Government Owned Sewerage Department’s Construction Contract Additional Insured Requirements Declared Void
Anti-Indemnity Statute Refuses Coverage of Sole Negligence of Additional Insured
The Consolidated Sewerage District No. 1 of the Parish of Jefferson (hereinafter “the Parish”) and American Alternative Insurance Company (hereinafter “AAIC”) appeal from the trial court’s decision granting summary judgment in favor of co-defendants Amerisure Insurance Company (hereinafter “Amerisure”) and Alterra American Insurance Company (hereinafter “Alterra”), finding that policies issued were void to the extent that they provided indemnity and insurance coverage for damages caused by the Parish’s own negligence.
In Shane Salathe v. The Parish Of Jefferson Through The Department Of Sewerage, NO. 19-CA-427, C/W 19-C-303, Fifth Circuit Court Of Appeal State Of Louisiana (July 15, 2020) the Court of Appeal was asked to interpret the policies and state anti-indemnity statutes.
At the time of his injuries, Mr. Salathe was performing work at a lift station, part of the sewerage system of the Parish.
The Parish and Fleming Construction Company, LLC (hereinafter “Fleming”) entered a contract for replacement or restoration of existing sewer mains in Jefferson Parish. The “Standard General Conditions of the Construction Contract” (hereinafter “General Conditions Contract”) between the Parish and Fleming required Fleming to procure certain insurance policies naming the Parish as an additional insured, including, inter alia, a commercial general liability and umbrella policy and also indemnifying the Parish, except in the instance of the sole negligence of the Parish.
Fleming procured from Amerisure the Commercial General Liability policy (hereinafter “Amerisure policy”) with the limit of $1,000,000.00 per occurrence. Further, Fleming procured from Alterra America Insurance Company the Commercial Excess Liability policy (hereinafter “Alterra policy”) with the limit of $5,000,000.00 per occurrence.
A Fleming foreman, Shane Salathe, descended a ladder into the wet well to perform his work. As Mr. Salathe ascended the ladder to exit the wet well, he grasped the door to the well to steady himself. When he put pressure on the door, the locking arm on the hatch door failed, allowing the door to slam, which caused Mr. Salathe to fall off of the ladder. Mr. Salathe fell almost thirty feet to the bottom of the well and suffered a traumatic brain injury and paraplegia.
Mr. Salathe sued the Parish contending that the Parish is liable for his injuries through its negligence in, inter alia, failing to maintain the hinge on the door to the well, which failed and caused his injuries. Later Salathe added as defendants, the Parish’s insurer, American Alternative Insurance Company (hereinafter “AAIC”), and Fleming’s insurers, Amerisure and Alterra (hereinafter “Fleming’s insurers”) because of their contractual obligation to defend and indemnify the Parish as a named insured.
Fleming’s insurers filed their joint motion for partial summary judgment asking the trial judge to declare that the contractual indemnity and insuring agreements between the Parish and Fleming are “void, null, and unenforceable” under Louisiana law.
Notably, the Amerisure CGL policy contained a Contractor’s Blanket Additional Insured Endorsement (to which the Alterra excess policy was also subject). Fleming’s insurers argued that the language of indemnity and insuring provisions in the General Conditions Contract was null, void, and unenforceable under Louisiana law, and therefore, pursuant to the language of the endorsement to their insurance policies, Jefferson Parish is not an additional insured.
Louisiana statute: La. R.S. 38:2216(G) specifically allows for the additional insured provisions like those in the contract between Jefferson Parish and Fleming and provides: “It is hereby declared that any provision contained in a public contract, other than a contract of insurance, providing for a hold harmless or indemnity agreement, or both,
(1) From the contractor to the public body for damages arising out of injuries or property damage to third parties caused by the negligence of the public body, its employees, or agents, …”
If, for purposes of this appeal only, one accepts appellants’ argument that La. R.S. 38:2216(G) permits additional insured requirements covering a public entity’s negligence, then based on the facts at issue in the present matter, this provision is in conflict with the prohibitions contained in Louisiana’s anti-indemnity statute.
By including the phrase, “[n]otwithstanding any provision of law to the contrary and except as otherwise provided in this Section,” in the opening sentence of the statute the legislature expressed its intent for the statute to govern defined construction contracts performed in Louisiana, notwithstanding other existing laws to the contrary and subject only to the exceptions set forth in the statute further evidences the legislature’s intent to apply the statute to the broad range of construction contracts defined in the statute.
The court concluded, therefore, that La. R.S. 9:2780.1(C) governs the contract at issue unless subject to an exception set forth in the LAIA. The following subsections outline the exceptions to the application of the statute and found that La. R.S. 9:2780.1(C) applies to the contract at issue entered into between Jefferson Parish and Fleming.
The trial court’s judgment finding that the additional insured provisions contained in the contract entered into between Jefferson Parish and Fleming are null, void and unenforceable, to the extent they can be interpreted as requiring Fleming to indemnify and procure insurance coverage for Jefferson Parish’s own negligence, and dismissing, with prejudice, claims against certain commercial liability policies issued to Fleming by Amerisure and Alterra.
The judgment of the trial court dismissing, with prejudice, all claims asserted against Amerisure’s CGL policy and Alterra’s Excess Liability Policy to the extent that the policies could be interpreted as providing coverage for the Parish’s own, sole, joint or concurrent negligence was affirmed.
Louisiana’s statute is something different than the law in most states. It makes it impossible to transfer the risk of loss, by contract requiring another to indemnity the owner, builder or contractor working on a construction project to obtain indemnification from another by contract. Therefore, the standard AIA contracts that require additional insured endorsements cause an insurance contract obligation to defend and indemnify an additional insured void. Owners and general contractors must also obtain their own insurance to protect against the risk of loss to people working on a construction project in Louisiana.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts