As we enter another busy era in Oklahoma where construction is in high demand, it’s important that businesses carefully review their construction agreements. Construction agreements usually include many terms, including terms regarding indemnity. An indemnity term in a construction agreement between an owner and a contractor may state the contractor (indemnitor) agrees to indemnify the owner (indemnitee) against claims for death or bodily injury to persons and property damage occurring during the construction caused by actions of that contractor, its subcontractors and/or caused by actions of the owner. Another term in a construction agreement between an owner and a contractor may require the contractor to maintain certain types of insurance coverage and include the owner as an additional named insured under that coverage.
Are terms like those described above enforceable under Oklahoma law? If the terms include language indemnifying or insuring, defending or holding harmless the indemnitee for its own negligence or fault, no.
Oklahoma law provides the term in the construction agreement[1] requiring the contractor to indemnify the owner for death or bodily injury to persons and property damage arising out of the owner’s own negligence or fault “void and unenforceable.” It is found in Okla. Stat. tit. 15, § 221 and provides in part,
Except as provided in subsection C or D of this section,[2] any provision in a construction agreement that requires an entity or that entity’s surety or insurer to indemnify, insure, defend or hold harmless another entity against liability for damage arising out of death or bodily injury to persons, or damage to property, which arises out of the negligence or fault of the indemnitee, its agents, representatives, subcontractors, or suppliers, is void and unenforceable as against public policy.
In the only Oklahoma appellate opinion to date discussing § 221 the court said in part,
Most states have some form of anti-indemnity legislation either prohibiting an indemnitor from indemnifying an indemnitee for the indemnitee’s sole negligence or prohibiting an indemnitor from indemnifying an indemnitee for any of the indemnitee’s own negligence, sole or partial. See Dean B. Thomson & Colin Bruns, Indemnity Wars: Anti-Indemnity Legislation Across the Fifty States, 8 J. Amer. College of Constr. Lawyers, August 2014, at 1. Oklahoma’s anti-indemnity statute is the latter, prohibiting both broad and intermediate form indemnity agreements in construction contracts. Id. In Oklahoma, “an indemnitor can be required to indemnify the indemnitee only to the extent of the indemnitor’s own negligence. The indemnitor cannot be held responsible for the indemnitee’s negligence, no matter the degree.” Id. [3]
As indicated in the language of Subsection B of § 221 (except as provided in Subsections C or D), not only is the indemnity term void and unenforceable, but also terms to “insure, defend or hold harmless” the indemnitee.[4] On this point in Tyson Foods, Inc. v. Routh Enterprises, Inc. the federal district court for the Eastern District of Oklahoma said,
“Construction contracts usually transfer liability risks to contractors and downstream subcontractors by way of indemnification and insurance requirements.” Nierengarten, New ISO Additional Insured Endorsements (2014) (available at Westlaw, 44–FALL BRIEF 30). In recent years, such arrangements have seen the rise of state “anti-indemnification” statutes. Some of those statutes make a distinction. “Most anti-indemnification statutes allow the reallocation of risk to an indemnitor’s insurer, so that while an indemnification agreement may be voided by statute, a separate promise to procure insurance designed to shift the same risk is enforceable and unaffected by statutory bars.” 3 Bruner & O’Connor on Construction Law, § 10:91 (2014).
The Oklahoma statute does not, however, draw this distinction. It provides that (subject to the exceptions in subsection C or D) “a construction agreement that requires an entity or that entity’s insurer to indemnify, insure, defend or hold harmless another entity against liability … which arises out of the negligence or fault of the indemnitee … is void and unenforceable as against public policy.” 15 O.S. § 221(B) (emphasis added).[5]
If the choice of law term in the construction agreement applies the law of another state which does not have an anti-indemnity statute like Oklahoma, that term is also “void and unenforceable.” Okla. Stat. tit. 15, § 221(E).
In conclusion, when confronted with indemnity clauses in construction agreements it may be beneficial for all the parties involved in the proposed agreement to have a knowledgeable attorney who is familiar with construction law to review how Oklahoma law may affect enforceability of those clauses.
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[1]“Construction agreement” is defined in Okla. Stat. tit. 15, § 221(A).
[2]Subsection C in § 221 states in part, “[t]he provisions of this section do not affect any provision in a construction agreement that requires an entity or that entity’s surety or insurer to indemnify another entity against liability for damage arising out of death or bodily injury to persons, or damage to property, but such indemnification shall not exceed any amounts that are greater than that represented by the degree or percentage of negligence or fault attributable to the indemnitor, . . . .”. Subsection D in § 221 states in part, “[t]his section shall not apply to construction bonds nor to contract clauses which require an entity to purchase a project-specific insurance policy, . . . .”
[3]JP Energy Marketing, LLC v. Commerce and Industry Insurance Co., 2018 OK CIV APP 14, ¶ 29, 412 P.3d 121, 129. Approved for Publication by the Supreme Court 09/25/2017.
[4] The court in JP Energy Marketing, LLC, 2018 OK CIV APP 14, ¶ 31, 412 P.3d 121, 130 observed in part, “[t]he plain language of the statute also prohibits contract provisions requiring the indemnitor to insure another entity for liability arising out of the indemnitee’s own negligence.” (Citations omitted).
[5]Tyson Foods, Inc. v. Routh Enterprises, Inc., No. CIV-14-279-RAW, 2015 WL 994907 at *1-*2 (E.D. Okla. Feb. 3, 2015) (footnote omitted). See also, Tyson Foods, Inc. v. Routh Enterprises, Inc., No. CIV-14-279-RAW, 2015 WL 457945 (E.D. Okla. Feb. 3, 2015). The federal district court for the Western District of Oklahoma came to a similar conclusion in BITCO General Insurance Corporation v. Commerce and Industry Insurance Company, No. CIV-15-206-M, 2017 WL 835197 at *3 (W.D. Okla. March 2, 2017).
