On March 29, 2012, Washington Governor Christine Gregoire signed into law Substitute House Bill (SHB) 1559 which amended RCW 4.24.115, Washington’s construction anti-indemnity law. As background, the law voids indemnity provisions requiring construction contractors and designers to defend personal injury and property damage claims caused by another party’s negligence. The law does allow an indemnitee (i.e., general contractor) to obtain indemnity for concurrent negligence, but only to the extent of the indemnitor’s (i.e., subcontractor’s) negligence and only if this is specifically and expressly provided in the contract. The law also allows the general contractor to get a waiver from the subcontractor of the subcontractor’s immunity under workers compensation insurance, again only if this is specifically and expressly provided in the contract. These aspects of the law have not been changed, however, the changes that were made will have significant repercussions to risk transfer in the construction and insurance industries.
First, SHB 1559 broadened RCW 4.24.115. The statute was broadened to include the “duty to defend” (costs incurred to defend a lawsuit until it is settled or a judgment is rendered) in addition to the “duty to indemnify” (costs of the ultimate judgment obtained in a lawsuit). This revision expressly limits the duty to defend. In other words, the subcontractor’s defense obligation is limited to what the subcontractor expressly agreed to in the contract.
Second, SHB 1559 clarified RCW 4.24.115’s reference to “construction contracts.” Prior to SHB 1559, it was unclear what contracts qualified as construction contracts under the law. Design professionals often argued RCW 4.24.115 applied to them. With this revision, contracts for “architectural, landscape architectural, engineering and land surveying services” are now specifically included in the law.
Third, SHB 1559 expanded the application of RCW 4.24.115 to include damages arising out of the services provided in the contract in addition to damages arising out of bodily injury or property damage.
The SHB 1559 amendments eliminate some uninsurable risks created by all-encompassing, broad construction contract indemnity provisions. However, it is also a game-changer with respect to how contractor’s and their insurers allocate defense costs.
The amendments to RCW 2.24.115 became effective June 7, 2012. In other words, it applies prospectively only to contracts entered into after June 7, 2012.
The updated statute is quoted below. If you have any questions on the effect of SHB 1559 on your construction contract, feel free to give me a call 503.227.2424.
SUBSTITUTE HOUSE BILL 1559 “SECTION 1. RCW 4.24.115 and 2011 c 336 s 95 are each amended to read as follows:
(1) A covenant, promise, agreement, or understanding in, or in connection with or collateral to, a contract or agreement relative to the construction, alteration, repair, addition to, subtraction from, improvement to, or maintenance of, any building, highway, road, railroad, excavation, or other structure, project, development, or improvement attached to real estate, including moving and demolition in connection therewith, a contract or agreement for architectural, landscape architectural, engineering, or land surveying services, or a motor carrier transportation contract, purporting to indemnify, including the duty and cost to defend, against liability for damages arising out of such services or out of bodily injury to persons or damage to property:
(a) Caused by or resulting from the sole negligence of the indemnitee, his or her agents or employees is against public policy and is void and unenforceable;
(b) Caused by or resulting from the concurrent negligence of (i) the indemnitee or the indemnitee’s agents or employees, and (ii) the indemnitor or the indemnitor’s agents or employees, is valid and enforceable only to the extent of the indemnitor’s negligence and only if the agreement specifically and expressly provides therefor, and may waive the indemnitor’s immunity under industrial insurance, Title 51 RCW, only if the agreement specifically and expressly provides therefor and the waiver was mutually negotiated by the parties. This subsection applies to agreements entered into after June 11, 1986.
(2) As used in this section, a “motor carrier transportation contract” means a contract, agreement, or understanding covering: (a) The transportation of property for compensation or hire by the motor carrier; (b) entrance on property by the motor carrier for the purpose of loading, unloading, or transporting property for compensation or hire; or (c) a service incidental to activity described in (a) or (b) of this subsection, including, but not limited to, storage of property, moving equipment or trailers, loading or unloading, or monitoring loading or unloading. “Motor carrier transportation contract” shall not include agreements providing for the interchange, use, or possession of intermodal chassis, containers, or other intermodal equipment in ORS 30.140.”