Newly revised language of Minn. Stat. § 337.05 means drastic changes for construction contracts. On May 24, 2013, Governor Dayton approved a legislative bill, SF 561, that significantly limits when one party to a construction contract can insure (and, therefore indemnify) another party.
The new law changes the language of Minn. Stat. 337.05 and prohibits the longstanding practice in the construction industry of allowing one party (such as a general contractor) to require another party (such as a subcontractor) to insure the first party (i.e., the general contractor) for that party’s (i.e., the general contractor’s) own negligence. In fact, the new language is broad and prohibits any requirement that a party provide insurance coverage to anyone else for the other parties’ negligence or intentional acts or omissions.
The new language in Minn. Stat. § 337.05(b) that will go into effect on August 1, 2013 states:
A provision that requires a party to provide insurance coverage to one or more other parties, including third parties, for the negligence or intentional acts or omissions of any of those parties, including third parties, is against public policy and is void and unenforceable.
This new language severely limits the longstanding practice of upstream indemnity under Holmes v. Watson-Forsberg Co., 488 N.W.2d 473, 475 (Minn. 1992), which recognized that broad indemnity agreements in building and construction contracts are enforceable if the subcontractor agrees to insure that risk, including the upstream party’s own negligence.
However, the new law does carve out an exception for insuring the vicarious liability of an upstream party. Specifically, the new prohibitory language in 337.05(b) “does not affect the validity of a provision that requires the promisor to provide or obtain insurance for the promisee’s vicarious liability or liability imposed by warranty, arising out of the acts or omissions of the promisor.” The new law also continues to allow parties to obtain workers compensation insurance, construction performance or payment bonds, project-specific insurance (including builders risk policies and owner and contractor controlled policies). Certain exceptions are also carved out for projects within fifty feet of certain railroads.
The revised Minn. Stat. § 337.05 goes into effect August 1, 2013 and applies to agreements entered into on or after that date. The changes will impact all involved in the construction trades, from owners to general contractors to subcontractors.
Changes to the statute were prompted by the 2011 Minnesota Court of Appeals decision and the 2013 Minnesota Supreme Court decision in Engineering & Construction Innovations, Inc. v. L.H. Bolduc Co., Inc. et al.