Consider Anti-Indemnity Statutes When Transferring Risks for Design Contracts

Design contracts, including contracts between the project owner and the design professional, often contain risk transfer provisions such as contractual indemnity and insurance provisions. The parties to the contracts must be aware of the state law anti-indemnity statutes that can void or impact the risk transfer scheme.

In Texas, for example, the Texas Architects/Engineers Anti-Indemnity Statute (“TAEAIS”) voids indemnity agreements in which an architect or engineer is required to indemnify an owner (or owner’s agent or employee) from liability caused by or resulting from the negligence of the owner or the owner’s agent or employee.

The Texas Legislature amended the TAEAIS in 2021 and provided additional protections to architects and engineers from contractual indemnity claims by project owners while at the same time granting certain exceptions and limitations. The amended statute:

• • Voids any construction contract provision that imposes upon an architect or engineer a duty to defend a party for liability based in whole or in part on a project owner’s negligence or breach of contract. However, the amendment allows contractual provisions requiring reimbursement of an owner’s attorney fees so long as the reimbursement is in proportion to the engineer’s or architect’s liability.
  • Allows contract provisions that require an architect or engineer to name the project owner as an additional insured on the architect’s or engineer’s liability insurance policy to the extent additional insureds are allowed under the policy.
  • Incorporates new restrictions on a contractual duty to defend, but they expressly do not apply to construction contracts in which an owner contracts with an entity to provide both design and construction services.
  • Contains no prohibition against contract provisions imposing a duty to defend on an architect or engineer if the claim being defended is for negligent hiring of the architect or engineer.

Key Takeaways

One takeaway from the amendments is that TAEAIS expressly allows the owner to include an additional insured requirement in the agreement with architect or engineer, including a requirement to be named as an additional insured in a professional liability policy. Also, owners can seek to obtain contractual indemnity for the architect or engineer’s own negligence.

The TAEAIS also prohibits an architect or engineer from obtaining contractual indemnity from contractors for property damage or bodily injury caused by or resulting from defects in plans or designs or specifications prepared, approved or used by an architect or engineer and negligence in rendering professional duties as described in the statute.

But the architect or engineer can obtain contractual indemnity for the contractor’s own negligence. This would allow, for example, an architect or engineer to obtain contractual indemnity from the general contractor for the general contractor’s own negligence under the AIA contractual indemnity provision.

Potential Conflicts Amid the Statutes

However, Texas has a Construction Anti-Indemnity Statute (“TCAIS”) passed in 2012 that could potentially apply to agreements with architects or engineers. It specifically applies to construction contracts entered into by an architect, engineer, owner and contractor, among others.

No court has addressed a situation where both Texas anti-indemnity statutes may apply.

The TCAIS precludes contractual indemnity for an indemnitee’s own negligence except when the indemnitee seeks contractual indemnity for “bodily injury or death of an employee of the indemnitor, its agent or its subcontractor of any tier.”

Additional insured provisions are voided to the extent contractual indemnity is precluded. Based on their statutory language, potential conflicts exist between the two anti-indemnity statutes:

• The TCAIS would not allow an owner to obtain additional insured coverage from an architect or engineer for property damage even though the new amendment to the TAEAIS would allow it.
• The TCAIS would permit an architect and engineer to obtain contractual indemnity for their own negligence if a contractor’s employee sued for injuries caused by plan or design defects, but the TAEAIS would not allow it.

The best course of action is for architects and engineers as well as owners to follow the restrictions of the TAEIAS since it more specifically applies to their relationship.

Texas is not the only state that has construction related anti-indemnity statutes. Louisiana, Mississippi, Alabama and Florida also have anti-indemnity statutes that apply in the construction context. In fact, Alabama passed an architects/engineers anti-indemnity statute in 2021 with similarities to the Texas statute.

The best practice is to review the anti-indemnity statutes when drafting contracts between the project owner and the design professional, as well as other construction contracts.

Please contact Marcus Tucker or any member of the Phelps Litigation Team if you have questions or need advice or guidance.