| LEGAL MATTERS | Limitations on Indemnity and Additional Insured Provisions in Construction and Other Types of Contracts
by will larson , KAIA attorney
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K . S . A . 16-121 prohibits the enforcement of certain types of indemnity and additional insured provisions in construction and other specified contracts . Specifically , subsections b and c of the statute provide :
( b ) An indemnification provision in a contract which requires the promisor to indemnify the promisee for the promisee ’ s negligence or intentional acts or omissions is against public policy and is void and unenforceable .
( c ) A provision in a contract which requires a party to provide liability coverage to another party , as an additional insured , for such other party ’ s own negligence or intentional acts or omissions is against public policy and is void and unenforceable .
Initially K . S . A . 16-121 applied to “ construction contracts .” It was amended , however , to not only apply to construction contracts , but also to “ motor carrier transportation contracts , dealer agreements and franchise agreements ”. On the other hand , “ contracts for the design , construction , alteration , renovation , repair or maintenance of dirt or gravel roads used to access oil and gas wells and associated facilities , or oil flow lines or gas gathering lines used in association with the transportation of production from oil and gas wells from the well head to oil storage facilities or gas transmission lines ” were excluded from the definition of contracts covered by K . S . A . 16-121 . The intent of expanding and then limiting the scope of contracts affected by K . S . A . 16-121 was to include certain contracts which commonly contain prohibited indemnification clauses and additional insured clauses but to exclude certain contracts associated with the oil and gas industry . The oil and gas industry asked to be excluded from the bill because they had worked out standard agreements that defined how their liability would be shared .
It is extremely important to understand that even for the contracts K . S . A . 16- 121 applies to , it does not prohibit all indemnity provisions or all additional insured requirements . It only prohibits provisions that require the promisor to indemnify the promisee for the promisee ’ s own negligence or fault , or that require the promisor to name the promisee as an additional insured on the promisor ’ s liability policy for the promisee ’ s own negligence or fault . Most indemnity provisions do not require the promisor to indemnify the promisee for the promisee ’ s own fault . The more typical types of indemnity provisions require the promisor to indemnify the promisee for liability incurred by the promisee as a result of the negligence or fault of the promisor . These types of indemnity provisions remain valid and enforceable . Likewise , to the extent that there is an additional insured requirement that requires the promisor to name the promisee as an additional insured on the promisor ’ s liability policy for liability of the promisee as a result of the fault or negligence of the promisor , those provisions are likewise valid and enforceable .
This distinction is particularly important to keep in mind as an insurance agent in trying to determine what coverage is required in an affected contract . For example , if there is a contract between the owner and general contractor which simply states that the general contractor shall name the owner as an additional insured under the general contractor ’ s liability policy , that provision is still valid and enforceable to the extent it requires a general contractor to name the owner as an additional insured for any liability incurred by the owner as a result of the general contractor ’ s fault .
There are exceptions as to what the statute prohibits . Subsection ( d ) of K . S . A . 16-121 includes certain exceptions to the use of the types of indemnity and additional insured provisions that are prohibited in the act . These are outlined in subsections ( d )( 1 ) through ( d )( 6 ) of the statute .
Subsection ( d )( 1 ) provides that the act will not affect or impair any contractual obligation of a contractor to provide “ railroad protective insurance or general liability insurance ”.
Subsection ( d )( 2 ) provides that the act will not apply where an owner , responsible party or governmental entity agrees to indemnity a contractor for strict liability under environmental laws .
Subsection ( d )( 3 ) provides that the act will not apply to a valid settlement agreement of disputed claims .
Subsection ( d )( 4 ) provides that the act will not apply to insurance policies and related documents or to construction bonds or related documents . Without this exception , a general liability policy , which does assume responsibility for the insured ’ s negligence , could have been outlawed .
24 KANSAS INSURANCE AGENT & BROKER | MARCH - APRIL 2016 |