When a paving subcontract or a public contract makes you indemnify the owner or general contractor, your general liability policy picks up that promise only through its definition of an insured contract. The definition reaches assumed tort liability for injury or damage to third parties, leaves contract disputes with you, and an amendment endorsement can narrow it.
The indemnity clause and the insurance article are separate promises
A paving contract usually asks two different things of you. The indemnity clause is your promise to answer for someone else’s loss; the insurance article is your promise to buy coverage. Minnesota’s statute on indemnification agreements in building and construction contracts, published by the Minnesota Office of the Revisor of Statutes, defines the first promise: “‘Indemnification agreement’ means an agreement by the promisor to indemnify, defend, or hold harmless the promisee against liability or claims of liability for damages arising out of bodily injury to persons or out of physical damage to tangible or real property.”
Owners see the two promises as a pair. New York’s Guidelines for Insurance Requirements in Contracts, written for New York agencies, say “The actual Insurance provided by the Contractor is the mechanism by which the Contractor would pay for its obligation to Indemnify the Agency for a loss arising out of work performed in connection with the contract (or project).”
The promise binds you the day you sign, but whether your policy answers for it depends on the policy’s wording, not the contract’s. Additional insured status, the other thing most insurance articles ask for, is explained on the general liability page; this post is about the indemnity promise itself.
Whose fault the clause makes you answer for
Indemnity clauses differ most in whose fault they reach. Some make you answer for the other party’s loss even when that party alone was at fault. Some cover the whole loss when you were at fault in any part, but not when the other party alone caused it. Others reach only the share your own work caused. Paving paper carries all of these, and the wording, not the heading, decides which one you signed.
A transportation department’s specification shows what the language looks like on a road job. Wisconsin DOT’s standard specifications say “The contractor and their insurer shall defend, indemnify, and save harmless governmental entities involved in the project” against claims arising from “Contractor operations”, from “Contractor neglect in safeguarding the work” and from “Acts or omissions, neglect, or misconduct of the contractor.” The same specifications let the department hold back payment until the contractor shows it is adequately protected by insurance. The state view sits on our Wisconsin page.
That is one agency’s wording, read as an illustration, not a template for every public owner, and this post does not sort any agency’s clause into the fault categories above.
How the contractual liability exclusion gives assumed liability back
Your general liability policy starts by excluding liability you take on by contract, then gives part of it back. Under the standard ISO form as commonly written, the Commercial General Liability Coverage Form (CG 00 01 04 13, the edition we read; your own forms schedule controls), exclusion 2.b of Coverage A removes “‘Bodily injury’ or ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.”
Two exceptions follow. The first keeps liability “That the insured would have in the absence of the contract or agreement”. Signing an indemnity clause does not strip coverage for your own crew’s negligence. The second is the one this post turns on. It gives back liability “Assumed in a contract or agreement that is an “insured contract”, provided the “bodily injury” or “property damage” occurs subsequent to the execution of the contract or agreement.”
If the crew mobilizes before the subcontract is signed and someone is hurt in that window, the assumed liability does not come back through this exception.
That give-back sits in Coverage A only; Coverage B, for personal and advertising injury, has no insured contract exception.
What the insured contract definition reaches and what it leaves out
The definition lists a handful of named agreements, such as a lease of premises, then a catch-all that covers most paving indemnity clauses. Definition V.9 f. reads: “That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for “bodily injury” or “property damage” to a third person or organization.” It then says “Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.”
That reaches the owner’s or general contractor’s liability for injury or damage to someone outside the contract, such as a motorist or a neighbor. It does not reach a promise to pay for a delay claim, a contract dispute or the owner’s own economic loss. The parenthetical matters for city paving: indemnity for work performed for a municipality comes in here, subject to the same conditions.
The catch-all also carves out two things a paving contractor meets. It does not include a contract that indemnifies a railroad for construction work near railroad property; that exposure is where railroad protective liability comes in. Nor does it include a contract “That indemnifies an architect, engineer or surveyor for injury or damage arising out of:” their drawings, surveys, change orders and specifications. Design and specification exposure belongs to professional liability and to contractor’s protective professional coverage.
When your own crew member sues the owner
The claim that surprises paving contractors most starts with their own employee. A laborer is hurt, collects workers compensation benefits, then sues the general contractor or the owner, who hands the suit back to you under the indemnity clause.
Your general liability policy excludes employee injury, and exclusion 2.e is drawn wide: “This exclusion applies whether the insured may be liable as an employer or in any other capacity and to any obligation to share damages with or repay someone else who must pay damages because of the injury.” Its last sentence is the exception: “This exclusion does not apply to liability assumed by the insured under an “insured contract”.” So the owner’s liability you took on can reach your general liability policy even though the injured person is your worker. The benefits themselves, and the employers liability half that answers a lawsuit, belong to the workers compensation policy.
Owners know this exception is valuable. The New York guide warns that “The removal of the exception described here can be a way to eliminate coverage for the Agency using the employers’ liability exclusion.” Its review checklist asks whether contractual liability, or this exception, has been removed or restricted by endorsement.
Paying for the owner’s defense, inside or outside your limits
The form has two routes for an owner’s defense costs, and both open only if your contract took on the owner’s defense as well as its liability.
The first route treats the owner’s defense costs as damages. Under exclusion 2.b, “Solely for the purposes of liability assumed in an ‘insured contract’, reasonable attorneys’ fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of ‘bodily injury’ or ‘property damage’”, provided the same insured contract also assumed that party’s defense. Because they are damages, they come out of your limits.
The second route runs through Supplementary Payments: “If we defend an insured against a “suit” and an indemnitee of the insured is also named as a party to the “suit”, we will defend that indemnitee if all of the following conditions are met:” Among them: the suit seeks damages you assumed in an insured contract, you also took on the owner’s defense in that same contract, “no conflict appears to exist between the interests of the insured and the interests of the indemnitee;” both of you accept the same counsel, and the owner agrees in writing to cooperate.
When every condition holds, “such payments will not be deemed to be damages for “bodily injury” and “property damage” and will not reduce the limits of insurance.” That arrangement ends once the limit is used up paying judgments or settlements.
How the amendment endorsement narrows the definition
Under the standard ISO endorsement as commonly written, the Amendment of Insured Contract Definition (CG 24 26 04 13, the edition we read), the endorsement replaces the definition. The named agreements stay the same. The catch-all gains two conditions: the assumed liability counts only “provided the “bodily injury” or “property damage” is caused, in whole or in part, by you or by those acting on your behalf.” and “However, such part of a contract or agreement shall only be considered an “insured contract” to the extent your assumption of the tort liability is permitted by law.”
A promise to answer for an injury the owner alone caused is no longer an insured contract under this endorsement. The promise may still bind you; only the insurance behind it shrinks. The New York guide tells its agencies “An Agency determination must be made as to whether these Endorsements will exclude coverage.” The same fault wording appears in additional insured endorsements, so read the two together.
Real-World Scenario: A striping subcontractor signs a subcontract promising to indemnify the general contractor against any claim arising out of the job, whoever caused it. After the lot reopens, a shopper trips over a wheel stop the general contractor’s own crew left loose, sues the general contractor, and the claim is tendered to the striper. The striper’s policy carries the amendment endorsement. Because the striping work played no part in the fall, that part of the promise is not an insured contract, and whether it can be enforced is a question for the striper’s lawyer.
State statutes that void part of the promise
Many states limit how far a construction indemnity clause can reach, and they do it differently. Nothing here is legal advice: your contract’s wording, your state’s law and your policy’s own terms decide, and enforceability is a question for your lawyer. The New York guide draws the same line for itself: “These guidelines are not intended to provide advice on drafting hold harmless/Indemnification Clauses.”
Minnesota’s statute defines building and construction contracts to include work on “highways, roads or bridges.” It says “An indemnification agreement contained in, or executed in connection with, a building and construction contract is unenforceable except to the extent that:” the injury or damage is attributable to the wrongful act or omission of the promisor or those working for it. It also voids a provision requiring a party to insure others for those others’ own negligence, with listed exceptions. The state view sits on our Minnesota page.
The Ohio Revised Code provision on indemnity in construction contracts reaches work on a “highway, road” and says that a promise to indemnify the promisee against injury or damage caused by or “resulting from the negligence of the promisee, its independent contractors, agents, employees, or indemnitees is against public policy and is void.” It leaves you free to buy insurance for your own protection. See our Ohio page for the state view.
The amendment endorsement’s permitted-by-law condition ties the two together: a clause the state voids is not an insured contract either.
Reading the clause before you sign
Read the contract first, then the policy. Find the indemnity clause and read whom it protects and for whose fault. Check whether it also takes on the other party’s defense, because both defense routes depend on it. Pull your forms schedule and look for the amendment endorsement or any other change to contractual liability, then compare the clause with the contract’s additional insured requirement.
Work near a railroad and design or surveying work fall outside the catch-all, so plan for them separately. If you bid a job with another contractor, the promise is made by the venture, and whether the venture is an insured is covered in joint venture paving bids and the named insured. An owner may also ask for a separate policy in its own name, which is owners and contractors protective liability, not a substitute for your indemnity promise. Higher required limits sit in an umbrella or excess layer over your general liability policy.
Our paving contractor insurance program is built around those contracts. Send us the indemnity clause, the insurance article and your current forms schedule, and request a quote so we can tell you what your policy answers for before the contract binds you.