Legislation would bar preemptive shifting of negligence-related legal expenses to subcontractors

General contractors could be barred from requiring subcontractors to pay legal costs for construction project-related negligence claims as a condition of accepting a job.

HF803, sponsored by Rep. Mike Sundin (DFL-Esko), would add such agreements to another type of barred contract: that in which subcontractors agree to be held liable for another party's negligence on a project.

As amended, the bill was approved 12-0 Friday by the House Labor, Industry, Veterans and Military Affairs Finance and Policy Committee and referred to the House Judiciary Finance and Civil Law Committee. Its companion, SF1025, is sponsored by Sen. Andrew Mathews (R-Princeton) and awaits action by the full Senate.

Rep. Mike Sundin

Sundin said the goal of the bill is to bring fairness to Minnesota construction contracts, adding that it would require negligent parties to pay and insure their own legal fees.

Supporters, which include 20 subcontractor associations, said existing law hurts small businesses.

"When a general contractor is negligent, the general contractor should take responsibility, and when a subcontractor is negligent the subcontractor should take responsibility," Nick McNeely, executive director of the Minnesota Subcontractors Association, wrote in a letter.

Before 2013, general contractors in Minnesota could require subcontractors to preemptively take responsibility for any negligence claims, even if the subcontractor wasn't responsible, through insurance

A 2013 law barred that practice, but general contractors have continued to pass on legal expenses related to negligence claims. That's forced subcontractors to purchase insurance to cover such potential claims before accepting a project, increasing their costs and leading some to turn down offers.

"I can't accept a project if I have to take on everyone's risk," said Tamara Sundby, owner of GTS HVAC Inc.

But general contractors say that by barring subcontractors from passing on legal expenses, they could be on the hook for such expenses, even when they're found not to be at fault for negligence.

They also say the bill could lead to additional lawsuits because there would be an incentive to haggle over who's responsible over defending a negligence claim, which could increase costs for everyone.

In the case of public projects, the bill could also leave government agencies on the hook for defending negligence claims, costing taxpayers more money, said Jim Cownie, deputy chief counsel at the Department of Transportation.