In November 2011, the Georgia Supreme Court broadly interpreted Georgia’s anti-indemnity statute to preclude a developer’s indemnity claim against a homeowners’ association.
Background
The case arose from the construction of a residential development that allegedly increased the amount and velocity of water runoff on a neighboring community. Owners in the neighboring community (“Adjacent Owners”) filed suit against Developer for negligence, nuisance, and continuing trespass.
The homeowners association of the development (“Homeowners Association”) had since executed an Assignment Agreement with Developer in which Homeowners Association assumed responsibility for the operation of the development, including detention facilities. The Assignment Agreement also required Homeowners Association to indemnify Developer for claims, costs, and damage arising from the construction, maintenance, repair, or operation of the development, including the detention facilities.
Lawsuit and Appeal
When Adjacent Owners asserted their claim, the Developer filed a third-party claim for indemnity against Homeowners Association. The Court of Appeals held that the indemnity provision in the Assignment Agreement violated Georgia’s anti-indemnity statute. Developer appealed the issue to the Georgia Supreme Court.
The Anti-Indemnity Statute
Under Georgia’s anti-indemnity statute, a construction-related contract generally cannot require one party to indemnify another party for damages arising out of the other party’s sole negligence. The purpose of the statute is to prevent parties involved in construction from shifting the liability for their sole negligence to another party, subject to certain exceptions.
The court noted that Georgia’s anti-indemnity statute is construed much broader than similar statutes in other states. The rule applies when a contract (1) relates in some way to the construction, alteration, repair, or maintenance of certain property and (2) contains a provision that requires one party to indemnify another party for the latter party’s negligence.
The Indemnity Provision is Void
Applying these standards, the Supreme Court held that the contract was within the broad reach of the anti-indemnity statute. “Though the assignment does not itself set forth terms of a construction project, it is a vehicle through which existing rights and responsibilities vis-a-vis past construction have been assigned and assumed.”
The court then considered whether the indemnity provision was the type prohibited by the anti-indemnity statute. The provision required Homeowners Association to indemnify and hold harmless Developer for “any” or “all” claims, costs, and damages arising from the subject of the parties’ contractual relationship, “no matter the origin of the claim or who is at fault.” The Supreme Court ruled that the anti-indemnity statute rendered the provision void and unenforceable.
How Does the Case Affect Me?
The court’s broad interpretation of the anti-indemnity statute should prompt all participants in the construction industry to consider its effect on their contracts and risk evaluation. Indemnity provisions in contracts that relate to construction – whether past, present, or future construction – may have limited effect in light of the case. Participants in the construction industry should, therefore, review their contracts and consider the anti-indemnity statute’s effect on various potential circumstances. Furthermore, participants who previously felt a sense of protection or confidence in a contractual indemnity provision should reassess their risk profile in light of the limited impact of such clauses.