Subcontractors Celebrate Victory Limiting Risk-Shifting in Minnesota

In a major victory sought by the American Subcontractors Association on behalf of Minnesota’s subcontractors, the state’s Supreme Court has affirmed limits on risk-shifting based on the state’s anti-indemnity law (Minn. Stat. §337.02).

On Jan. 23, 2013, the Supreme Court of Minnesota reversed an appeals court’s decision that allowed a general contractor to shift liability to a subcontractor for damage caused by a general contractor’s own direction of the subcontractor’s work. “Because we conclude that ECI did not qualify as an additional insured with respect to the pipe damage and that Bolduc cannot be required to indemnify ECI without violating Minn. Stat. §337.02, we reverse,” the high court wrote in its opinion, reversing the appeals court’s decision in Engineering & Construction Innovations, Inc., v. L.H. Bolduc Co., Inc.

In an amicus curiae brief filed on Jan. 13, 2012, ASA urged the Minnesota Supreme Court to overturn the appeals court’s decision and protect construction firms from being forced to pay for damage for which others on construction projects are at fault. “The Court of Appeals erred in its interpretation of the indemnity clause in the ECI/Bolduc subcontract,” ASA wrote. “This Court should correct this error by holding ... that the Bolduc/ECI indemnity clause did not include ECI’s own fault or negligence, but only extended to the fault or negligence of Bolduc for which ECI may be liable.”

L.H. Bolduc was a subcontractor on a sewer and water project. During the construction process, the sewer pipeline suffered damage at the direction of the general contractor. The general contractor repaired the pipeline and then sought reimbursement from the subcontractor and the subcontractor’s insurance company. Both refused.

At trial, a jury sided with the subcontractor, saying the subcontractor was not negligent. After the verdict, a district court also found that the subcontractor was not required to indemnify the general contractor from damages the general contractor suffered due to its own negligence and that the insurer similarly did not agree to provide insurance against anything other than claims arising from the subcontractor’s work or negligence. But on appeal, a court issued a split decision, holding that the subcontract’s indemnity clause required the subcontractor to “both indemnify for another’s negligence and insure that risk.”

The dissenting judge in the case noted that Minnesota’s anti-indemnity statute prohibits the subcontractor from indemnifying the general contractor for its own negligence and concluded that the subcontract did not clearly and unambiguously require that the subcontractor indemnify and insure the general contractor for the general contractor’s negligence.

ASA noted in its brief that Minnesota state legislators and courts enacted the state’s anti-indemnity statute specifically to curtail risk-shifting and make parties responsible for their own — not others’ — mistakes: “The legislative history of Minn. Stat. §337.02 reflects the Legislature’s determination that the prohibition of such broad form indemnity clauses would lead to greater safety in the workplace. The anti-indemnity statute also recognizes the imbalance in bargaining power that exists between contractors and subcontractors, which leads to unfair subcontract terms, including broad form indemnity … Thus, there is a strong public policy, emanating from both case and statutory law, in favor of making each participant in a construction project responsible for its own negligence or fault.”

ASA’s Subcontractors Legal Defense Fund (www.sldf.net) financed the brief in this case.

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