Navigating the Fine Print of Construction Contracts

Smith-Chris-OPTBy Christopher “Smitty” Smith
Special to Business in Savannah

In 2015, the business tide in Savannah continued to rise. Our City approved more than 1,600 new businesses and issued more than 1,700 building permits with a record high value of $405 million. As a result, 2016 is poised for a surge in construction activity. To avoid a wipeout, business owners, developers, and general contractors eager to ride this new wave of construction should take a moment to review their contracts. Two often glossed-over provisions involve indemnity and insurance.

An indemnity clause is a contract by which one person secures another against anticipated loss. A well-written clause assists owners and developers in managing the risks associated with construction contracts, and can lower potential risk by ensuring that others are involved in sharing legal expenses and damages should a dispute arise. As previously addressed in this column, boilerplate indemnity should be avoided, but careful attention should be paid to the allocation of fault in an indemnity provision.

In construction contracts, Georgia law prohibits indemnification clauses where the indemnitee (party benefitting from the indemnity clause) is indemnified for damages caused by its sole negligence. The policy underlying this statute is to prevent a contractor, subcontractor, or owner from contracting away liability for their unsafe conduct. However, the statute does not bar indemnity in situations of partial negligence, and does not apply to any requirement that one party purchase insurance coverage for the other.

In a sea of contract terms, construction professionals need to keep a careful eye on insurance requirements, lest they be cast against the reef of a negligent failure to procure insurance claim. Oftentimes, owners and developers will require a contractor to name them as additional insureds on their insurance policies. But simply obtaining an insurance certificate is not enough to keep them afloat. A contractor or subcontractor needs to make sure that their insurance policy has been properly endorsed—by a “blanket endorsement” or otherwise—to ensure that the third party is covered. Otherwise, the contractor could find itself up a river of uninsured damages.

Even if the parties have inked the contract and the project is underway, it may not be too late to add a party as additionally insured. Sometimes, a seemingly simple contract provision can be surprisingly complicated. A qualified professional can help you navigate these waters.