Georgia Closes Contractors’ Liability Loophole

General contractors in Georgia are no longer able to use subcontractors as a broad shield against bodily injury and property damage claims at construction sites under a new law.

The new statute went into effect July 1. The legislation makes unenforceable broad indemnification clauses used by general contractors to transfer their sole negligence to subcontractors to cover damages arising out of the construction, alteration, repair or maintenance of building structures.

Georgia already had a law prohibiting one party from contractually transferring its sole negligence to a second party for certain construction related operations but courts have eroded that protection. The new statute strengthens the statute to forbid project owners and higher-tier contractors from imposing over-reaching, broad form indemnity requirements on lower-tier contractors and subcontractors.

Insurance agents are being reminded to inform their insureds about the new law.

“The key is for insurance agents to recognize that they need to tell their lower tier contractor clients that if a contract includes broad form indemnity language related to their activities with the general contractor (or higher tier entity), they need to seek the advice of a qualified, construction-savvy attorney for advice to alter the language and advise the general contractor of the legally offending language,” according to Jerry Hargrove, who was commissioned by the Professional Insurance Agents of Georgia to author a white paper on the issue.

Hargrove says the new law corrects a situation where the insurance policy was being asked to fund an obligation that was unreasonable and unenforceable. “Good business, indeed fair business, dictates that general contractors should not have the ability to get around a statute that forbids broad form indemnity by simply shifting that which the subcontractor can’t be legally responsible for to the subcontractor’s insurer,” Hargrove explained.

According to Jerry Duke of PIA Georgia, prior to the loophole closure, general contractors often refused payment to subcontractors if the subcontractor’s certificate of insurance did not contain specific wording required by the general contractor that basically passed on all job-related negligence to the subcontractor.

Duke said the new statutory language was necessary because Georgia courts had upheld the clauses because they shifted risk to the insurer, not to the subcontractors.

Hargrove noted that the legislation is now in tune with additional insured endorsements, which now clarify that the scheduled or blanket additional insured is covered under the subcontractor’s policy only when the subcontractor is responsible “in whole or in part” for resulting bodily injury or property damage.