New law significantly modifies
indemnification in construction
and design contracts
By Paul E. Davis
Special to North Carolina Construction News
This summer, the North Carolina
General Assembly re-wrote the pri-
mary statute governing the enforce-
ability of indemnity provisions in
construction and design contracts.
The legislation, signed into law by
Gov. Roy Cooper on July 8, 2019,
both expanded and restricted the
permissible scope of certain indem-
nity agreements.
House Bill 871 (ratified as S.L.
2019-92) amended N.C. Gen. Stat.
§22B-1, North Carolina’s “anti-in-
demnity” statute.
The legislation added new sub-
sections to §22B-1 that (1) render
unenforceable agreements requir-
ing design professionals to defend
others for claims arising from the
designer’s actions; and (2) authorize
award of attorneys’ fees.
Duty to defend
It is common in contracts in the
construction industry that one party
(indemnitor) will expressly agree in
its contract to “indemnify and hold
harmless” the other party to the
contract (indemnitee) for damages
the indemnitee incurs from claims
brought against the indemnitee by a
third party arising from actions of
the indemnitor. For example, a de-
signer may agree in its contract
with the project owner to indemnify
the owner for damages in the event
a third party is injured and sues the
owner for damages caused by the
designer’s alleged negligence.
Commonly coupled with this obli-
gation to indemnify is the duty to
defend. The duty to defend is dis-
tinct from the obligation to indem-
nify. Whereas the obligation to
indemnify essentially requires the
indemnitor to reimburse the indem-
nitee for losses, damages and ex-
8 — NOV/DEC 2019 — The North Carolina Construction News
penses the indemnitee incurs from
claims by a third party as a result of
the indemnitor’s actions, the duty
to defend requires the indemnitor
to provide the defense for the in-
demnitee from third-party claims.
Under the amended statute, de-
sign professionals can no longer be
contractually required to defend
other parties to their contracts. A
contract’s indemnity agreement
may still be drafted to require the
designer to indemnify others, but
the duty to defend has been de-
clared “against public policy, void,
and unenforceable.”
This prohibition applies only to
certain design professionals; and it
does not apply to others in the con-
struction industry such as contrac-
tors, subcontractors or suppliers.
Attorneys’ fees
The focus of much of the com-
mentary in the industry on the
amended statute has been on the
prohibition of requiring design pro-
fessionals to defend others against
third-party claims. Of equal or per-
haps greater significance was the
addition of a new section to the
statute, §22B-1(d), that expressly au-
thorizes an award of attorneys’ fees
in the context of indemnification.
Entitlement to recover attorneys’
fees is regulated by statute and is
permissible in only limited circum-
stances. Prior to this amendment,
the anti-indemnity statute did not
address whether an agreement to
reimburse an indemnitee for its at-
torneys’ fees incurred in defending
third-party claims was enforceable.
The statute was silent on this issue.
The amended statute now ex-
pressly validates indemnity agree-
ments that require the indemnitor
to reimburse the indemnitee for the
indemnitee’s attorneys’ fees in-
curred in defending against claims
brought by third parties that are
based on the indemnitor’s actions.
This new section applies to all
parties in construction and design
contracts. Therefore, although de-
sign professionals may not be re-
quired to provide a defense to an
indemnitee, there is now a statutory
pronouncement validating contrac-
tual indemnity agreements that re-
quire design professionals (along
with contractors, subcontractors
and suppliers) to reimburse other
parties to their contracts for the in-
demnitees’ attorneys’ fees incurred
in defending against third-party
claims. Effective date
The amendment to the statute
became effective on Aug. 1, 2019,
and applies to contracts “entered
into, amended, or renewed” on or
after that date.
It is not clear why the General As-
sembly opted to vary from the com-
monly used effective date for
legislation affecting contracts - that
the effective date of the legislation
is a certain date and applies to con-
tracts “entered into” on or after that
date. This amendment’s much
broader affective trigger date (con-
tracts “entered into, amended, or re-
newed”) presents the opportunity to
review existing open contracts and
determine whether it would be in
one’s interest to amend or renew
these contracts to take advantage of
this statutory change. Beyond the
obvious and common amendments
to a contract, there is disagreement
in the industry as to what consti-
tutes a renewed or amended con-
tract. For example, in this context,
does the execution of a change
order render a contract “amended?”
Does a change to an existing design
or construction contract that makes
a change only to the contract’s in-
demnity provision constitute an
“amended” contract where the
change to the contract was made
solely for the purpose of taking ad-
vantage of the amended statute?
Paul Davis is a construction lawyer
with Conner Gwyn Schenck PLLC,
based in Raleigh. He has studied and
briefed virtually every aspect of con-
struction contract law and concentrates
his practice in the areas of construction
arbitration and litigation and contract
drafting and negotiation for public and
private clients, including general con-
tractors, construction managers, and
subcontractors. He can be reached by
email at pdavis@cgspllc.com
or by phone at (919) 789-9242
(Ext. 2343).
ASSOCIATION NEWS
LaChase Construction, Watson
Electrical win major ABC EIC
awards LeChase Construction took
home the General Contractor Pro-
ject of the Year award for the Duke
University Crowell quad residence
hall renovation and Watson Electri-
cal Construction Company received
the Specialty Contractor Project of
the Year award for the Union Station
restoration and renovation - phase II
project, at the annual Associated
Builders and Contractors (ABC) Ex-
cellence in Construction awards cer-
emony on Nov. 7.
See the complete list of win-
ners here.
Associations lobby for Cash
Abated Bond (CAB) to resolve
capital spending funding disputes
A coalition of 12 organizations
has urged Gov. Roy Cooper and the
General Assembly to resume nego-
tiations on capital spending before
time runs out for this year.
“With the Senate making moves
to close down the session for 2019
this month, numerous issues have
been left unresolved, including au-
thorization for more than $1.3 billion
in non-transportation construction
spending,” The Carolinas Associ-
ated General Contractors (CAGC)
say in a statement.
The dispute that appears to be
holding up the funding is a differ-
ence between the legislature, which
wishes to implement a “Pay-Go”
program to achieve the desired pro-
jects, and Gov. Cooper, who prefers
to seek voter approval for bonds to
finance the work.
The compromise, the associa-
tions believe, is what they call a
Cash Abated Bond (CAB), a “hybrid
approach that blends the best of
both approaches.”
The concept is simple. Voters au-
thorize the full construction pro-
gram over a period of 6-10 years for
instance, essentially authorizing the
sale of bonds; however, the Legisla-
ture may infuse cash into the con-
struction program annually, which
then decreases the bond obligation
by that amount provided. Essentially
it’s a reverse line of credit for the
state. In a note to members, CAGC out-
lines the concept and seeks mem-
bers’ assistance to “help lobby your
State representatives to come up
with a solution to the stalemate. We
ask our members to contact their
House and Senate representatives
and make them aware that this
coalition has offered a compromise
and request they support action on
authorizing capital spending before
then end of this year. You can find
your legislative representatives at
this link:
https://www.ncleg.gov/RnR/Repres entation.”
CAGC Young Leaders refurbish
Catherine’s House in Operation
Give Back
The Carolinas Associated Gen-
eral Contractors (CAGC) Young
Leaders group recent spent a day at
Catherine’s House in Belmont —
supporting the organization that
provides shelter for women and
children in transition from home-
lessness. The young leaders spent the day
painting and refurbishing three bed-
rooms through the Operation Give
Back program, CAGC reports on its
Facebook page.
“Young leaders have a strong
passion for making a difference in
their communities,” the group re-
ported. The North Carolina Construction News — NOV/DEC 2019 — 9