How Arizona’s Anti-Indemnity Statute Affects Construction Contracts

Indemnity provisions in commercial construction contracts often attempt to shift legal and financial responsibility from one party to another. In many cases, upstream parties, those higher in the contractual chain, seek to transfer liability for their own negligence onto downstream contractors, subcontractors, or design professionals. To limit that practice, Arizona law prohibits certain types of indemnity agreements in the construction context.

What Are Construction Contract Indemnity Clauses?

Indemnity clauses in construction contracts assign financial responsibility when a claim arises from property damage, personal injury, or related loss connected to the project. One party agrees to cover the legal expenses or damages that result from specified events, often including negligence, defects, or performance failures. These provisions appear in agreements involving general contractors, subcontractors, design professionals, and project owners.

In many instances, upstream parties attempt to shift a broad range of risks to those performing the work or providing design services. Without statutory limits, these provisions can extend to losses caused by parties who had direct control over the events leading to the claim. As a result, indemnity language becomes a point of negotiation during contract formation and a source of dispute after a claim arises.

Knowing how Arizona law restricts these provisions helps parties assess contractual exposure and avoid language that courts may declare unenforceable under A.R.S. § 32-1159.

A.R.S. § 32-1159: Arizona’s Anti-Indemnity Statute

A.R.S. § 32-1159 restricts specific indemnity provisions in construction-related contracts. The statute voids any clause that requires one party to indemnify another for claims resulting from the indemnitee’s own negligent actions. The restriction applies to agreements connected to the construction, alteration, repair, design, survey, or maintenance of buildings, highways, and other commercial structures in Arizona.

Any provision that attempts to shift liability becomes void and unenforceable under Arizona law. However, the statute does not prevent a party from agreeing to indemnify another for losses due to its own actions. It also does not apply to insurance contracts, workers’ compensation agreements, or other arrangements that fall outside the scope of construction-specific indemnity.

Scope and Limitations

A.R.S. § 32-1159 applies to construction contracts related to commercial and public projects in Arizona. It covers agreements involving construction, design, engineering, maintenance, or similar services tied to physical improvements on real property. The statute affects direct and downstream parties, including general contractors, subcontractors, architects, engineers, and surveyors.

This statute does not apply to residential construction contracts, nor does it extend to insurance policies, workers’ compensation arrangements, or employee benefit agreements. Indemnity obligations under those types of contracts fall under separate legal standards.

A.R.S. § 32-1159 permits indemnity clauses that address a party’s own actions or omissions. A subcontractor may still agree to indemnify a general contractor for claims arising from the subcontractor’s own work, conduct, or negligence. The restriction applies only when a contract attempts to shift liability caused by the party seeking indemnification.

Who Arizona’s Anti-Indemnity Statute Affects and How

While the statute applies broadly, the impact varies depending on each party’s role in the project.

1. Subcontractors and Design Professionals

Before the statute, many contracts included extensive indemnity language that pushed liability upward. Subcontractors and design professionals frequently absorbed the cost of claims tied to incidents outside their control. A.R.S. § 32-1159 removes that exposure when the claim occurs due to another party’s negligence. These professionals remain responsible for their own work but cannot be forced to indemnify others for unrelated acts.

2. General Contractors and Construction Managers

General contractors typically oversee project execution and coordinate with both owners and subcontractors. A.R.S. § 32-1159 blocks them from using indemnity clauses that assign liability to lower-tier parties for claims attributable to the owner’s conduct. Each party must remain responsible for its own actions. Contract terms that attempt to transfer fault outside those limits risk being void.

3. Project Owners

Owners must adjust how they allocate risk in their contracts. They cannot require indemnity for harm resulting from their own conduct. Instead, they must manage risk through insurance or limit their involvement in day-to-day operations that could expose them to claims.

4. Insurers and Risk Managers

The statute affects the scope of coverage under additional insured provisions and contractual liability endorsements. Insurance professionals must review how policies respond to indemnity clauses that no longer carry legal force. Risk managers also need to reassess how liability flows through contracts under the statute’s constraints.

Examples of Enforceable vs. Unenforceable Language

Contract terms that include indemnity provisions must comply with A.R.S. § 32-1159. Courts examine the wording closely and may void provisions extending responsibility beyond a party’s own conduct. Below are examples demonstrating the difference between clauses that comply with the statute and those that do not.

Unenforceable Example

“Subcontractor shall indemnify and hold harmless the Contractor for any and all claims, damages, or expenses, regardless of whether they arise from the acts, omissions, or negligence of the Contractor.”

This clause requires the subcontractor to accept liability without limitation, even for claims linked to the contractor’s conduct. A.R.S. § 32-1159 prohibits this type of language. The statute voids indemnity provisions that impose responsibility for losses from another party’s negligence.

Enforceable Example

“Subcontractor shall indemnify and hold harmless the Contractor for claims to the extent they result from the Subcontractor’s own negligence or breach of contract.”

This clause limits indemnity to the subcontractor’s own conduct. It does not extend liability to actions outside the subcontractor’s control. Arizona courts permit this structure because it respects the boundaries set by A.R.S. § 32-1159.

Risk Allocation Without Broad Indemnity

Contracting parties must structure agreements to allocate risk within the limits set by A.R.S. § 32-1159. Broad indemnity clauses that cover the conduct of others no longer hold legal weight in Arizona commercial construction contracts. Without those clauses, parties must turn to other tools to manage exposure and reduce liability.

1. Define Each Party’s Scope of Responsibility

Construction contracts should clarify the duties and peripheries of each party involved. Vague or overlapping responsibilities increase the chance of conflict once a construction claim arises. When a contract states each party’s role without ambiguity, liability becomes easier to evaluate and assign based on involvement.

2. Use Insurance to Address Specific Risks

Contracts should list the types of insurance each party needs, set minimum limits, and specify when additional insured status applies. The coverage must track each party’s actual scope of work. No policy condition should attempt to reintroduce indemnity terms barred by A.R.S. § 32-1159.

3. Apply Mutual Indemnity Based on Each Party’s Own Conduct

Parties may still agree to indemnify one another, but only for claims due to their own actions. Any attempt to extend coverage to actions outside that scope may result in the clause being declared void.

Get Help Correcting Indemnity and Risk Provisions Under A.R.S. § 32-1159

A.R.S. § 32-1159 invalidates many standard indemnity clauses still common in commercial construction contracts. FR Law Group reviews contract language for compliance, communicates desires to rewrite outdated risk provisions, and helps contractors, developers, and design professionals restructure indemnity and insurance terms to stay within the limits of the statute. We can work directly with internal teams, project counsels, or insurance advisors to ensure all contracts follow current law and avoid terms that may lead to unnecessary disputes. Meet with us today.