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Colorado Shifts Financial Responsibility Between Construction Professionals

Colorado Shifts Financial Responsibility Between Construction Professionals

By Chad M. McShane

Effective July 1, 2007, indemnity provisions in construction contracts will no longer be enforced if the provisions protect the indemnified party (“indemnitee”) from the indemnitee’s own negligence or fault. Construction contracts as defined within the new provisions in C.R.S. § 13-21-111.5 (“Civil Liability Cases – Pro Rata Liability of Defendants”) include planning, engineering, design or construction of any kind, including commercial and residential projects, subcontracts, agreement for materials, labor or supervision contracts. The new law does not pertain to lease agreements, projects owned by railroads or projects owned by certain governmental or quasi governmental water and/or sanitary service districts.

Prior to passage of the new provisions, C.R.S. § 13-21-111.5 did not pertain directly to construction professionals, but pertained to actions brought as a result of death or injury to persons or property, where percentages of negligence or fault were at issue. The new Act’s express purposes are to “ensure that every construction business-law in this state is financially responsible to the tort liability system for losses that a business-law has caused.” The legislature passed the new Act with the stated goal of promoting competition and safety in the construction industry and benefiting Colorado consumers. In this effort to prevent construction professionals from shifting responsibility for their own negligence to others, the legislature also required that construction professionals obtain liability insurance. The law prevents and declares as “void as against public policy” any provision in a construction contract requiring a party to purchase additional insurance coverage for death, bodily injury or personal property damage arising from acts or omissions that are not caused by the fault of the party providing the additional insurance coverage. The law, however, specifically does not apply to “builder’s risk insurance.

The new law will affect construction professionals and property owners who have previously relied on indemnification agreements in construction contracts and on designations as “additional insureds” on insurance policies providing liability protection. It is not uncommon for construction contracts to contain indemnification language, passing indemnification responsibility and liability to third parties, even though some or all of the fault may rest with the person requesting the indemnification provision. These agreements will no longer be enforceable. In addition, it is common in construction contracts to require that liability insurance coverage include “additional insureds.” These contractual and insurance coverage issues will need to be reevaluated, in light of the new law.