Limiting indemnification, hold harmless
clauses and additional insured endorsements

By Donald Croysdale

Construction contracts, whether from the owner to the general contractor or from the general contractor to the subcontractor, contain indemnification and hold harmless clauses. These clauses shift liability risk from one party to another. Contracts often require contractors to add other parties as "additional insureds" to insurance policies as a way to unfairly circumvent indemnification clauses.

In 1978, a Wisconsin statute was enacted to limit these clauses to one’s own negligence. The wording of this statute, however, was deemed too vague in a court decision, Gerdmann v. United States Fire Ins. Co., 119 Wis. 2nd 367 (Ct. App. 1984). Thus, in Wisconsin, contractors are vulnerable to incurring liability for negligence of other parties, even if the contractor is not negligent. Moreover, additional insured endorsements are permitted to circumvent indemnification and hold harmless clauses without limitation.

The ASA has proposed restoring the intent of the original statute, whereby each party is only responsible for their own negligence. Balance and fairness will be restored for all parties to a construction project, from the owner to the general contractor to the subcontractor. No one party, and certainly not small contractors with the least financial resources, should be required to bear a disproportionate share of the liability risk. This proposal would assure that no party would be required to incur liability for another’s negligence. Additional insured endorsements would not be able to extend liability beyond that of the indemnification and hold harmless provisions.

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