Anti-Indemnification Statute Applicable to Construction Contracts Expanded By Michigan Legislature
Because of the inherent risk in the construction industry that projects may not always go as planned, indemnity clauses are incorporated into construction contracts to assign risk if damage or injury occurs. Indemnity clauses set forth the indemnitor (e.g., the party bearing responsibility to pay for damages, usually the contractor), the indemnitee (the party that is being held harmless if a loss occurs, typically the owner), and the types of losses covered (e.g., damage to structures, injuries to persons, legal fees).
At one end of the spectrum, "narrow form" indemnity clauses provide that the indemnitor is liable only to the extent the indemnitor actually caused the damages. Various "intermediate" forms of indemnity are also utilized in Michigan construction contracts, which may assign liability to the indemnitor for a greater portion of the indemnitee's damages, even if the indemnitee was partially at fault. At the opposite end of the spectrum is the "broad form" indemnity clause, which requires the indemnitor to indemnify for all damages, regardless of whether it is at fault at all.
Historically, under Michigan law, a negligent party indemnitee cannot use a "broad form" indemnity clause in a construction contract to shift liability for damages or injury for which it is solely responsible. The Michigan anti-indemnification statute has provided that an indemnity provision in a construction contract that requires the indemnitor to indemnify the indemnitee against liability arising out of the sole negligence of the indemnitee, is against public policy and void. MCL 691.991. However, MCL 691.991 did not previously prevent parties from adopting very broad indemnity provisions, by which an indemnitor may be called upon to indemnify a negligent party indemnitee for 100% of the damages, so long as someone other than the indemnitee was at least 1% at fault (and thus the indemnitee was not solely negligent).
Effective March 1, 2013, the anti-indemnity statute was revised as follows (amendments summarized in Bold):
- Sec. (1) - Any clause or provision in any contract for the design , construction, alteration, repair or maintenance of a building, a structure, an appurtenance, an appliance, a highway, road, bridge, water line, sewer line or other infrastructure or any other improvement to real property, including moving, demolition and excavating connected therewith, that purports to require one party (indemnitor) to indemnify another party (indemnitee) against liability or damages arising out of bodily injury or property damage caused by or resulting from the sole negligence of the indemnitee is void and unenforceable.
- Sec. (2) - Public entities are prohibited from requiring a Michigan-licensed architect, engineer, landscape architect, professional surveyor, or contractor to defend the public entity or any other party from liability claims or to indemnify the public entity or other party for an amount greater than the degree of fault of the Michigan-licensed architect, engineer, landscape architect, professional surveyor, or contractor, and that of their respective sub-consultants or subcontractors. A contract provision executed in violation of this prohibition is void and unenforceable as against public policy.
Section 2 follows the tort reform trend toward a concept of comparative negligence, which limits a party's liability to an amount no greater than its proportional share of fault. See MCL 600.2957. However, Section 2 only limits a public entity's ability to insist on a broad form indemnification. The statute does not prohibit the use of intermediate or broad form indemnity clauses in contracts between those contractors and their subcontractors and material suppliers on public jobs. Therefore, contractors will still be able to include indemnity provisions that require the subcontractor or supplier indemnitor to indemnify them where they are concurrently negligent, so long as they are not solely negligent. Any such provision in a contractor's contract with a subcontractor or supplier should expressly provide that the obligation to indemnify does not apply if the contractor is solely negligent, in order to avoid a violation of the prohibition against broad form indemnity clauses in Section 1.
The statute defines "public entity" as: the State; any public body corporate or non-incorporated public body within the State; or any agency of the State or public body, including, but not limited to, cities, villages, townships, counties, school districts, intermediate school districts, authorities, and community and junior colleges, and their employees and agents, including construction managers or other business arrangements retained by or contracting with the public entity to manage or administer the contract/project. It is important to note that the statute by its terms does not apply to constitutionally-based institutions of higher education under sections 4 or 6 of Article VIII of the state Constitution and thus those institutions can still insist on very broad indemnification provisions in constructions contacts (limited only in the event of sole negligence). The statute also expressly provides that it will not affect the application of the governmental immunity laws.
Because contractors, architects and engineers use varying types of standard form contracts, you may wish to seek legal counsel to review and revise the indemnification provisions in your contracts in order to avoid a violation of MCL 691.991.
If you have any questions regarding the anti-indemnification statute or any construction issues, contact Brian P. Lick or another member of Clark Hill's Construction Practice Group. Brian P. Lick may be contacted at (517) 318-3058 or firstname.lastname@example.org .