Owner/Others] for damages, losses, or expenses to the extent caused by or resulting from the negligence, recklessness, or intentionally wrongful conduct of the Designer or other persons employed or utilized by the Designer in the performance of the contract.
For more information on this legislative change please contact Nick Panayotopoulos at 404.832.9540 or any other member of WWHGD’s construction group.