Legislative Wrap-Up: Anti-Indemnity Legislation Fails and Texas Residential Construction Commission To Expire

Another session of the Texas Legislature recently concluded and, as usual, there will be plenty for the political talking heads to chew on for a while. Among the thousands of bills that were proposed this year were a few that were of particular interest to the construction industry.

SB 555 (and its identical companion bill, HB 818) would have effectively eliminated indemnity and additional insured provisions in construction contracts. According to that proposed legislation, provisions in a construction contract would be void and unenforceable if they required an indemnitor to indemnify or defend another party (the "indemnitee") against a claim to the extent that the claim was caused by the negligence or fault of the indemnitee. An "additional insured" provision would also be void to the extent it requires insurance for this same scenario (the indemnitee’s own negligence).

This would have represented a major change in construction contracts, since this basic risk shifting so common in most construction contracts would be fundamentally altered. However, SB555 (and HB818) failed to pass. So the abolition of indemnity will be off the table for at least two years until the next legislative session.

How you felt about SB 555 (and HB 818) probably depended on the nature of your business. Subcontractors, who tended to be ones doing the indemnifying, were generally more supportive of the bill. Owners and developers, who typically benefitted from indemnification, were more opposed to it.

While the bill did not pass this session, it did have some support. And the concept is not a novel one. For example, Oregon has enacted an anti-indemnity statute (Oregon Revised Statute 30.140) similar to what was proposed in SB 555. It will be two years until the next legislative session in Texas, and a lot can happen in the political landscape between now and then (not to mention the construction industry). However, I would not be surprised if this issue comes up again and legislators make another effort at some form of anti-indemnity legislation.

A second issue that was being followed closely was the future of the Texas Residential Construction Commission. As I wrote about here, the Texas Residential Construction Commission ("TRCC") is set to expire later this year. Several lawmakers introduced a number of different bills that would call for various changes to the TRCC. Some called for the continuation of the TRCC but with changes to its procedures; some called for its outright abolition.

At the end of the day, however, nothing passed that would rescue or reform the TRCC. As a result, the Commission will naturally phase out in the months ahead. While the TRCC had some supporters, its detractors (which included most consumers and many builders) seemed to be more numerous and vocal, and it is doubtful the Commission will be missed by many.

This will definitely bring about a change in the legal landscape in the residential construction industry. Without the TRCC, parties are more on their own in their contractual negotiations, and the barriers to litigation will be lifted.

All in all, this legislative session ended like many before it–some things were accomplished while others didn’t quite get finished. And in two years, we’ll do it all over again.