Contractual risk transfer through indemnification and insuring provisions in Pennsylvania construction contracts is common, enforceable and effective if drafted property. Such provisions allow parties to a construction project to predict and allocate casualty risk.
In late July, a bipartisan bill was proposed in the Pennsylvania Legislature that would alter this moving forward. The bill applies to any agreement entered into by an owner, contractor, subcontractor, supplier or employees thereof relating to construction, maintenance, repair, alteration of buildings, structures, highways, railroads, appurtenance or appliances. The bill states that agreements that require a party to be indemnified or held harmless for liability resulting from the negligence, in whole or in part, of the party seeking indemnification would be void and unenforceable. This is a tremendous change in the ability of parties to shift casualty risk through contract negotiations.
The bill is presently pending in the Legislature until the Fall term begins. The merits of such a bill are certainly open to debate. The bill’s practical effect also depends on a party’s role in a construction project. General contractors will be adversely affected because they will be prevented from allocating risk down to subcontractors, who are generally the parties actively engaged in the work creating or contributing to the casualty. Conversely, subcontractors and their insurers may benefit from the potential law, since they may not be forced defend general contractors and other upstream parties. This bill does not mention or attempt to control contractual requirements to insure other parties, so the practical effect of the bill may be more muted than anticipated.
A copy of the bill can be found here.
If you have any other questions about this important development, or any other aspect of Margolis Edelstein’s construction law practice, do not hesitate to contact John Livingood at email@example.com or Brooke Hanley at firstname.lastname@example.org.