New Law Expands Protection of Michigan's Anti-Indemnification Law

The final days of 2012 saw a flurry of activity by the Michigan Legislature. Among the new legislation passed during an historic lame duck session was a significant legislative victory for contractors and design professionals.  Public Act 468 of 2012, which was sponsored by Rep. Kurt Heise of Plymough (HB 5466), clarifies and expands the protections of Michigan's “anti-indemnification statute” for Michigan’s construction industry. MCL 691.991.  The new law takes effect March 1, 2013.

Under generally applicable Michigan law, every person is responsible for their own negligence, and if found liable are required to pay damages only in an amount equal to their degree of fault. This principle is known as “comparative” fault.  In the construction industry, parties with greater bargaining power have historically sought, by contract, to shift risk to other parties with lesser bargaining power.  In response, the Legislature has provided certain limited protections from unfair indemnification clauses in construction contracts.

Under existing Michigan law, MCL 691.991 prohibits agreements in connection with construction projects from requiring one party (the “indemnitor”) to indemnify another party (the “indemnitee”) for damages arising out of bodily injury to persons or damage to property,where those damages are caused by or resulting from the sole negligence of the indemnitee.  These types of clauses are declared void as against public policy.

Another important protection for industry participants is existing MCL 18.1237c, which applies only to contracts with the State of Michigan, Department of Technology, Management & Budget (“DTMB”). Sec 18.237c requires that indemnification provisions in DTMB contracts be “comparative” in nature.

Despite these protections, the existing law still allows many unfair and overreaching indemnification provisions to be included in design and construction contracts.

The new law clarifies that Sec. 691.991 applies to design contracts, and that the protection includes contracts in connection with all manner of private and public construction.  Importantly, the new law will require that design and construction contracts with “Public Entities,” (including cities, villages, townships, counties, school districts, intermediate school districts, authorities, and community and junior colleges), must not violate comparative fault principles.  In addition, such contracts can no longer require that contractors, and Michigan-licensed architects, engineers, landscape architects, surveyors defend the public entity from negligence claims.  However, state universities are exempted from the requirements of the new law.