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Les Régimes de Responsabilité Contractuelle aux USA: l’exemple des

“Master Supply Agreements”

Eliot Norman | Avocat, Williams Mullen, Washington DC, USA

Sophie Moysan | Conseiller Spécialisé Senior RC, Marsh France

Antoine de La Chapelle | Directeur juridique, Groupe Latécoère

#20874593

Introduction: Le Défi Américain

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Your French company, Toulouse Aerospace SA, provides engineering and manufacturing services to supply “les trappes” and landing gear system for a new type of corporate jet manufactured by an American company. Your buyer specifies the type of composites to be used for “les trappes” and which will involve new technologies. Your company signs a 50 page supply agreement that applies Georgia law and will be enforced in the federal courts in Atlanta. The deal is worth $25 million dollars.

But before you start celebrating, do you know the answers to the questions on the next page?

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Des questions• Will the Georgia courts enforce liquidated damages for delay in

deliveries as the exclusive remedy? • Can the buyer be required to assume the risk for use of new composite

technologies it has specified and you have accepted to use in manufacturing “les trappes”?

• Can the customer collect lost profits from timely sales of the planes if Toulouse Aerospace is in breach for defects or can the buyer sue only for the costs of repairs?

• Can you exclude consequential damages and will your “limitation of liabilities” clause be enforceable if there is a failure in “les trappes” that causes property damage to the jet?

• How broad or narrow are your indemnification obligations if a third party asserts a claim against your buyer?

• Can you limit your maximum liability in the contract? • Can you use and enforce a “flow-through” clause to impose upon

your Tier 2 subcontractors the same liabilities and obligations that you have accepted to provide your American buyer; and

• If the contract incorporates by reference the version of Article 2 of the Uniform Commercial Code adopted by the Georgia State Legislature, how will that change the terms of the contract you just spent 100 hours negotiating to protect your French company? 4

05/03/20235 5

"Règles du jeu équitables??”

créer un « level playing field »

Allocation des risques

05/03/2023 666

Avoir confiance: Voici le petit déjeuner de vos avocats américains

Manufacturing Supply Agreements: USA Style

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Structure du MSA: Master or Manufacturing Supply Agreement

1. Product specifications2. Delivery times3. Payment terms4. Seller’s limitations of liability and Buyer’s Remedies 5. Seller’s Product Warranties and Buyer’s Remedies 6. Indemnification 7. Insurance 8. Termination 9. Choice of Law10. Dispute Resolution11. Miscellaneous:

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Régime de Responsabilité:au cœur du MSA américain

***l’allocation des risques*** 4. Seller’s limitations of liability and buyer’s remedies

– Liquidated damages– Cumulative remedies– Limitations of consequential and indirect damages– Limitations on punitive damages? – Maximum liability– Buyer’s assumption of risk

5. Seller’s product warranties and buyer’s remedies 6. Indemnification—à l’américaine

– Introduction to concept – Distinction between 1st party and 3rd party claims– Model indemnification provisions

7. Insurance coverage as a risk allocation tool

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Une précaution• Il faut lire le contrat dans son

intégralité • Pièges: les articles intitulés

– « miscellaneous »– « definitions » – « flow-through »  ou « incorporation by reference »

• RTBC!  RTBC!

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Limitations of Liability

Limitation de responsabilité

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Liquidated Damages: Model Clause

Liquidated Damages. If the Seller fails to deliver the Products by the Delivery Date (the "Seller Breach"), the Seller shall pay to the Customer an amount equal to $2500 per day for each day a Seller Breach continues (the "Liquidated Damages"). The parties intend that the Liquidated Damages constitute compensation, and not a penalty. The parties acknowledge and agree that the Customer's harm caused by a Seller Breach would be impossible or very difficult to accurately estimate at the time of contract, and that the Liquidated Damages are a reasonable estimate of the anticipated or actual harm that might arise from a Seller Breach. The Seller's payment of the Liquidated Damages is the Seller's sole liability and entire obligation and the Customer's exclusive remedy for any Seller Breach as defined herein. 12

Compare: Liquidated Damages # 2

The liquidated damages of any nature (delays, performance, quality) provided for in the MSA do not under any circumstances constitute the exclusive remedy for the loss and/or damage sustained by the Purchaser as a result of a breach by the Service Provider of its obligations. If the actual loss and/or damage suffered by the Purchaser exceeds the amount of the liquidated damages, the Purchaser shall be entitled to claim for and will be justified to obtain, the amount corresponding to the entire loss and/or damage, after deduction of the amount of liquidated damages already paid by the Service Provider with regards to the non compliance having caused such prejudice.

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“Liquidated Damages”: Les Avantages?

• Un Exemple: “ liquidated damages” pour des livraisons qui sont en retard.

• Seller: reduces its uncertainty by capping its liability, even if the cap turns out to be greater than actual damages to Buyer

• Buyer: reduces its uncertainty by fixing at least acceptable level of compensation

• Dispute Resolution: Eliminates calculation of damages, streamlines dispute resolution to proof of delay only

• U.S. Law: Uniform Commercial Code: UCC 2-718 and 2-719.• Drafting Points ; Be specific –fix the amount to the type of breach

– State difficulty to estimate damages – Liquidated damages are reasonable estimate of damages – Liquidated damages are the exclusive remedy for the specified

breach ( late delivery, defective medical devices etc. ) – Avoid right to elect alternative remedies– creates risk that

liquidated damages will be viewed as penalty and unenforceable in at least some states like New York – UCC 2-719 does not favor alternative remedies as in #2

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Liquidated Damages # 3: Sans Limites? • The liquidated damages are intended to represent

a genuine pre-estimate of the loss and damage likely to be suffered by the Purchaser in the event that they become payable (including direct loss, and also loss of profits, business, contracts, anticipated savings, goodwill on revenue, loss or corruption of data, and any indirect or consequential loss or damage).

• Should the actual prejudice suffered by the Purchaser exceed the amount of the liquidated damages, the purchaser shall be entitled to claim for and would be justified to obtain damages amounting to the entire prejudice suffered.

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Liquidated Damages: Principes du droit américain

Statement:• Most jurisdictions will enforce liquidated damage provisions in supply

contracts if :• Actual damages, by their nature, are difficult or impossible to prove with

accuracy; and• The liquidated damage amount is determined to be reasonably related to what

the actual damage amount could be and is not viewed as a “penalty”.Issues:1. How common are liquidated damage provisions in supply contracts—on the

supplier side? On the purchaser side?2. Under what circumstances will courts/arbitrators find actual damages difficult

or impossible to determine with precision?3. How “excessive” must liquidated damage amounts be before they will be

determined to be unenforceable penalties?4. Is it appropriate for a single contract to contain both a liquidated damage

provision and a provision calling for the assessment of actual damages that exceed the liquidated damage amount?

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Liquidated Damages: Principes du droit américain.

Responses:1. Liquidated damage provisions are quite common, especially on the

purchaser side, where actual damages for breach may be difficult to determine. Usually the supplier should be able to determine actual damages if the purchaser defaults.

2. Most U.S. courts/arbitrators will try to uphold the intent of the parties as expressed in the contract so long as some minimal showing of difficulty is presented. Such showing will vary depending on whether it is the buyer or seller and what the product or service is.

3. Liquidated damage amounts will be seen as a penalty if they are grossly in excess of what the actual amount might be; as compared to the cost of the items and the total amount of the contract; and experience with similar contractual provisions.

4. It should be considered inconsistent for a party to a contract to say on the one hand I need liquidated damages because it is difficult or impossible to prove actual damages and then to say if I can prove damages in excess of the liquidated amount I want the higher number. Of course, “everything is up for negotiation between the parties.”

UCC 2-719 may apply to bar enforcement, however. 17

Liquidated Damages: Aspects assurantiels

• Exclusion standard dans les programmes d’assurance RC des obligations exorbitantes du droit communExemple d’exclusion : Les obligations exorbitantes du droit commun applicable, c.a.d. les obligations que les Assurés ont acceptées par convention et qui n’auraient pas été mises à leur charge sans cette convention et notamment les pénalités contractuelles dans la mesure où elles excèderaient les indemnités résultant de la seule application dudit droit commun ou des accords habituellement en usage dans les contrats de vente ou de prestations de service du secteur (…)

• Exclusion standard dans les programmes d’assurance RC des préjudices résultant de retard de livraison

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Problem: Cumulative RemediesRecours cumulatifs

• Typically hidden in « miscellaneous » at the end of the contract. Often overlooked. «  RTBC. »

• Cumulative Remedies. “ The rights and remedies in Agreement are cumulative and not in substitution for any other rights and remedies available at law or in equity or otherwise. “

• Buyer: will wish to reserve rights to pursue other remedies• Seller: will wish to make remedies in contract exclusive and

make the contract the « Entire Agreement » and the « Law of the Contract »

• Solution?

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Cumulative Remedies: Solution • A “Carve Out” = “une exception” • Model MSA 17.11 “All rights and remedies provided in

this Agreement are cumulative and not exclusive, and the exercise by either Party of any right or remedy does not preclude the exercise of any other rights or remedies that may now or subsequently be available at law, in equity, by statute, in any other agreement between the Parties or otherwise.” AND

• Model MSA 17.11 “Notwithstanding the previous sentence, the Parties intend that Buyer's rights under Section 6.5 dealing with Liquidated Damages and Section 9.5 (Buyer’s Exclusive Remedy for Defective Goods) are Buyer's exclusive remedies for the events specified therein.”

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Consequential Damages

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John Farmer v. John Deere

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Consequentional Damages• Risks for Both Sides (Seller or Buyer)

– Consequential: « any loss » that is « a natural and probable consequence of the breaach »

– 2 Tests under UCC 2-715: • #1: did the loss result from « general or particular

requirements and needs » that seller knew of or had reason to know of at the time of contracting; and

• #2 : Did buyer comply with its duty to mitigate damages « by cover or otherwise ». Failure to mitigate bars recovery of consequential damages.

– All these issues are fact specific and expensive to litigate

– Courts will usually let these issues go the jury, 23

L’histoire Triste de Sunnyvale FARMS

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Consequential Damages Examples from Case Law:• John Farmer v. John Deere Tractor• Sunnyvale Farms• Defective valves: $1.5 million to fix, another $2.5 million in

lost profits and attorney’s fees • The sinking sailboat• Wall Street Auction-Rate Securities: ( Kajeet v.UBS

Financial Services) $8 million =$81 million in compensatory for lost business opportunities

• Texaco $20 million over oil lease• The Atlantic City Hotel/Casino • Big Retailer v. JDA Software: $98 million

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Types of Consequential Damages: as a result of seller’s breach

What Conclusions can we draw from these examples? • #1: Buyer’s lost profits on other contracts (yes if foreseeable)• Distinguish Buyer’s lost profits on the contract itself with

Buyer’s lost profits as direct damages: ex. Joint Venture to mine Bauxite or sell cell phone services

• loss of goodwill: very rare • diminution in value of the business: rare • buyer liability to customers, can include death of child where

seller breached implied warranty of merchantability • defending claims by buyer’s customers = attorney’s fees?• Interest on money borrowed by buyer • Loss of investment opportunities? • Conclusion: “l’imagination au pouvoir” 26

Negotiation of Limitations on Consequential Damages

• Closely review list of potential damages to see what can be limited

• Adapt the limitation of liability to specific contract terms or purchase orders vs contract as a whole

• Limitations: reciprocal or unilateral?• Exclusions from Limitations:

– Liability for indemnification– Liability for breach of confidentiality– Liability for IP violations

• Comes down to calculation of amount of each party’s consequential damages, assuming worst case scenario.

• Not limited to Buyer: Seller is entitled as well to consequential damages, as with requirements contract: example, factory in Houston.

• Insurance Coverage? Problematic and industry/product specific?

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Limitations on Liability: Consequential Damages

• « In no event shall either party be liable to the other for incidental, consequential or special loss or damages of any kind, however, caused, or any punitive damages »

• « Except for damages payable in connection with a party’s indemnification obligations (which may incude liability for consequential damages owed by the indemnified party to a third party), neither party shall have any liability to the other party for any special, indirect, consequential, exemplary, punitive or incidental damages suffered by such other party… »

• ***Difficulties in enforcement of Limitations Provisions (Texaco Decision)

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Limitation on Consequential/Indirect Damages Model MSA: 11.1. NO LIABILITY FOR CONSEQUENTIAL OR INDIRECT DAMAGES.

• [EXCEPT FOR EXPRESS OBLIGATIONS TO MAKE PAYMENT UNDER THIS AGREEMENT,

• EXCEPT FOR LIABILITY FOR INDEMNIFICATION,] • EXCEPT FOR LIABILITY FOR BREACH OF CONFIDENTIALITY OR • EXCEPT FOR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF

INTELLECTUAL PROPERTY RIGHTS, IN NO EVENT SHALL SELLER BE LIABLE FOR CONSEQUENTIAL, INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE OR ENHANCED DAMAGES , LOST PROFITS OR REVENUES OR DIMINUTION IN VALUE , ARISING OUT OF OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF (A) WHETHER SUCH DAMAGES WERE FORESEEABLE,(B) WHETHER OR NOT SELLER WAS ADVISED OF THE POSSIBILITY OF SUCH

DAMAGES AND (C) THE LEGAL OR EQUITABLE THEORY (CONTRACT, TORT OR OTHERWISE)

UPON WHICH THE CLAIM IS BASED, AND NOTWITHSTANDING THE FAILURE OF ANY AGREED OR OTHER REMEDY OF ITS ESSENTIAL PURPOSE.

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Consequential Damages Aspects assurantiels: ambiguïté

terminologique• Notion de dommages immatériels dans les programmes d’assurance RC

de Droit français : un dommage immatériel peut être : Un IMMAT. CONSECUTIF (consequential loss) = un dommage

immatériel consécutif à un dommage corporel ou matériel garanti,OU Un IMMAT. NON CONSECUTIF ou DINC (pure financial loss) =

un dommage immatériel non consécutif à un dommage corporel ou matériel garanti, c.a.d. :

soit un dommage immatériel non consécutif à un dommage corporel ou matériel,

soit un dommage immatériel consécutif à un dommage corporel ou matériel non garanti

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Consequential Damages Aspects assurantiels: ambiguïté

terminologique• Les concepts suivants des Master Supply Agreements US :

Incidental damages, consequential damages, secondary damages, indirect damages

loss of use, loss of revenue, loss of profit

IMMAT.CONSECUTIFS si consécutifs à un dommage corporel ou matériel garanti

IMMAT. NON CONSECUTIFS (DINC) si pas consécutifs à un dommage corporel ou matériel (garanti)

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Consequential Damages Aspects assurantiels: ambiguïté

terminologiqueImmatériels Non Consécutifs (DINC)- exemple :• Du fait d’un lot de composants défectueux livré par un

équipementier aéronautique (problème identifié à l’occasion d’une opération de grande maintenance sur un moteur), toute une série de moteurs qui avaient été avionnés et étaient en exploitation doivent être déposés pour remplacement des composants défectueux.

Aux yeux de l’assureur RC Produit Aéronautique de l’équipementier, les frais de retrait engagés par le motoriste constituent des DINC car ils ne sont pas consécutifs à un dommage matériel ou corporel

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Consequential Damages Aspects assurantiels: ambiguïté

terminologique• Dans les polices RCG de Droit français (hors produits aéro) :

La couverture des IMMAT. CONSECUTIFS est généralement acquise

Celle des IMMAT. NON CONSECUTIFS (DINC) : n’est pas systématique est souvent sous-limitée est onéreuse

• Dans les polices CGL US Seuls IMMAT. CONSECUTIFS COUVERTS : la privation d’usage

(« Loss of Use ») de bien matériellement endommagés Les Pure Financial Losses ne sont généralement pas couverts

• Dans les polices RC Aéronautique, en standard Seuls les IMMAT. CONSECUTIFS sont couverts Les IMMAT. NON CONSECUTIFS (DINC) ne sont pas couverts

(pour les équipementiers aéro, possibilités limitées de couverture des DINC & frais de retrait, en extension au programme EAPLS de Marsh) 33

Other Limitations of Liability

Autres Limitations de responsabilité

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Punitive Damages• Definition • What effect ? Clause limiting punitive

damages in a contract? • Judicial limitation on punitive damages• Statutory limitations

– Consider choice of law as to the law of the state that will apply

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Punitive DamagesAspects assurantiels

• Problématique d’assurabilité dans certains Etats US affirmative cover difficile à obtenir

• Programmes RCG de Droit Français :– Silent cover ou – Exclusion

• Programmes CGL US :– Silent cover– Most favored venue clause– Wrap Bermudien

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Responsabilité maximale pour les dommages et intérêts:

Negotiating Points • Goal: eliminate damages that are

disproportionate in relation to economics of transaction

• Must consider whether consistent with or contrary to liquidated damages clause

• Flat $ dollar amount or • Multiple of prices paid under contract

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Responsabilité maximaleModel MSA 11.2 MAXIMUM LIABILITY FOR DAMAGES. [EXCEPT FOR [OBLIGATIONS TO MAKE PAYMENT UNDER THIS AGREEMENT,] [LIABILITY FOR INDEMNIFICATION,] LIABILITY FOR BREACH OF CONFIDENTIALITY, OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS,] IN NO EVENT SHALL [SELLER'S/EACH PARTY'S] AGGREGATE LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER ARISING OUT OF OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EXCEED [[NUMBER OR PERCENTAGE OF] THE TOTAL OF THE AMOUNTS PAID [AND AMOUNTS ACCRUED BUT NOT YET PAID] TO SELLER PURSUANT TO THIS AGREEMENT [IN THE [NUMBER] [YEAR/MONTH] PERIOD PRECEDING THE EVENT GIVING RISE TO THE CLAIM [OR $[AMOUNT], WHICHEVER IS [GREATER/LESS]]. 38

Exceptions à une responsabilité plafonnée

• May accept maximum liability for some types of breaches • Seller accepts exceptions to Cap for

– Breach of obligations relating to intellectual property, indemnification, confidentiality

– Gross negligence willful misconduct, intentional acts

– Any personal injuries resulting from seller’s negligence 39

Limitations de responsabilité: Assumption of Risk:

• Model MSA 11.3. ASSUMPTION OF RISK. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER ASSUMES ALL RISK AND LIABILITY FOR THE RESULTS OBTAINED BY THE USE OF ANY GOODS IN THE PRACTICE OF ANY PROCESS, WHETHER IN TERMS OF OPERATING COSTS, GENERAL EFFECTIVENESS, SUCCESS OR FAILURE, AND REGARDLESS OF ANY ORAL OR WRITTEN STATEMENTS MADE BY SELLER, BY WAY OF TECHNICAL ADVICE OR OTHERWISE, RELATED TO THE USE OF THE GOODS.

• Will bar claims in tort by buyer

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Seller’s Product Warranties and Buyer’s Remedies under the UCC (Uniform Commercial Code)

Garantie des produits du vendeur et recours de l’acheteur au titre de l’UCC. 41

Allocation des risques: UCC Express Product Warranties

• This is an area where product warranties are created by law and not by contract

• Uniform Commercial Code (UCC) Articles 2 and 2A apply:• Express Warranty: Seller can create it by affirming facts

about the goods, making a promise about the goods , describing the goods and providing a sample.

• To limit this area of liability, sellers specify in the MSA: – the duration of each express warranty, – conditions that invalidate it and – exclusive remedies for breach of the warranty.,

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Décharge dans le cadre de garantie “implicite” des produits

• UCC Articles 2 and 2A read into supply agreements implied warranties of merchantability and fitness for a particular purpose.

• Parties should always disclaim these implied warranties, which can contradict the express warranties and specifications in the contract

• The UCC requires this type of clause for the disclaimer to be effective , disclaiming any express warranties not expressly stated in the contract and all implied warranties

• See Model MSA

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Décharge dans le cadre de garanties “implicites” des produits

MODEL MSA 9.5. DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES; NON-RELIANCE. EXCEPT FOR [THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 9.2 AND ]THE PRODUCT WARRANTY SET FORTH IN SECTION 9.3, (A) NEITHER SELLER NOR ANY PERSON ON SELLER'S BEHALF HAS MADE OR MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER, EITHER ORAL OR WRITTEN, INCLUDING ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE[,] [OR] NON-INFRINGEMENT [OR PERFORMANCE OF GOODS OR PRODUCTS TO STANDARDS SPECIFIC TO THE COUNTRY OF IMPORT], WHETHER ARISING BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE OR OTHERWISE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED, AND (B) BUYER ACKNOWLEDGES THAT IT HAS NOT RELIED UPON ANY REPRESENTATION OR WARRANTY MADE BY SELLER, OR ANY OTHER PERSON ON SELLER'S BEHALF, EXCEPT AS SPECIFICALLY PROVIDED IN SECTIONS 9.2 AND 9.3 OF THIS AGREEMENT.

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Seller’s Product WarrantiesAspects assurantiels

Ne sont pas couverts dans les programmes d’assurance RC :• Le défaut de performance• Les dommages au produit livré lui même• Les préjudices résultant de la non-conformité apparente du produit• Les obligations contractuelles exorbitantes du droit commun• La Contractual Liability (programmes d’assurance US)

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Indemnification a l’americaine

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4 types of indemnifications • Common Law • Implied • Statutory (rare)

• Contractual

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American Indemnification • A l’origine dans le droit commun américain:

l’american indemnification transfère la responsabilité de la partie qui doit payer les dommages et intérêts à une tierce partie, vers la partie qui est principalement responsable et qui devrait assumer la perte totale.

• Les concepts d’indemnification définis par le droit commun sont souvent appliqués par les tribunaux lorsque le contrat est vague ou équivoque.

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Common Law IndemnificationOften a tort concept, Common Law

Indemnification transfers liability from the one who

has been compelled to pay damages to the one

who is primarily responsible and should bear the

entire loss.

Common Law Indemnity concepts are often

applied by courts when contract is ambiguous or

lacks specifics on issue 49

L’indemnification americain: Eviter une “indemnification

implicite.” • Illinois Decision (7th Circuit Court of Appeals (Judge

Posner): • “But even if the parties fail to include an indemnity

provision in their contract, if it is apparent that they would have done so had the point occurred to them the courts will read it into their contract unless it is disclaimed. Contract completion is a standard function of common law courts”.

• Key requirement: parties already had a relationship when the tort giving rise to the liability occurred. Function of doctrine: fill out the contract; it is not to create a contract where none existed.

• New York law: disagrees, no implied indemnification 50

American Indemnification by Statute

• None as applies to commercial transactions

• Only in special cases do statutes apply• Example. NYC must by law indemnify

its employees against claims brought against them in the course of their duties as policemen, subway conductors, etc.

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American Indemnification is Contractual

• Thus, a necessity to include it or disclaim it• Any disclaimer must be explicit and specifically refer to

obligation of indemnification. • Next Fundamental Question: What Type of

Indemnification? – Third Party—indemnify against

• Liability, loss or claims• Example, claims from ultimate purchaser of

corporate jet – First Party- Indemnify against

• any loss arising out of the Seller’s breach of contract • Example, claims from buyer, lost profits arising out of

defects in “les trappes” which caused buyer to lose sales 52

Le Danger:

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L’indemnification

Limitations de responsabilité

Example of 1st and 3rd Party claims

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Battelle Memorial Institute v. Nowsco Pipeline Services 56 F. Supp. 2d (S.D. Ohio 1999)

“COMPANY and PARTICIPANT agree, for themselves and for their successors and assigns, and heirs and administrators, to release, indemnify and hold harmless BATTELLE and GRI, their divisions, affiliates, officers, trustees, agents and employees, from all liability, damages, claims, suits or other consequences (including but not limited to personal injury or death) caused by or arising out of this Agreement and the access granted thereby.”

•Held to apply to both first party and third party claims

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Lessons from Battelle Institute• Clearly Limit Indemnification to 3rd

Party Claims only• See MSA Model 10.1.• You will need language instead that

says: – « Seller indemnifies Buyer solely for losses

arising out of a Third Party Claim directly caused by a [material] breach of the contract by Seller, subject to certain exceptions, etc. »

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Indemnification: “First New Jersey Decision”

• “[Dome] hereby covenants and agrees to indemnify and hold [First Jersey] harmless from and against any and all claims, actions, judgments, damages, losses, liabilities, costs and expenses of any nature whatsoever (including without limitation attorney's fees), arising directly or indirectly from, out of or incident to this Agreement and/or oral instructions delivered to [First Jersey] pursuant to this Agreement. This indemnity shall exclude only intentional and deliberate misconduct on [First Jersey's] part.

• Attention a cette sorte d’exclusion !!56

Les 4 Points Importants : • Limitations de l’indemnification aux réclamations de

tiers « Seller indemnifies Buyer solely for losses arising out of a Third Party Claim directly caused by a breach of the contract by Seller, subject to certain exceptions, etc. »

• L’ interprétation correcte des termes d’une clause d’indemnification americain: : for example la difference entre: « duty to indemnify, duty to defend, duty to hold harmless »

• Les exceptions ou « carve-outs » – les consequential damages de l’acheteur!! – les dommages couverts par l’assurance – les dommages couverts par un autre forme de

réparation sous le contrat • Comment imposer un « cap » sur l’indemnification ??? 57

Comment utiliser « American-style Indemnification » à

votre avantage

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Indemnification: Negotiation Points Indemnification can be the most important risk allocation tool, will usually be heavily negotiated. Some pointers for your checklist: • Avoid mutuality, use separate provisions to reflect different

levels of risk between buyer and seller. Too confusing. • Consider role of insurance: limit indemnity obligation to losses

not covered by insurance proceeds received by indemnified party;

• Buyer will want to be indemnified for all losses “relating to”. Seller will want to limit to those “solely resulting from” or “caused by”

• Seller will want “loss” to include only judicial awards, buyer will want broadest possible definition of “loss”

• Buyer will resist limiting indemnification to losses arising out of “material” breach of seller’s representations, will want indemnification for all claims relating to the contract.

• Seller will want to negotiate a CAP or Maximum on payment of third-party claim liabilities. 59

USA Indemnification: Definitions and Their Practical Consequences

• Seller shall “indemnify, defend and [hold harmless] ” : means act of making good the loss of the other party and defending the party, including hiring and paying the party’s attorneys.

• Hold Harmless can mean the additional requirement of making advance payment for covered unpaid expenses as they incurred. It is bracketed in MSA 10.1 and should be avoided if possible.

• Write EXCLUSIONS into your Indemnification Provisions! • Whether claim is valid or not , seller pays reasonable costs of

defending. • Loss: you must define it (example 10.1.) in a way that makes economic

sense in your deal. Do not leave undefined. Generally means “Buyer actually spending money”

• Damages, leave undefined or clarify? Be consistent. Do damages exclude consequential damages in 11.1 and then agree to indemnify buyer for consequential damages in 10.1.?

• “relating to is broader than “arising out of “ or “resulting from”: be careful not to open the door to claims not directly related to the sale of your products.

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10.1 Model Indemnification (Exclusion)

• [Notwithstanding anything to the contrary in this Agreement, this Section 10.1 does not apply to any Claim (whether direct or indirect) for which a sole or exclusive remedy is provided for [or barred] under another section of this Agreement, including Section 4.4, Section 4.6, Section 9.5[,/ and] Section 9.8 [and Section 10.3].] and Section 11.1

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10.2 Exceptions and Limitations on Indemnification

• 10.2. Exceptions and Limitations on Indemnification. Notwithstanding anything to the contrary in this Agreement, an Indemnifying Party is not obligated to indemnify or defend (if applicable) an Indemnified Party against any Claim if such Claim or corresponding Losses arise out of or result from[, in whole or in part,] the Indemnified Party's or its Personnel's:– ***[negligence/gross negligence] or more culpable act or

omission (including recklessness or willful misconduct); [or]***– bad faith failure to [materially] comply with any of its obligations

set forth in this Agreement[./; or]– [use of the Goods in any manner not otherwise authorized under

this Agreement [or that does not materially conform with any usage [instructions/guidelines/specifications] provided by Seller].] (improper testing of “les trappes”)

• Compare with “First Jersey Bank”

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Indemnification / Pactes de garantieAspects assurantiels

• Exclusion standard des Programmes d’assurance RC des « obligations que les Assurés ont acceptées par convention et qui n’auraient pas été mises à leur charge sans cette convention »

• Contractual Liability exclusion des programmes CGL US

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Insurance Considerations • Specify types of insurance and minimum limits: CGL

(commercial general liability); umbrella liability, Aviation Product Liability

• Address whether parties may self-insure• Describe whether and on what terms the insured party

must add the other party as additional insured or provide evidence of insurance

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Insurance Considerations • Type d’assurance (RCG – RC Produit Aéronautique – RC

Produit Spatial)– exclusion systématique des produits aéro et spatiaux

dans les polices RCG• Trigger

– base réclamation pour les polices RCG française / base occurrence en standard aux USA (souvent exigée dans la MSA)

• Assuré Additionnel• 30 days advance notice• Renonciation à recours de l’assureur /Waiver of subrogation

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La Prochaine Fois: Duty to Defend = Power to Control

les litiges • Means we will also address these important

points• Choice of law: which state law applies? • Dispute resolution • Control of attorneys defending your position• Insurance • Additional details and points concerning

indemnification

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Some Final General Points Gestion des contrats

• « Americanize » vos contrats! Et RTBC! RTBC ! • Examinez avec soin les contrats commerciaux américains ;

sollicitez des conseils juridiques pour interpréter et faire appliquer les contrats

• Comprenez vos droits et responsabilités, respecter les termes du contrat et les droits de demande de modifications

• Sachez quelles lois s’appliquent• Comprenez les conditions particulières des contrats passés

avec le gouvernement fédéral • Autres options de résolution des litiges contractuels aux États-

Unis : • Médiation & Arbitrage ; • Il est souvent moins cher et plus rapide de passer par le

tribunal fédéral d'instance américain « U.S. District Court »

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Les résultats souhaités seront obtenus par la bonne gestion du “régime de

responsabilité” dans vos contrats americains

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DES QUESTIONS ?

Coordonnées pour toute demande d'informations :Eliot Norman Williams Mullen1666 K St. N.W. Suite 1200Washington, D.C. 20006Ligne directe : 001.804.420.6482enorman@williamsmullen.comwww.williamsmullen.com

Sophie Moysan MarshTour Ariane, La Défense 992088 Paris, La DéfenseLigne directe : 01.41.34.50.72sophie.moysan@marsh.comwww.marsh.fr

Antoine de La Chapelle Groupe Latécoère135, rue Périole BP 2521131079 TOULOUSE CEDEX 5 Ligne Directe : antoine.de_la_chapelle@latecoere.frwww.latecoere.fr/