Risk Transfer Limits ASA Press Release
ALEXANDRIA, Va. - Can an upper-tier construction contractor cause an accident and then force a subcontractor's insurance company to pay for it? In most states, the answer is "Yes." Upper-tier contractors can legally insulate themselves from the consequences of their own negligent actions by putting "additional insured" requirements in their written subcontract agreements, making subcontractors' commercial general liability insurance respond to claims even when the subcontractors do not cause losses. The American Subcontractors Association (ASA) is leading the charge to put an end to this practice of abusive risk transfer, and in August 2004 used its Subcontractors Legal Defense Fund (SLDF) to fund and file an amicus curiae brief in a case before the Oregon Supreme Court, Walsh Construction v. Mutual of Enumclaw. The Oregon Supreme Court agreed with ASA and preserved the state's legal restrictions on risk transfer in a Jan. 27, 2005, decision hailed by ASA.
"The Oregon Supreme Court's decision is a powerful statement that general contractors and construction managers in Oregon must pay for the consequences of their own failures to properly oversee and manage construction in that state," said ASA President Mat Glover, president of Glover Masonry Associates Inc., Arvada, Colo. "ASA applauds the court and is proud to have been a voice for subcontractors - and against abusive transfer of risk - in this case."
The Oregon Supreme Court decided to review Oregon's anti-indemnity law at the urging of the Oregon-Columbia Chapter of the Associated General Contractors (AGC) and the AGC chapter's allies. ASA's brief countered the AGC chapter's arguments, urging the high court to affirm an appeals court decision that denied coverage as an "additional insured" to Walsh Construction Co. against a personal injury claim by the injured employee of Walsh's subcontractor, Ron Rust Drywall. In its decision, the high court explained why the AGC chapter's argument, which stated that the court of appeals had imperiled the construction industry by completely voiding "additional insured," rather than just limiting it, was wrong.
Oregon's law was amended in 1995 to provide that neither a subcontractor nor its insurer could be required to indemnify another contractor, except to the extent that the negligence of the subcontractor caused the underlying loss. The high court held that Oregon law did not permit a general contractor, named as an "additional insured" on a subcontractor's general liability insurance policy, to coverage under the policy "for losses arising in whole or in part from the [general contractor's fault." The high court's opinion expressly "adopt[s]," and re-states, an appeals court ruling that Oregon's anti-indemnity statute "prohibits not only 'direct' indemnity arrangements between parties to construction agreements but also 'additional insurance' arrangements by which one party is obligated to procure insurance for losses arising in whole or in part from the other's fault."
Most states have so-called "anti-indemnity statutes" that regulate the use of "hold harmless" terms by general contractors in written subcontract agreements, but almost no states put similar restrictions on the use of "additional insured" contractual requirements. In other words, anti-indemnity statutes in most states have a loophole, permitting upper-tier contractors to use "additional insured" arrangements to achieve the very same ends that are forbidden in use of "hold harmless" clauses. Courts in most states have permitted the loophole even though anti-indemnity legislation is designed to protect the public from the dangers and consequences of unsafe, or poor quality, construction. Anti-indemnity legislation such as Oregon's forces project leaders to use their own resources and insurance - rather than their subcontractors' - when workers are injured, or building occupants are harmed, as a result of their own poor decision-making or poor oversight.
ASA tapped the SLDF for the funds to pay its legal fees in the case. The SLDF is funded entirely by voluntary contributions, and is earmarked for cases where ASA determines that important legal precedents affecting subcontractor rights are at stake.
For more information about Walsh Construction v. Mutual of Enumclaw, visit ASA's Web site at www.asaonline.com and select "Subcontractors Legal Defense Fund" under "Subcontractor Advocacy," or call ASA at (703) 684-3450, ext. 1311.
Founded in 1966, ASA serves 5,000 member companies and is dedicated to improving general business conditions for all subcontractors through unified and cooperative actions. ASA's vision is to be the united voice dedicated to improving the business environment in the construction industry. ASA provides its members with advocacy, leadership, education and networking.
CONTACT: David Mendes
dmendes@asa-hq.com
(703) 684-3450, ext. 1335 |
