Structuring Construction Contract Insurance, Indemnification and...

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Presenting a live 90-minute webinar with interactive Q&A

Structuring Construction Contract Insurance,

Indemnification and Limitations

on Liability Clauses Negotiating Key Provisions to Allocate Risk and Minimize Exposure

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, AUGUST 2, 2017

Joann M. Lytle, Partner, McCarter & English, Philadelphia

Katie Pfeifer, Of Counsel, Dorsey & Whitney, Minneapolis

David Taubenfeld, Partner, Haynes & Boone, Dallas

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CONSTRUCTION CONTRACT INSURANCE, INDEMNIFICATION AND LIMITATION ON LIABILITY CLAUSES

By

Joann M. Lytle, Esq.

McCarter & English, LLP 1600 Market Street

Suite 3900

Philadelphia, PA 19103

215-979-3800

[email protected]

Information which is copyrighted by and proprietary to Insurance Services Office,

Inc. ("ISO Material") is included in this publication. Use of the ISO Material is

limited to ISO Participating Insurers and their Authorized Representatives. Use by

ISO Participating Insurers is limited to use in those jurisdictions for which the

insurer has an appropriate participation with ISO. Use of the ISO Material by Authorized Representatives is limited to use solely on behalf of one or more ISO

Participating Insurers.

August 2, 2017

Contractual Insurance Requirements

§ 11.1.1 The Contractor shall purchase from and maintain in a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located such insurance as will protect the Contractor from claims set forth below which may arise out of or result from the Contractor’s operations and completed operations under the Contract and for which the Contractor may be legally liable, whether such operations be by the Contractor or by a Subcontractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable:

.1 Claims under workers’ compensation, disability benefit and other similar employee benefit acts that are applicable to the Work to be performed;

.2 Claims for damages because of bodily injury, occupational sickness or disease, or death of the Contractor’s employees;

.3 Claims for damages because of bodily injury, sickness or disease, or death of any person other than the Contractor’s employees;

.4 Claims for damages insured by usual personal injury liability coverage;

.5 Claims for damages, other than to the Work itself, because of injury to or destruction of tangible property, including loss of use resulting therefrom;

.6 Claims for damages because of bodily injury, death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle;

.7 Claims for bodily injury or property damage arising out of completed operations; and

.8 Claims involving contractual liability insurance applicable to the Contractor’s obligations under Section 3.18.

AIA A-201 2007

6


§ 11.1.2 The insurance required by Section 11.1.1 shall be written for not less than limits of liability specified in the Contract Documents or required by law, whichever coverage is greater. Coverages, whether written on an occurrence or claims-made basis, shall be maintained without interruption from the date of commencement of the Work until the date of final payment and termination of any coverage required to be maintained after final payment, and, with respect to the Contractor’s completed operations coverage, until the expiration of the period for correction of Work or for such other period for maintenance of completed operations coverage as specified in the Contract Documents.

AIA A-201 2007

7


§ 11.1.3 Certificates of insurance acceptable to the Owner shall be filed with the Owner prior to commencement of the Work and thereafter upon renewal or replacement of each required policy of insurance. These certificates and the insurance policies required by this Section 11.1 shall contain a provision that coverages afforded under the policies will not be canceled or allowed to expire until at least 30 days’ prior written notice has been given to the Owner. An additional certificate evidencing continuation of liability coverage, including coverage for completed operations, shall be submitted with the final Application for Payment as required by Section 9.10.2 and thereafter upon renewal or replacement of such coverage until the expiration of the time required by Section 11.1.2. Information concerning reduction of coverage on account of revised limits or claims paid under the General Aggregate, or both, shall be furnished by the Contractor with reasonable promptness.

AIA A-201 2007

8

Contractual Insurance Requirements – Additional Insured Coverage

§ 11.1.4 The Contractor shall cause the commercial liability coverage required by the Contract Documents to include (1) the Owner, the Architect and the Architect’s Consultants as additional insureds for claims caused in whole or in part by the Contractor’s negligent acts or omissions during the Contractor’s operations; and (2) the Owner as an additional insured for claims caused in whole or in part by the Contractor’s negligent acts or omissions during the Contractor’s completed operations.

AIA A-201 2007

9

10

What is Additional Insured Coverage?

Risk transfer method that allows one party

to a business relationship to obtain

coverage under another party’s policy.

Who Are The Players?

Additional Insured – the party seeking to

take advantage of another party’s

coverage.

Named Insured – the party whose policy

is providing coverage to the Additional

Insured.

11

Benefits for Additional Insured

Coverage without premium.

Doesn’t erode additional insured’s own limits

of liability.

No responsibility for deductibles.

Particularly important for companies who are

self-insured or who have retentions on their

own policies.

12

Benefits for Additional Insured

Supports indemnity obligation, which only has

value if the indemnitor has assets to fulfill it.

Defense coverage, without having to wait for a

resolution of the indemnity obligation.

Can be independent of, and provide broader

protection than, the indemnity obligation, i.e.,

for the additional insured’s negligence.

– Important where applicable state’s law prohibits

indemnification for one’s own negligence.

13

Implications for Named Insured

Pros

– Allows transfer of the obligation to defend and

indemnify the indemnitee to the insurer.

Cons

– Erosion of limits.

– Limits shared by all insureds.

– Limits used to pay claims for which the Additional

Insured may be partly or entirely at fault.

– Responsibility for deductible.

– Higher premiums down the road based on loss

experience. 14

How Does One Become An Additional Insured?

Generally requires both a contract between the

parties and an additional insured provision in an

insurance policy.

A contractual obligation to provide insurance is

ineffective unless the Named Insured’s policy

contains an Additional Insured Clause.

Usually in an endorsement.

15

Typical Additional Insured Claim

Contract requiring that general contractor be added as additional insured.

Subcontractor’s Insurance Company

Lawsuit alleging sole negligence of general contractor

Does additional insured’s liability to named insured’s employee “arise out of” named insured’s ongoing operations? Was it caused “in whole or in part” by named insured’s acts or omissions?

Injured Employee

Subcontractor

(Named Insured)

General Contractor

(Additional Insured)

16

Common Additional Insured Disputes

Scope of coverage

– Does it cover additional insured’s sole

negligence?

How much coverage is the additional insured

entitled to?

Whose coverage is primary?

ISO has attempted to address these issues

17

Coverage for Additional Insured’s Own Negligence

Prior to 2004, a number of ISO additional insured

endorsements provided coverage for liability

“arising out of” the Named Insured’s operations

for the Additional Insured.

A number of courts construed “arising out of” to

be the same as “but for” causation.

If the liability would not have arisen “but for” the

named insured’s involvement, the additional

insured has coverage.

18

Coverage for Additional Insured’s Own Negligence

McIntosh v. Scottsdale Ins. Co., 992 F.2d 251 (10th Cir. 1993) (festival

patron injured on fairgrounds brought suit against

township/additional insured. Festival operator’s insurer obligated to

cover township, even though township stipulated that it was 100%

negligent, since injuries “arose out of” Festival’s operations).

Allen-Stevenson School v. Burlington Ins. Co., 2008 N.Y. Misc. LEXIS

10587 (N.Y. Sup. Ct. Mar. 31, 2008) (“The additional insured

language…defines coverage…based on the scope of the named

insured’s work. As long as the claim against the additional insured

arises out of the named insured’s work, coverage is provided under

the Endorsement.”).

Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487 (5th Cir.

2000) (finding that injuries to named insured’s employee “arose out

of” named insured’s operations, even if the cause of the injuries was

the sole negligence of the additional insured).

19

The 2004 Amendments to ISO’s Endorsements

In response to these cases, in 2004, ISO

amended some of its most commonly-used

additional insured endorsements to make clear

that the additional insured’s sole negligence is

not covered.

Additional Insured only has coverage with

respect to liability for BI or PD caused, in whole

or in part, by the Named Insured’s conduct.

20

Includes copyrighted material of

Insurance Services Office, Inc., with its permission.

Comparison Of Pre- And Post-2004 Versions Of ISO CG 20 10

21

Comparison Of 2004 and 2013 Versions Of ISO CG 20 10

2004 CG 20 10

A. Section II. Who Is An Insured is amended to include as an additional insured the person(s) or organization(s)

shown in the Schedule, but only with respect to liability for “bodily injury”, “property damage” or “personal and

advertising injury” caused, in whole or in part, by:

1. Your acts or omissions; or

2. The acts or omissions of those acting on your behalf;

in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.

2013 CG 20 10

A. Section II – Who is An Insured is amended to include as an additional insured the person(s) or organization(s)

shown in the Schedule, but only with respect to liability for

“bodily injury”, “property damage” or “personal and advertising injury” caused, in whole or in part, by:

1. Your acts or omissions; or

2. The acts or omissions of those acting on your behalf;

In the performance of your ongoing operations for the additional insured(s) at the location(s) designated

above.

However:

1. The insurance afforded to such additional insured only

applies to the extent permitted by law; and

2. If coverage provided to the additional insured is

required by a contract or agreement, the insurance afforded to such additional insured will not be broader

than that which you are required by the contract or agreement to provide such additional insured.

Includes copyrighted material of

Insurance Services Office, Inc., with its permission. 22

Did ISO’s Amendment Resolve The Issue?

Maybe not --

– In Gilbane, Admiral argued that since the complaint

contained no allegations of negligence on the part of Empire

(the Subcontractor/Named Insured), or anyone acting on its

behalf, the General Contractor, Gilbane, was not covered as

an additional insured.

Gilbane Building Co. v. Empire Steel Erectors, L.P., 691 F. Supp. 2d 712

(S.D.Tex. 2010), aff’d in part, rev’d in part, 664 F. 3d 589 (5th Cir. 2011)

23

Did ISO’s Amendment Resolve The Issue? (cont.)

The District Court speculated that the named

insured’s negligence had not been pled because of

the statutory immunity of the Workers’

Compensation bar, but

Concluded that the claimant’s negligence could be

presumed and imputed to the named insured, thus

triggering Admiral’s duty to defend.

24


The Fifth Circuit reversed the district court’s ruling on

the duty to defend, finding that Parr’s negligence

could not be presumed.

– Applying the eight-corners rule, the Fifth Circuit concluded

that Admiral was only obligated to defend the GC/additional

insured “if the underlying pleadings allege[d] that Empire, or

someone acting on its behalf, proximately caused Parr’s

injuries.” 664 F.3d at 598.

25


The Fifth Circuit affirmed the district court’s finding

that Admiral was required to indemnify the

additional insured:

– A co-worker’s recount of Parr’s statement, immediately after he

fell, that his “‘feet got wrapped up in the extension cord’” was

persuasive. 664 F.3d at 601.

– The District Court properly “consider[ed] facts outside of those

alleged in the petition in determining the duty to indemnify.” Id.

26

Revised CG 20 10 Does Not Limit Coverage To Vicarious Liability

American Empire Surplus Lines Ins. Co. v. Crum

& Forster Specialty Ins. Co., No. H-06-004, 2006

U.S. Dist. LEXIS 33556 (S.D. Tex. May 23, 2006)

(language of endorsement requiring that Additional

Insured’s liability arise, in whole or in part, out of

Named Insured’s conduct, does not limit coverage to

vicarious liability, but provides coverage where both

Named Insured and Additional Insured are

negligent).

27

Whose Coverage is Primary?

Formerly a hotly-disputed issue.

ISO attempted to resolve the dispute in the CGL

policy itself.

The 2001 and later versions of the ISO CGL Policy

(CG 00 01 10 01) contain an amended Other

Insurance Clause (Section IV).

28

“Other Insurance Clause” 2013 ISO Amendments

Primary And Noncontributory – Other

Insurance Condition (CG 20 01 04 13) This insurance is primary to and will not seek contribution from any

other insurance available to an additional insured under your

policy provided that:

(1) The additional insured is a Named Insured under such other

insurance; and

(2) You have agreed in writing in a contract or agreement that this

insurance would be primary and would not seek contribution

from any other insurance available to the additional insured.

30

Verifying Additional Insured Coverage

A certificate of insurance is not proof of

insurance

The Acord form specifically states that

additional insured coverage requires an

endorsement

31

Verifying Additional Insured Coverage

Ideally, request a full copy of the Named

Insured’s policy.

May not be that simple.

– For some large companies, the extent of their

insurance program, including limits and

deductibles, is a closely-guarded secret.

– In that situation, review the additional insured

endorsement(s), at a minimum.

– Review the Other Insurance Clause, if possible.

33

CONSIDERATIONS IN DRAFTING THE INDEMNIFICATION CLAUSE

Considerations in Drafting the

Indemnification Clause

Katie Pfeifer Dorsey & Whitney LLP Minneapolis, Minnesota (612) 340-2600 [email protected]


Indemnification Agreements

35


• Purposes of Indemnification Agreements

• Indemnification Terms

• Common Indemnification Agreement Forms in the Construction Industry

• Additional Considerations When Drafting/Modifying Indemnification Agreements

36


Overarching Question

• Indemnification is a contractual agreement; it is interpreted under the same rules governing any other contract

• Goal is to ascertain the intent of the parties

37


Purposes of Indemnification

Agreements in Construction Contracts

• Allocation and transfer risk (important element of the bid itself)

• Avoid application of strict contributory negligence doctrines in some states

• Avoid (or attempt to avoid) fight amongst participants on the project

• Obtain benefit of (typically) longer contract statute of limitations (versus tort statute of limitations)

38


Sample Indemnification Provision

“To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. . . .”

AIA A201 (2017) General Conditions § 3.18.1.

39


Basic Indemnification Terms

• Who are the indemnitee and the indemnitor?

• When is the indemnification triggered?

• What types of claims/allegations are to be indemnified?

• What is the scope of the indemnification?

40


Indemnitee and Indemnitor

• Indemnitor: The party who owes the obligation to indemnify

• Indemnitee: The party who receives the indemnification

• “To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work . . . .”

41


Trigger

• “To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) . . . .”

• When is indemnification triggered?

– “Claims” – immediately

– “Damages, losses and expenses” – once incurred

– Consider adding “liabilities”

42


Types of Claims/Allegations to be

Indemnified • “To the fullest extent permitted by law, the Contractor

shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) . . . .”

– Construction contracts generally include indemnification to bodily injury or property damage type claims

• Insurance coverage more likely for these types of claims

– Some contracts also include indemnification for intellectual property type claims

43



Indemnified • What about indemnification for other claims?

– E.g., Breach of contract? Economic loss claims?

– Sample language: “arising, directly or indirectly, from the performance of the Work, breach of this Contract, or a Contractor Party’s negligence or willful misconduct with respect to the Project”

44



Indemnified – Sample language: “Contractor shall indemnify, defend,

and hold harmless the Indemnified Parties from and against Indemnified Claims for economic loss (i.e., Indemnified Claims not attributable to bodily injury, sickness, disease or death or to injury to or destruction of tangible property), but only to the extent such economic loss was caused by a breach of this Contract or a Contractor Party’s negligence or willful misconduct with respect to the Project.”

– But note: Keep in mind that such language can create problems for insurance coverage

45


Scope of Indemnification

• Three types

– Narrow/Limited

– Intermediate

– Broad

• General rule: indemnity agreements attempting to shift one’s own negligence are going to be strictly construed against the indemnitee

– See, e.g., Harleysville Ins. Co. v. Physical Distrib. Servs., Inc., 716 F.3d 451 (8th Cir. 2013) (language must be “clear and unequivocal”)

• Be aware of anti-indemnification statutes

46



• Narrow or Limited Form Indemnity

– Allows indemnification to indemnitee for losses exclusively caused by the indemnitor’s negligence

– Any negligence by indemnitee will bar indemnification

– Mirrors the obligations imposed by tort law

Allowed

Indemnification:

Subcontractor’s

Negligence

Not Allowed

Indemnification:

General’s

Negligence

47



• Intermediate Form Indemnity

– Allows indemnification to indemnitee for loss caused by indemnitor’s fault or negligence

– Allows indemnification to indemnitee for which indemnitor and indemnitee are jointly at fault

• What amount indemnitor pays – all or just the proportionate share – depends on indemnification language

Allowed

Indemnification:

Subcontractor’s

Negligence

(Potentially) Not

Allowed

Indemnification:

General’s

Negligence

48



• Broad Form Indemnity

– Broadest protection for indemnitee

– Requires indemnitor to indemnify indemnitee for all liabilities, regardless of which party’s negligence caused the liability

– Most states limit or prohibit the use of broad form indemnity provisions in construction contracts

Allowed

Indemnification:

Subcontractor’s

and General’s

Negligence

49



“To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder.”

– Unedited, AIA is a narrow form of indemnity

50


Other Provisions

• “To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them . . . .”

– Important to try to draft against voiding the entire indemnification obligation if you run afoul of an anti-indemnification statute

– Alternative sample language: “It is agreed that with respect to any legal limitations now or hereafter in effect and affecting the validity and enforceability of the indemnification obligation under this Section [ ], such legal limitations are made a part of the indemnification obligation to the minimum extent necessary to bring Section [ ] into conformity with the requirements of such limitations and, as so modified, the indemnification obligation shall continue in full force and effect.”

51


Other Provisions

“To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work . . . .”

– Duty to defend v. reimbursement of attorneys’ fees

– Difference between “indemnify” and “hold harmless”

52


Duty to Defend Versus Indemnify

• Duty to defend is separate from and independent of duty to indemnify

– Former is triggered immediately; does not require one to wait until the end for reimbursement

– What does it entail: hiring counsel for indemnitee (and, likely separately, for indemnitor, if also sued); paying costs of litigation (discovery, depositions, expert fees, etc.)

53



• Under most states’ common law, there is no duty to defend unless it is included in the contract

– See, e.g., Bellefleur v. Newark Beth Israel Med. Ctr., 66 A.D.3d 807 (N.Y. App. 2009); CSX Transp. V. Chicago & N.W. Transp. Co., 62 F.3d 185 (7th Cir. 1995)

– Without a duty to defend, and barring language providing recovery of attorneys’ fees, there may be no right by the indemnitee to recover its defense costs

• But see Klock v. Grosodonia, 674 N.Y.S.2d 187 (N.Y. App. Div. 1998) (concluding that, based on agreement language, the right to indemnity included recovery of the reasonable costs of defense incurred in good faith)

54



• Some exceptions, though:

– See, e.g., Crawford v. Weather Shield Mfg., Inc., 44 Cal. 4th 541, 555 (Cal Ct. App. 2008) (“[T]he case law has long confirmed that, unless the parties’ agreement expressly provides otherwise, a contractual indemnitor has the obligation … to accept and assume the indemnitee’s active defense against claims encompassed by the indemnity provision.”)

55


Indemnify Versus Hold Harmless

• Most courts hold that “indemnity” and “hold harmless” are synonymous or duplicative

– E.g., Praetorian Ins. Co v. Site Inspection, LLC, 604 F.3d 509 (8th Cir. 2010)

• Some see a distinction though

– “Hold harmless” acts as an exculpatory provision that releases the indemnitee from liability to the indemnitor (e.g., a defense to a claim by the indemnitor)

• E.g., Exxon Mobil Corp. v. New W. Petroleum, LP, 369 Fed. Appx. 805 (9th Cir. 2010); Fernandez v. K-M Indus. Holding Co., 646 F. Supp.2d 1150 (N.D. Cal 2009)

• Not safe to just use “hold harmless” if seeking indemnification for third party claims

56


Common Indemnification Agreement

Forms in the Construction Industry


AIA A201 (2017) General Conditions § 3.18.1. To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity that would otherwise exist as to a party or person described in this Section 3.18.

§ 3.18.2. In claims against any person or entity indemnified under this Section 3.18 by an employee of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under Section 3.18.1 shall not be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Contractor or a Subcontractor under workers’ compensation acts, disability benefit acts, or other employee benefit acts.

58


AIA A201 (2017) General Conditions

• Prepared by Architects

• Widely used on vertical projects

• AIA Package also includes other indemnification provisions, including a provision for indemnification by the Owner related to hazardous waste risks (§10.3.3), a provision providing indemnification by the Architect to the Owner (AIA B103) and a provision similar to §3.18 providing indemnification by the subcontractor to the Owner, Architect, Contractor, etc. (AIA A401)

59


AIA A201 (2017) General Conditions

• § 3.18.2 necessary in some states if you want to ensure indemnification obligation is not affected by the worker’s compensation limitations

– See, e.g., Gatley v. UPS, Inc., 662 F. Supp. 200 (D. Me. 1987) (noting that a waiver of worker’s compensation immunity must be clear and specific)

– Often called a “Kotecki Waiver,” named after Kotecki v. Cyclops Welding Corp., 585 N.E.2d 1023 (Ill. 1991)

– But Montana and Oregon workers’ compensation statutes bar indemnification completely

• Raisler v. Burlington N. R.R., 717 P.2d 535 (Mont. 1985)

• Roberts v. Gray's Crane & Rigging, Inc., 697 P.2d 985 (Or. 1985)

60


EJCDC C-700 (2013) 7.18 Indemnification

A. To the fullest extent permitted by Laws and Regulations, and in addition to any other obligations of Contractor under the Contract or otherwise, Contractor shall indemnify and hold harmless Owner and Engineer, and the officers, directors, members, partners, employees, agents, consultants and subcontractors of each and any of them from and against all claims, costs, losses, and damages (including but not limited to all fees and charges of engineers, architects, attorneys, and other professionals and all court or arbitration or other dispute resolution costs) arising out of or relating to the performance of the Work, provided that any such claim, cost, loss or damage is attributable to bodily injury, sickness, disease, or death, or to injury to or destruction of tangible property (other than the Work itself), including the loss of use resulting therefrom but only to the extent caused by any negligent act or omission of Contractor, any Subcontractor, any Supplier, or any individual or entity directly or indirectly employed by any of them to perform any of the Work or anyone for whose acts any of them may be liable.

B. In any and all claims against Owner or Engineer or any of their officers, directors, members, partners, employees, agents, consultants, or subcontractors by any employee (or the survivor or personal representative of such employee) of Contractor, any Subcontractor, any Supplier, or any individual or entity directly or indirectly employed by any of them to perform any of the Work, or anyone for whose acts any of them may be liable, the indemnification obligation under Paragraph 7.18.A shall not be limited in any way by any limitation on the amount or type of damages, compensation, or benefits payable by or for Contractor or any such Subcontractor, Supplier, or other individual or entity under workers’ compensation acts, disability benefit acts, or other employee benefit acts.

61


EJCDC C-700 (2013)

• Engineers Joint Contract Document Committee

• ACEC, ASCE, NSPE

• More typically used on horizontal projects

• Applies to owner/contractor agreements

62


ConsensusDOCS (2017) 10.1 Indemnity

10.1.1 To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless Owner, Owner’s officers, directors, members, consultants, agents and employees, Design Professional, and Others (the Indemnitee) from all claims for bodily injury and property damage, other than to the Work itself and other property insured, including reasonable attorneys’ fees, costs and expenses, that may arise from the performance of the Work, but only to the extent caused by the negligent or intentionally wrongful acts or omissions of Contractor, Subcontractors, Suppliers, Subsubcontractors, or anyone employed directly or indirectly by any of them or by anyone for whose acts any of them may be liable. Contractor shall be entitled to reimbursement of any defense costs paid above Contractor's percentage of liability for the underlying claim to the extent provided for under Subparagraph 10.1.2.

10.1.2 To the fullest extent permitted by law, the Owner shall indemnify and hold harmless Contractor, its officers, directors, members, consultants, agents, and employees, Subcontractors, Suppliers, or anyone employed directly or indirectly by any of them or anyone for whose acts any of them may be liable from all claims for bodily injury and property damage, other than property insured, including reasonable attorneys’ fees, costs, and expenses, that may arise from the performance of work by Owner, Design Professional, or Others, but only to the extent caused by the negligent or intentionally wrongful acts or omissions of the Owner, Design Professional, or Others. Owner shall be entitled to reimbursement of any defense costs paid above Owner’s percentage of liability for the underlying claim to the extent provided for under Subparagraph 10.1.1.

10.1.3 [KOTECKI WAIVER]

63


ConsensusDOCS

• Endorsed by 40+ organizations

• Includes mutual indemnity

• Based in part off the Associated General Contractors of America (AGC) contract documents

• Perceived to be more contractor friendly

64


Additional Considerations for Drafting

Indemnification Agreements

• First versus third party claims

• Notice

• Damages limitations/limitations of liability

• Survival Clauses

• Attorneys’ fees for enforcing indemnification

65


Questions?

Ms. Pfeifer is a trial attorney and Of Counsel in the Minneapolis office of Dorsey & Whitney.

She represents clients in all types of complex commercial litigation, with a particular emphasis

on insurance coverage disputes, construction litigation, and health care litigation. Her clients

include public and private corporations, for-profit and non-profit entities, financial institutions,

and individuals.

Through her work with the Tort Trial and Insurance Practice Section (TIPS) of the ABA, Ms.

Pfeifer also serves as a Senior Editor of the CGL Reporter Editorial Board. Written by

practicing attorneys, the CGL Reporter, published by IRMI, provides annotations of important

coverage decisions from across the nation involving general liability and other business-

related policies, and provides commentary on cases and their implications to risk

management, insurance, and legal professionals.

Katie Pfeifer

Of Counsel

Dorsey & Whitney LLP

50 South Sixth Street

Suite 1500

Minneapolis, MN 55402-1498

(612) 492-6947 : phone

(612) 340-2777 : fax

[email protected]

66

© 2017 Haynes and Boone, LLP

Anti-Indemnification Acts

David R. Taubenfeld, Esq.

[email protected]


68

• Anti-indemnity statutes prohibit certain types of indemnification

agreements in certain contexts

• Most states have enacted some type of anti-indemnity statute

• Most commonly impact oil & gas and construction-related contracts

• These statutes can also impact contractual insurance obligations.

Anti-Indemnity Acts, generally


69

Oilfield Anti-Indemnity Acts


70

Anti-Indemnity Acts


• Texas (Tex. Civ. Prac. & Rem. Code § 127.001, et seq.);

• Louisiana (La. R.S. 9:2780);

• New Mexico (N.M. Stat. Ann. § 56-7-2); and

• Wyoming (Wyo. Stat. §§ 30-1-131 to 30-1-133).


71


Texas Oilfield Anti-Indemnity Act

• The Texas Legislature enacted the Texas Oilfield Anti-

Indemnity Act (Tex. Civ. P. & Rem. Code §§ 127.001-007) (the

“TOAIA”) after finding that some contractual indemnity

provisions foster an inequity on contractors who enter

agreements relating to oil and gas.

• Applies to agreements pertaining to, collateral to, or affecting

a well for oil, gas, or water, or to mine for a mineral.


72


Texas Oilfield Anti-Indemnity Act

• Generally, the TOAIA provides that an indemnity provision in an oilfield

contract is void and unenforceable if it attempts to indemnify a person

against loss or liability for damage that:

• (1) “is caused by or results from the sole or concurrent negligence of the

indemnitee, his agent or employee, or an individual contractor directly

responsible to the indemnitee;” and

• (2) arises from personal injury, death, property injury, or any other loss,

damage, or expense that results from those things. Tex. Civ. P. & Rem.

Code § 127.003.


73


Exceptions Under the Texas Oilfield Anti-Indemnity Act

Loss or liability for damages or an expense arising from:

(1) personal injury, death, or property injury that results from radioactivity;

(2) property injury that results from pollution, including cleanup and control of the

pollutant;

(3) property injury that results from reservoir or underground damage, including loss of

oil, gas, other mineral substance, or water or the well bore itself;

(4) personal injury, death, or property injury that results from the performance of services

to control a wild well to protect the safety of the general public or to prevent depletion of

vital natural resources; or

(5) cost of control of a wild well, underground or above the surface.”


74


Exceptions Under the Texas Oilfield Anti-Indemnity Act

Section 127.005 – Safe Harbor Provision

• Act does not apply to an indemnity agreement if “the parties agree in

writing that the indemnity obligation will be supported by liability

insurance coverage to be furnished by the indemnitor,” subject to

limitations enumerated in the statute.

• The provision of the statute relating to insurance considers two types of

indemnity obligations:

• mutual indemnity obligations and unilateral indemnity obligations.


75

Other States’ Oilfield Anti-Indemnity Acts

Louisiana Oilfield Anti-Indemnity Act (“LOIA”)

• Invalidates certain indemnification agreements contained in contracts

“pertaining to wells for oil, gas or water.” La. Rev. Stat. § 9:2780.

• Unlike the TOAIA, the LOIA does not apply to property damage, but is

limited to death or bodily injury to persons. Id. at §9:2780(A)-(B).

• LOIA also generally excepts out claims related to pollution, radioactivity,

oil spill cleanup and wild well costs. Id. at § 9:2780(F).

• If an indemnity provision as written violates the statute, it will be entirely

void. Meloy v. Conoco, Inc., 504 So. 2d 833, 839 (La. 1987).


76


New Mexico Oilfield Anti-Indemnity Act (“NMOAIA”)

• Prohibits indemnity provisions in agreements “pertaining to a well for oil, gas

or water, or mine for a mineral” that purport to indemnify an indemnitee for his

or her own negligence. N.M. Stat. Ann. § 56-7-2(A).

• Such an agreement means one: “(1) concerning any operations related to

drilling, deepening, reworking, repairing, improving, testing, treating,

perforating, acidizing, logging, conditioning, altering, plugging or otherwise

rendering services in connection with a well drilled for the purpose of

producing or disposing of oil, gas or other minerals or water; (2) for rendering

services in connection with a mine shaft, drift or other structure intended for

use in the exploration for or production of a mineral; or (3) to perform a portion

of the work or services [above].” Id. at § 56-7-2(B).


77


New Mexico Oilfield Anti-Indemnity Act (“NMOAIA”)

• Does not apply to distribution, processing, or transportation activities. See Holguin v

Fulco Oil Servs., LLC, 245 P.3d 42, 47-48 (N.M. App. 2010).

• Covers death, personal injury, property damage, as well as situations involving

radioactivity, pollution and wild-well control. “A provision…naming a person as an

additional insured…that would, if it were a direct or collateral agreement described

in…this section, be void, is against public policy and void.” N.M. Stat. Ann. § 56-7-

2.

• Even if agreement violates statute, courts will enforce the indemnity clauses to the

extent the clauses require indemnification for the indemnitor’s own fault.


78


Wyoming Oilfield Anti-Indemnity Act (“WOAIA”)

• Applies to agreements “pertaining to any well for oil, gas or water, or mine for

any mineral.” W.S. § 30-1-131.

• Covers almost any kind of damage (bodily injury, property damage, etc.).

• Wyoming case law limits the statute to agreements that involve work “closely

related to well drilling.” See Reliance Ins Co. v. Chevron USA Inc., 713 P.2d

766, 770 (Wyo. 1986).

• Provisions violating the statute are only “void and unenforceable to the extent

that such contract of indemnity by its terms purports to relieve the indemnitee

of from loss or liability for his own negligence.” See Wyo. Stat. § 30-1-131.

• No prohibition on insurance coverage.


79

Construction Anti-Indemnity Acts


80

Anti-Indemnity Acts


• Majority of states have enacted anti-indemnity acts, generally

applying to construction-related contracts or agreements.

• The statutes vary state by state. Some statutes prohibit

broad form indemnity agreements while other statutes

prohibit intermediate form indemnity agreements.

• All states allow limited form indemnity agreements.


81

There are 3 forms of Indemnity

• Broad Form

• Intermediate Form

• Limited Form

Types of Indemnity Clauses


82

Broad Form

• Indemnitor assume responsibility for indemnitee’s

negligence, regardless whether the indemnitor was at fault,

at partial fault, or at no fault at all.

• The entire risk of the loss is transferred to the indemnitor.

• This type of indemnity clause is most often unenforceable

under states’ anti-indemnity statutes.



83

Intermediate Form – Full Indemnity

• Indemnitor assumes responsibility for its own negligence, if

it is solely at fault or partially at fault. If the indemnitee is

solely at fault, there is not indemnity responsibility for the

indemnitor.

• Full Indemnity: If the indemnitor is partially at fault, he pays

all the damages.



84

Intermediate Form – Partial Indemnity

• Indemnitor assumes responsibility for its own negligence, if

it is solely at fault or partially at fault. If the indemnitee is

solely at fault, there is not indemnity responsibility for the

indemnitor.

• Partial Indemnity: Indemnitor only pays damages to the

extent the indemnitor was at fall. For example, if the

indemnitor is 30% at fault, he will only indemnify the

indemnitee for 30% of the damages.



85

Limited Form

• Indemnitor assumes only the responsibility for its own

negligence, if it is solely at fault.

• There is no protection if the indemnitee is even partially at

fault.

• All fifty states allow limited indemnity provisions.



86

Anti-Indemnity Acts


• States with Acts Prohibiting Broad Form Indemnity:

• Alaska, Arizona, Arkansas, California, Georgia, Hawaii,

Idaho, Indiana, Louisiana*, Maryland, Massachusetts,

Michigan, Nevada, New Hampshire, New Jersey, South

Carolina, South Dakota, Tennessee, Virginia, and West

Virginia

* specifically refers to public contracts


87

Anti-Indemnity Acts


• States with Acts Prohibiting Intermediate Form Indemnity:

• Arizona*, California, Colorado, Connecticut, Delaware,

Florida*, Illinois, Iowa, Kansas, Kentucky, Louisiana*,

Minnesota, Mississippi, Missouri, Montana, New York,

North Carolina, Ohio, Oklahoma, Oregon, Rhode Island,

Texas, Utah, Washington, and Wisconsin.

*specifically refers to public contracts


88

Anti-Indemnity Acts:

Additional Insured Loophole

• Arizona*, Colorado, Georgia, Kansas, Montana, Nebraska, New Mexico, Oklahoma, and Texas have all enacted legislation that addresses this additional insured loophole.

Some of These Statutes Close the Loophole


89

Anti-Indemnity Acts


• States Without an Anti-Indemnity Act:

• Alabama, District of Columbia, Maine, North Dakota,

Pennsylvania, Vermont, and Wyoming (although Wyoming

has enacted an Oilfield Anti-Indemnity Act)


90

Texas Construction Anti-Indemnity Act

Texas Insurance Code § 151 et. seq.

• Tex. Ins. Code § 151.101: Applicability

• Applies to a construction contract for a construction project for which an

indemnitor is provided or procures insurance subject to this chapter or

Title 10.

• This applicability requirement applies regardless whether the insurance

is provided or procured before or after execution of the contract.


91



• Tex. Ins. Code § 151.102

• A provision in a construction contract, or in an agreement collateral to or

affecting a construction contract, is void and unenforceable as against

public policy to the extent that it requires an indemnitor to indemnify, hold

harmless, or defend a party, including a third party, against a claim caused

by the negligence or fault, the breach or violation of a statute, ordinance,

governmental regulation, standard, or rule, or the breach of contract of the

indemnitee, its agent or employee, or any third party under the control or

supervision of the indemnitee, other than the indemnitor or its agent,

employee, or subcontractor of any tier.


92



• Definition of Construction Contract (Tex. Ins. Code § 151.001(5))

• A contract, subcontract, or agreement, or a performance bond

• Entered into or made by an owner, architect, engineer, contractor,

construction manager, subcontractor, supplier, or material or

equipment lessor

• for the design, construction, alteration, renovation, remodeling,

repair, or maintenance of, or for the furnishing of material or

equipment for, a building, structure, appurtenance, or other

improvement to or on public or private real property, including

moving, demolition, and excavation connected with the real property.


93



• Definition of Construction Project (Tex. Ins. Code § 151.001(2))

• Construction, remodeling, maintenance, or repair of improvements

to real property.

• The term includes the immediate construction location and areas

incidental and necessary to the work as defined in the construction

contract documents.

• A construction project under this chapter does not include a single

family house, townhouse, duplex, or land development directly

related thereto.


94



• EXCEPTIONS

• Employee Claims (Tex. Ins. Code § 151.103)

• Named Insured to an Insurance Policy (Tex. Ins. Code § 151.104(b))


95



• Section 151.105 Exclusions • Consolidated Insurance Programs

• Breach of contract or warranty actions

• Loan and financing documents (other than construction contracts to which

lenders are parties)

• General agreements of indemnity required by sureties

• Workers’ compensation benefits and protections

• Agreements subject to Ch. 127 of Tex. Civ. P. & Rem. Code

• License or access agreements with railroad companies

• Indemnity provisions pertaining to copyright infringement claims

• Construction contracts pertaining to residences

• Public works projects of municipalities

• Joint defense agreements entered into after claim is made


96

Wyoming Case Law – Mid-Continent Cas. Co. v. True Oil Co., 767 F.3d 1000, 1006 (10th Cir. 2014).

• The Wyoming Anti-Indemnity Statute—Wyo. Stat. Ann. § 30-1-131—

voided an agreement that attempted to require a contractor to

indemnify an oil and gas well owner for the owner’s own negligence.

• However, a contract may include a clause requiring an indemnitor to

indemnify an indemnitee for the indemnitor’s own negligence.

Anti-Indemnity Statutes In Action


97

North Dakota Case Law - Chapman v. Hiland Partners GP Holdings, No. 1:13-cv-052, 2014 U.S. Dist. LEXIS 128119, at *16-18 (D.N.D. Sept. 10, 2014).

• North Dakota’s anti-indemnification statute—N.D.C.C. § 22-02-

10(2)—voided a master service contract that required a subcontractor

to indemnify an owner of a natural gas processing facility for the

owner’s own negligence.

• The North Dakota legislature enacted § 22-02-10 of the North Dakota

Century Code in 2009.



98

Mississippi Case Law – Deviney Constr. Co. v. Ace Util. Boring & Trenching, No. 3:13cv60-DPJ-FKB, 2014 U.S. Dist. LEXIS 88658, at *27-28 (S.D. Miss. June 30, 2014).

• Under Mississippi’s anti-indemnity statute, any promise to “indemnify

or hold harmless another person from that person’s own negligence is

void as against public policy and wholly unenforceable.” Miss. Code.

Ann. § 31-5-41.


ADDITIONAL INSURED COVERAGE vs. INDEMNITY

How broad is additional insured coverage?

Does it essentially back-stop the Named Insured’s

contractual indemnity obligation?

– Which clause appears first in the contract – indemnity or

insurance?

Does it cover more than the Additional Insured would be

able to recover under the Indemnity Agreement?

– What if the indemnity agreement contains a monetary cap?

– What if the insurance provision states that the Additional

Insured will receive coverage in the minimum amount of $________?

100

Contractual Limitations on Additional Insured Coverage

• Examples: – “The coverage provided to the additional insured shall not

exceed, and is limited by, the scope of coverage and limits

of liability the Named Insured has agreed by contract to

procure for the additional insured.”

– “Owner shall be included under Contractor’s insurance as

an additional insured with respect to claims and/or liability

arising out of Work performed for Owner by Contractor, but

only to the extent of Contractor’s indemnity obligation in

Section 13.b. herein. In no event shall Owner be an

additional insured with respect to claims and/or liability

that do not arise out of the sole negligence or other

actionable fault of Contractor.”

101

Scope of Additional Insured Coverage

What if the indemnity agreement is

unenforceable?

– For example, an agreement that purports to

indemnify the indemnitee for its own negligence?

– In a state where such an agreement is void as

against public policy?

102

Gilbane Building Co. v. Empire Steel Erectors, L.P., 691 F. Supp. 2d 712 (S.D.Tex. 2010), aff’d in part, rev’d in part, 664 F.

3d 589 (5th Cir. 2011)

Parr, an employee of Empire Steel, a

Subcontractor, fell off a ladder at a

construction site and sued Gilbane Building

Co., the General Contractor.

103

Gilbane Building Co. v. Empire Steel Erectors, L.P., 691 F. Supp. 2d 712 (S.D.Tex. 2010), aff’d in part, rev’d in part, 664 F. 3d 589 (5th Cir. 2011) (cont.)

Admiral Ins. Co. argued that because the indemnity agreement in the

Trade Contractor Agreement was unenforceable under TX law,

Gilbane was not covered as an additional insured.

The District Court rejected this argument, finding that the indemnity

and insurance provisions were separate clauses that do not reference

each other, are not intertwined or interrelated, and on their face stand

independently as separate obligations.

The 5th Circuit affirmed, finding that the indemnity agreement, even

though unenforceable, met the policy’s definition of an “insured

contract” and that Gilbane was an additional insured.

104

Impact of Anti-Indemnity Statutes on Additional Insured Coverage

Recently, some states (e.g., California, Colorado, Kansas and

New Mexico) have enacted legislation prohibiting coverage for

the additional insured’s own negligence where that negligence

could not be transferred via an indemnity agreement.

In states where additional insured status is within the

jurisdiction of the anti-indemnity statute, an additional insured’s

coverage cannot be broader than its protection as an

indemnitee.

105

Kansas Stat. S. 16-121

For example, Kansas Stat. (“KSA”) S. 16-121 (2011) in

relevant part provides:

– (b) “An indemnification provision in a contract which

requires the promisor to indemnify the promisee for the

promisee’s negligence or intentional acts or omissions is

against public policy and is void and unenforceable.”

– (c) “A provision in a contract which requires a party to

provide liability coverage to another party, as an

additional insured, for such party’s own negligence or

intentional acts is against public policy and is void and

unenforceable.”

106

Final Thoughts

Additional insured coverage may provide more – or

less – coverage than the parties anticipated.

Review the actual insurance policy or the additional

insured endorsements.

Review indemnity and insurance provisions before

contracts are signed.

Consider any applicable legislation which may

impact the additional insured’s right to coverage.

Caution the business units about signing contracts

containing indemnity and/or additional insured

clauses. 107

Joann M. Lytle Partner Philadelphia

Joann Lytle is a partner in McCarter & English, LLP’s policyholder

insurance coverage group. Joann helps corporate policyholders

maximize their insurance assets and has recovered hundreds of

millions of dollars for a wide range of companies, including those in the

food services, manufacturing and health care industries. She has

handled disputes involving commercial general liability, umbrella

liability, errors and omissions liability, directors and officers liability,

employment practices liability and cyber liability policies. In addition to

representing policyholders in coverage disputes, Joann also provides

insurance coverage advice and counseling to her clients on an

ongoing basis. She graduated maxima cum laude from LaSalle

University in 1987 and obtained her J.D., cum laude, from Harvard

Law School in 1990. Business Insurance Magazine recognized Joann

as one of its 2014 “Women to Watch.” In 2014, she was recognized

by Chambers USA as a “Leader in Their Field.” Joann was selected

as the exclusive Pennsylvania winner of the Lexology Client Choice

Award in 2013 and 2014. Joann has also been recognized in Best

Lawyers in America since 2008.

PRACTICE GROUP

Insurance Coverage

CONTACT

1600 Market Street

Suite 3900

Philadelphia, PA 19103

215.979.3878

[email protected]

EDUCATION

Harvard Law School, J.D.,

cum laude, 1990

La Salle University, B.A., maxima

cum laude, 1987

BAR ADMISSIONS

Pennsylvania

New York

U.S. Court of Appeals, Third Circuit

U.S. District Court, Eastern District

of Pennsylvania

U.S. District Court, Middle District of

Pennsylvania

U.S. District Court, Southern District

of New York

108

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