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July 10, 2019

ACEC/North Carolina-Led Coalition Passes Indemnification/Duty to Defend Relief

By ACEC/North Carolina Executive Director James Smith

The ACEC/North Carolina coalition, which included American Institute of Architects/NC, North Carolina Society of Surveyors, and the American Society of Landscape Architects-NC, has just completed yeoman's work to ensure passage of a landmark piece of legislation, House Bill 871, Fair Contracts. The measure has passed both houses of the North Carolina General Assembly and been signed by Governor Roy Cooper. This is a monumental change for our industry!

This legislation adds major liability protections for North Carolina design firms in contract negotiations with owners. HB 871 expands on an existing statute (GS.22B-1) to address important issues specifically related to design professional contracts:

  • Design Professionals cannot be made to "defend" an owner or any other party against claims involving professional liability asserted by third parties.
  • Design Professionals cannot be made to indemnify an owner or any other party if the design professional was not a "proximate" (direct) cause of the alleged damages or loss.
  • The existing exemptions to the current indemnity provisions of GS.22B-1 for NCDOT, railroads, and public utilities are eliminated (and also do not apply to these new provisions).
  • These protections apply to both public and private contracts.

An owner’s demand for a "duty to defend" clause is a high-risk contract provision for designers because it is an unreasonable and unmanageable risk and is uninsurable under professional liability insurance.

The North Carolina Legislature has agreed that such terms are against public policy, and provisions in contracts obligating an engineer or architect to defend the owner against claims involving professional liability asserted by third parties are now void and unenforceable. The new statute can be accessed here.

This is a huge victory for firms being forced into these "duty to defend" agreements in order to work for some clients. These can be especially onerous for small, disadvantaged firms that do not have the resources to fight such clauses. Not only are the firms at risk of spending large sums to defend against third-party claims to an owner that may not be the fault of the designer, but the defense costs could not be recovered through insurance.  

Huge thanks go out to our primary bill sponsors Representative Dean Arp from Union County and Senator Paul Newton from Cabarrus and Union Counties. Both legislators spent significant time and effort to sponsor and steer this bill through the North Carolina Legislature.

Special thanks to the ACEC/NC-led Task Force: Chair Stephanie Hachem, Kimley-Horn; Richard Cook, Kimley-Horn; Joelle Jeffcoat, Perkins+Will; Dave Crawford, AIA/NC; Stephen Safran, Safran Law Offices; Gary Hartong, the Wooten Company; and our contract lobbyist David Ferrell, Nexsen Pruet PLLC.

ACEC and AIA also worked diligently with Carolinas AGC, who initially opposed the bill, to craft a bill that made the changes to the law we requested.

Finally, a big thank you to the ACEC/NC members who attended hearings at the legislature, spoke in committee, and contacted legislators in support of House Bill 871.

James Smith is executive director of ACEC/North Carolina.


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