Indemnification Clauses and the Anti-Indemnity Statutes That Limit Them

Indemnity clauses fall into three buckets. Broad-form requires the subcontractor to indemnify the GC even for the GC's own sole negligence — it transfers the entire risk of loss downstream regardless of who was actually at fault. Intermediate-form requires indemnity except where the GC was solely at fault, so a sub that was even 1% responsible can owe 100% of the loss. Limited- or comparative-form requires the sub to indemnify only to the extent of its own negligence.

The phrase 'to the fullest extent permitted by law,' standing alone without a fault carve-out, is the classic marker of broad-form indemnity. It is also a tell that the drafter knows anti-indemnity statutes exist and is trying to claim everything the statute will allow.

Most of the country has reacted against broad risk-shifting. Forty-six states have enacted anti-indemnity statutes that curtail construction indemnity agreements, and the legislative trend is to prohibit both broad-form and, increasingly, intermediate-form indemnity. The most common rule voids any clause requiring a party to indemnify another for that other party's sole negligence; a meaningful subset goes further and voids indemnity for the indemnitee's partial negligence too.

Examples illustrate the variety. Arizona's statute (A.R.S. § 32-1159) voids clauses shifting liability for the promisee's sole negligence on commercial work, while intermediate and limited forms survive. New Jersey and Iowa treat broad indemnity for the indemnitee's sole negligence as void and unenforceable. Because these statutes differ in scope and in which project types they cover, the same clause can be perfectly enforceable in one state and a dead letter next door.

Anti-indemnity statutes do more than limit the indemnity promise — they can sever the insurance that was supposed to stand behind it. Commercial general liability policies generally cover liability the insured assumes under an 'insured contract,' but an indemnity obligation that a statute has rendered void usually falls outside that definition. The result is that the contractual indemnity is both unenforceable and uninsured.

Several states — including Arizona, Colorado, Georgia, Kansas, Montana, and Oregon — also void additional-insured coverage for the upstream party's sole negligence. So a contractor relying on 'they'll be an additional insured on my policy' as the real risk transfer may find that backstop legislated away too.

Where broad-form indemnity is still allowed, it remains dangerous because CGL policies typically will not cover an agreement to indemnify another party for that party's own negligence. That turns the clause into a bare, uncapped contractual exposure that the sub funds out of its own balance sheet if a loss occurs. The premium the sub paid for liability coverage does not reach it.

This is why experienced reviewers treat broad-form indemnity as a high-risk, escalate-first item, on par with pay-if-paid and one-sided termination clauses.

Anchor indemnity to comparative fault: the sub indemnifies only to the extent its own negligence or that of those it controls caused the loss, with an express carve-out stating that in no event will it indemnify any party against that party's own negligence. Confirm the obligation is within what the CGL program actually insures, and coordinate with the additional-insured and waiver-of-subrogation provisions so the insurance and indemnity terms point the same direction.

Finally, read the indemnity clause together with the governing-law clause. Moving the governing law to a strong anti-indemnity state can do as much to protect the sub as rewriting the indemnity language itself.