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.