Insurance Clauses in Contracts

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					presents

 Construction Contracts: Crafting Insurance
       and Indemnification Clauses
   Negotiating Provisions to Allocate Risk and Minimize Liability
       A Live 90-Minute Teleconference/Webinar with Interactive Q&A

                                          Today's panel features:
           James P. Bobotek, Senior Associate, Pillsbury Winthrop Shaw Pittman, Washington, D.C.
                           Tamara L. Boeck, Of Counsel, Stoel Rives, Boise, Idaho
                              D. Cahalan, Partner                   Russell,
                        Scott D Cahalan Partner, Smith Gambrell & Russell Atlanta


                                   Wednesday, August 25, 2010
                                      The conference begins at:
                                           1 pm Eastern
                                           12 pm Central
                                          11 am Mountain
                                           10 am Pacific
    You can access the audio portion of the conference on the telephone or by using your computer's speakers.
                       Please refer to the dial in/ log in instructions emailed to registrants.
Construction Contracts:
 Crafting Insurance and
Indemnification Clauses
            James P. Bobotek

   Pillsbury Winthrop Shaw Pittman LLP
Tips for drafting insurance provisions

 Carefully consider the type of project and all potential risks so
  that they may be properly allocated and/or transferred;

 Cl l identify each t
  Clearly id tif            f                i d
                    h type of coverage required, necessary
  endorsements, limits and sublimits (ask the client’s risk
  manager or insurance broker to weigh in on this);

 Identify the duration of each type of coverage, taking into
  consideration applicable statutes of limitations and statutes of
  repose;

 Require that certificates of insurance and copies of policies
  with all required endorsements be provided before any work
  commences and also as a condition precedent to payment;

3 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
Tips for drafting insurance provisions

 Require that certificates of insurance and policies be provided
  upon each policy renewal or inception of new coverage;

 Identify the specific forms and/or coverages under which your
  client is to be made an additional insured;

 Ensure that deductibles and/or self-insured retentions may be
  satisfied by payment by anyone.




4 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
           g            yp              y
     Coverages Under a Typical CGL Policy




 Coverage A – Bodily Injury and Property
  Damage

 Coverage B – Personal and Advertising Injury

 Supplementary Payments




5 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
             Coverage A – Bodily Injury and
                   Property Damage


 I    i A         t
  Insuring Agreement
              What the insurer giveth



 Exclusions
              What the insurer taketh away




6 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                Coverage A - I
                C                 i A         t
                             Insuring Agreement


We will pay those sums that the insured
becomes legally obligated to pay as
damages because of "bodily injury" or
"property damage" to which this
insurance applies.
           pp
ISO Form CG 00 01 12 07




7 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
               Coverage A - Insuring Agreement


We will pay those sums that the insured becomes legally obligated
to pay as damages because of "bodily injury" or "property damage"
to which this insurance applies.

 Who is “the insured”?
        Named Insured – important to ensure dec page is correct
        Insured (Who Is An Insured section)
                employees, officers, directors (acting in scope of employment)
                real estate managers
                newly formed/acquired organizations (grace period)

        Additional insureds


8 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                    Coverage A - I
                    C                 i A         t
                                 Insuring Agreement



We will pay those sums that the
insured becomes legally obligated
                                bodily
to pay as damages because of "bodily
injury" or "property damage" to which
this i             li
thi insurance applies.
    Form CG 00 01 12 07
ISO F




 9 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
"Bodily injury" means bodily
injury, sickness or disease
                person
sustained by a person,
including death resulting
         y
from any of these at anyy
time.

ISO Form CG 00 01 12 07




10 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
 "Property damage" means:


 a. Physical injury to tangible property, including all
    resulting loss of use of that property. All such loss of
    use shall be deemed to occur at the time of the physical
    injury that caused it; or

 b. Loss of use of tangible property that is not physically
    injured. All such loss of use shall be deemed to occur at
                     occurrence               it
    the time of the "occurrence" that caused it.
 ISO Form CG 00 01 12 07




11 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                 g             g g
           Coverage A - Insuring Agreement



This insurance applies to "bodily injury" and
 property damage
"property damage" only if:
(1) The "bodily injury" or "property damage" is caused
   by an "occurrence" that takes place in the "coverage
   territory";
(2) The "bodily injury" or "property damage" occurs
   during the policy period . . .




 12 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
"Occurrence" means an accident,
"O          "                id t
        g                  p
including continuous or repeated
exposure to substantially the
            lh    f l     diti
same general harmful conditions.
     Seems straightforward – but not
     Major issue in construction defect
      cases – is faulty workmanship an
      occurrence? ?
13 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                Products-
                Products-Completed Operations




 Separate sub-limits in a CGL policy

 Failure to obtain and procure leads to many breach of contract
  claims.

 Three-part test for coverage.




14 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                Products Completed
                Products-Completed Operations



 Must Occur Away from Your Premises.

       To be included within the products completed operations hazard
                                   products-completed           hazard,
        the bodily injury or property damage must occur away from
        premises owned or rented by the named insured.

       Bodily injury or property damage that takes place on the named
        insured premises is not within the products-completed operations
        hazard (this can be amended by endorsement, however).




15 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                Products-
                Products-Completed Operations


 Must arise out of “Your Product” or “Your Work,” terms
  defined in the CGL.

        Your Product. Includes goods or products manufactured sold
               Product                                manufactured, sold,
         handled, distributed, or disposed of by the named insured, others
         trading under the named insured’s name, and includes a person
         or organization whose business assets a named insured has
         acquired.
         acquired

        Your Work. Includes operations performed by the named
         insured or on the named insured’s behalf, including material,
         parts, or equipment in connection with the operations. Operations
         or work performed on behalf of the named insured means that
         work done by a subcontractor is still considered your work.



16 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                Products-
                Products-Completed Operations


 Does not apply if the work has not yet been completed or
  abandoned. The work is considered to be completed the
  earlier of:
        When all the named insured’s work as required in a contract has been
         finished.
        When all the work at a job site has been completed if the named
         insured’s contract requires work under the same contract but at another
         job site.
                For example, a mechanical sub has a contract to repair the HVAC systems for
                 at three different locations. Once the sub has completed the repair of the
                 HVAC equipment at the first location, that job is considered to be complete.
                 Thus, any bodily injury or property damage that may arise from that first
                 location is included within the products-completed operations hazard, even if
                 the other two jobs are not finished.
        When that part of the work done at a job has been put to its intended use
         by someone other than another contractor or subcontractor working on
         the same project.


17 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                     Products-
                     Products-Completed Operations:
                             Sample Clause



The Contractor shall maintain all required insurance coverage in
full force and effect until Final Completion of the Work, except
that the products and completed operations coverage under the
CGL and pollution legal liability insurance, and coverage under
the professional liability insurance, required under this
Exhibit shall be maintained (or if applicable, an extended
reporting period will be exercised) for the period of any applicable
statute of limitations or five years following Final Completion of
the Work, whichever is longer.




18 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                       Tamara L. Boeck




                                                          19


Construction Clauses: Insurance and Indemnity
       August 25,k 2010/ S a c r• m e nBoise/Sacramento
            • Boec – Boise
August 25, 2010                 a      to
Selecting Insurance
•   Umbrella/Excess Insurance
•   Workers Compensation
•   B ild ’ Ri k
    Builder’s Risk
•   Professional Liability
•   Controlled Insurance Programs


                                                 20


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Selecting Insurance
• Umbrella/Excess Insurance
     – Financial Practicality
     – Does it correspond to the underlying coverage
     – Nature of the coverage – project or company




                                                   21


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Selecting Insurance
• Workers Compensation
     – Driven by state requirements
     – Know whether there are state exceptions for
       indemnity, e.g. Gonzales v R. J. Novick
       Constr. Co. (1978) 20 C3d 798, 144 CR 408
       (subcontractor paid via indemnity clause with
       general contractor for its own workers’ injury).

                                                          22


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Selecting Insurance
  Builder s
• Builder’s Risk
     – Understand the scope of the policy to dovetail
                            insurance, e.g.
       with other project insurance e g special
       environmental, natural resources,
       debris/waste removal, additional duration for
       project
     – Ensure policy requirements are incorporated
       into the construction contract, e.g. fire watch,
       security, off-site storage, etc.                 23


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Selecting Insurance
• Professional Liability
     – Is the project a DB, and who is obtaining
       coverage for the professionals?
     – How broadly is “professional” defined in the
       policy?



                                                      24


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Selecting Insurance
                          g
• Controlled Insurance Programs
     – Who is obtaining the program?
                            p
     – What does it encompass?
     – Limits sufficient? Project or Rolling?
     – Who can satisfy the SIR?
         • Forecast Homes, Inc. v. Steadfast Insurance
           Company (2010) 181 CA4th 1466,105 CR3d 200
           (holding that only the named insured
           subcontractors, not the general contractor, had the25
             g            y         per
           right to satisfy the SIR p occurrence amounts). )
Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
             d
 Insurance and
Indemnification
I d    ifi i
   Scott D. Cahalan




                      26
            Selecting Insurance
   Green Building Risks
     Property damage
     Certification denial or delay

     Code compliance

      Defects
    D f t

     Building performance

    P        li j
      Personal injury



                                      27
           Selecting Insurance
   Green Building Property & Casualty
    Insurance
     Green Building Replacement
     Green Upgrade

     Commissioning




                                         28
           Selecting Insurance
   Green Building Liability Insurance
     Indoor Environmental Endorsement
     Reputation Endorsement




                                         29
            Selecting Insurance
   Indoor Environmental Endorsement covers
     bodily injury that is “sustained within a green
      building and caused by any substance or odor
      produced by or originating from HVAC
       q p             y         q p           p
      equipment or any other equipment or product
      whose purpose is indoor climate, air quality, or
      water quality control.”
     Must be a certified green buildings at time of loss.




                                                        30
           Selecting Insurance
   Reputation Endorsement covers
     Adverse green publicity event, and
     Adverse green defense costs




                                           31
            Selecting Insurance
   Adverse Green Defense Costs
     Reimburses insured for the cost of defending
      against an adverse green claim in a civil lawsuit
                                 non-
      “demanding monetary or non-monetary relief,
              g g
      and alleging [the insured’s] failure to meet or
      comply with industry recognized green building
      standards at one or more insured buildings.”
     Must be a certified green buildings at time of loss.




                                                        32
             Selecting Insurance
                                   ( SDI )
    Subcontractor Default Insurance (“SDI”)
       Alternative to subcontractor performance bonds




                                                     33
           Selecting Insurance
   SDI Advantages over Bonds
     Cost Savings
          g
     Longer Duration
     Contractor Control
     Consistencyy
              Non-
     Faster, Non-Adversarial Claims
        g
     Higher Limits
     Broader damages
     Bad faith damages


                                       34
               Selecting Insurance
                 g
    SDI disadvantages over Bonds
       Financial risk
       Not appropriate for all contractors
           independent analysis of subcontractors
        No i d       d      l i f b
       Defaults more likely
       No payment protection for subcontractors
       No legal precedence
       Single source




                                                     35
               Selecting Insurance
                                  y
    Contractor’s Pollution Liability Insurance covers
       Third party claims for environmental liabilities associated
             job-
        with job-site operations of contractors
       Claims f remediation costs stemming f
        Cl i    for       di ti       t t                   ll ti
                                               i from pollution
        incidents resulting from contractor’s covered operations




                                                                 36
                              Additional Insureds

 Naming additional insureds requires a separate endorsement
  to the basic CGL coverage, which can either specifically name
  the parties that are additional insureds or designate a general
  category of persons entitled to such coverage under a blanket
  endorsement.
 The terms of the endorsement will control the nature and
  extent of such additional insured coverage, including whether
  and to what extent and duration completed-operations
  coverage is included.
 Some additional insured endorsements specifically omit
  coverage for completed operations; others don’t.
 One size does not fit all.


37 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
Tips For Drafting Additional Insured Requirements



 Specify the form endorsements through which the
  additional insured coverage is provided.

 Require that the additional insured coverage be “primary
  and non-contributory.”

 Understand the difference between additional insured and
  additional named insured.

 Do not rely on certificates of insurance to confirm
  additional insured status.|



38 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
     Additional Insureds – Sample Provision

The Owner, th A hit t th L d th O
Th O         the Architect, the Lender, the Owner’s R           t ti     th Indemnified
                                                      ’ Representative, other I d     ifi d
Parties, and other persons or entities designated by the Owner in writing (together, the
“Additional Insureds” and each an “Additional Insured”) shall each be included in all
policies required hereunder to be maintained by the Contractor and Subcontractors
            workers
(except for workers’ compensation and professional liability insurance) as additional
insureds for claims against them relating to this Project, with the understanding that
any affirmative obligation imposed upon the insured Contractor and Subcontractor
(including without limitation the liability to pay premiums) shall be the sole obligation of
the Contractor and Subcontractor, and not of the Additional Insureds. All of the
Contractor’s and Subcontractors’ liability policies shall be endorsed so as to indicate
that such policies provide primary coverage (without any right of contribution by
any other insurance or self-insurance, including any deductible or retention,
maintained by an Additional Insured) for all claims against the Additional Insureds
arising out of the performance of this Contract by the Contractor or Subcontractors, or
anyone for whom the Contractor or a Subcontractor may be liable. These policies shall
include a separation of insureds/severability of interests clause for claims against
the Additional Insureds due to the negligence, act, omission or other conduct of the
C t t or its Subcontractors, or anyone for whom the Contractor or a
Contractor it S b          t t                   f    h   th C t t
Subcontractor may be liable.

39 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
Additional Insureds - Policy Endorsements


 CG 20 10 11 85

        Provides the additional insured with coverage for liability arising
                                                     g             y       g
         out of the named insured’s work for the additional insured;
        Provides coverage not only while the named insured’s work is in
         progress, but also for the named insured’s completed operations;
        Meets a contractual requirement that owners impose on general
         contractors, and general contractors require of subcontractors --
         that the additional insured has coverage for claims arising out of
         the completed work




40 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
Additional Insureds - Policy Endorsements


 CG 20 10 03 97

        Provides the additional insured with coverage only for liability
                                                       g     y          y
         arising out of the named insured’s ongoing operations;
        Intended to limit the term of the additional insured’s insurance
         coverage to the time period during which the named insured is
            t ll     f     i        ti
         actually performing operations;
        Does not include coverage for completed operations.




41 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
Additional Insureds - Policy Endorsements


 CG 20 10 10 01

        Provides the additional insured with coverage only for liability arising out
         of the named insured’s ongoing operations;
        Expressly excludes injuries or damages suffered after (i) the “named”
         insured’s work at the site of the cove operations has been completed, or
         ( )               p                                          put
         (ii) the relevant portion of named insured’s work has been p to its
         intended use;
        Intended to limit the term of the additional insured’s coverage to the time
         period during which the named insured is actually performing operations;
        Intended to deny coverage for completed operations;
        Adopted in conjunction with CG 20 37 10 01, a new standard form
         endorsement that will, if used in conjunction with this form, provide
         coverage similar to the CG 20 10 11 85



42 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
Additional Insureds - Policy Endorsements


 CG 20 37 10 01

        Provides additional insured with coverage p            p
                                                g products-completed
         operations hazard arising out of the named insured’s work;
        Only applies to completed operations;
        No coverage for premises or operations;
        When used in conjunction with CG 20 10 10 01, provides
         coverage similar to CG 20 10 11 85.




43 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
Additional Insureds - Policy Endorsements


 CG 20 10 07 04

        Provides the “additional” insured with coverage only for liability caused in
         whole or in part by the acts or omissions of either (i) the named insured
         or (ii) someone acting on behalf of the named insured;
        Limits coverage to ongoing operations for the additional insured;
        Excludes injuries or damages suffered after (i) the named insured’s work
                                                                      insured s
         at the site of the covered operations has been completed, or (ii) the
         relevant portion of named insured’s work has been put to its intended
         use;
        Intended to limit the coverage provided to the additional insured to liability
         caused at least in part by the named insured’s ongoing operations;
        Intended to eliminate coverage for the additional insured’s sole
         negligence.



44 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
Additional Insureds - Policy Endorsements


 CG 20 37 7 04

        Provides the additional insured with coverage for the products-
                l t d       ti
         completed operations h          d       d in h l    in    t by the
                                  hazard caused i whole or i part b th
         acts omissions of either (i) the named insured or (ii) someone
         acting on behalf of the named insured;
        Intended to limit the coverage provided to the additional insured
         to liability caused at least in part by the named insured’s
         completed operations;
        Not intended to provide coverage for the additional insured’s sole
         negligence;
        When used in conjunction with CG 20 10 07 04, meets typical
         contract requirement to provide additional insured coverage
         coverage for both ongoing and completed operations.



45 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                      Certificates of Insurance

 Most certificates of insurance are issued on a standard form
  prepared by ACORD Corporation for the insurance industry.
 A standard certificate identifies the producer (an agent or
  broker), the insured, and the insurers affording coverage.
 The certificate also gives basic information about the policies
  to which it refers, including the names of the insurance
  companies affording coverage, the type of insurance, the
  policy numbers, the effective dates and expiration dates of the
  policies, and the liability limits of the policies. There is space
  to describe operations, exclusions, etc., added by
  endorsement to the policies listed, or to identify special policy
  provisions.


46 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                      Certificates of Insurance

 What they are:
        Evidence of insurance issued to the policy’s named insured.

 What they are not:
        Evidence of coverage for additional insureds.
        Evidence of waivers of subrogation.
        Evidence of any other special endorsements to the named
         insured’s insurance policies.

        Clarendon Am Ins Co v Aargus Sec Sys Inc 870 N E 2d
                     Am. Ins. Co. v.      Sec. Sys., Inc.,      N.E.2d
         988, 994 (Ill. App. Ct. 2007);
        Rodless Props., L.P. v. Westchester Fire Ins. Co., 40 A.D.3d 253,
         835 N.Y.S.2d 154, 155 (2007).


47 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                      Certificates of Insurance

 Can certificates of insurance be used to support an estoppel
  theory?

        Majority – no:
                TIG Ins. Co. v. Sedgwick James of Washington, 184 F. Supp. 2d 591
                 (S.D. Tex. 2001), aff’d, 276 F.3d 754 (5th Cir. 2002);
                R d      d State Farm I
                 Redmond v. St t F              C        A 2d      (D C 1999).
                                           Ins. Co., 728 A.2d 1202 (D.C. 1999)

        Minority - yes:
                Marlin v Wetzel County Board of Education 569 S.E.2d 462 (W. Va.
                        v.                       Education,    S E 2d     (W Va
                 2002).




48 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
  Acord Certificate of Insurance – 9/09




49 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
  Acord Certificate of Insurance – 9/09


This certificate is issued as a matter of information only and
                                        holder
confers no rights upon the certificate holder. This certificate
 the coverage afforded by the policies below. This certificate
of insurance does not constitute a contract between the
issuing insurer(s), authorized representative or producer,
and the certificate holder.




50 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
  Acord Certificate of Insurance – 9/09


IMPORTANT: If the certificate holder is an ADDITIONAL
INSURED,                            endorsed.
INSURED the policy(ies) must be endorsed If
SUBROGATION IS WAIVED, subject to the terms and
conditions of the policy, certain policies may require an
endorsement. A statement on this certificate does not
confer rights to the certificate holder in lieu of such
endorsement(s).




51 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
      Acord Certificate of Insurance – 9/09

                    Notice of cancellation provision changes

 Prior Acord form language:
        Should any of the above described policies be cancelled
         before the Expiration date thereof, the issuing insurer will
         endeavor to mail _______ days written notice to the
         certificate holder named to the left, but failure to mail such
         notice shall impose no obligation or liability Of any kind
         upon the insurer, its agents or representatives.

 9/09 A   d form l
       Acord f    language:
        Should any of the above described policies be cancelled
         before the expiration date thereof, notice will be delivered in
                              p    yp
         accordance with the policy provisions.


52 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
      Acord Certificate of Insurance – 9/09

 Suggested language in response to the 9/09 Acord form:


        All policies shall be endorsed to state that such insurance
         shall be non-renewed, canceled or modified to reduce the
         limits only after written notice to the Owner from such
         insurance company or companies, mailed to the Owner in
         i                                 i      il d t th O       i
         the same method as would be required under the law of the
         jurisdiction in which the Project is located for mailing such
                                             ,                 y( )
         notice to the first named insured, no less than thirty (30)
         days in advance.




53 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
                  INDEMNITY AGREEMENTS


 Intermediate Form Indemnity


 Broad Form Indemnity


 Comparative (Limited) Form Indemnity




54 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
TYPES OF INDEMNITY AGREEMENTS



     Broad Form Indemnity: The indemnitor agrees to
     be responsible for any and all liability arising out of
     the contractually-provided products or services,
     including liability that is the result of the sole
     negligence of the indemnitee. Most states prohibit,
     or se e e y limit, t e use o b oad form indemnity
     o severely        t, the      of broad o       de  ty
     provisions in construction contracts.



55 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
TYPES OF INDEMNITY AGREEMENTS



     Intermediate Form Indemnity: The indemnitor
     agrees to be responsible for liability arising out of
     the contractually-provided products or services that
                          indemnitor s
     is the result of the indemnitor's sole fault or
     negligence, as well as liability for which the
     indemnitee and indemnitor are jointly at fault. The
     indemnitor is not responsible for liability incurred as
     a result of the sole fault or negligence of the
     indemnitee.


56 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
TYPES OF INDEMNITY AGREEMENTS



     Comparative (Limited) Form Indemnity: The
     indemnitor agrees to be responsible for liability
     arising out of the contractually-provided products or
     services that is the result of the indemnitor's fault or
     negligence, but only to the extent of such fault or
       eg ge ce       s      of agreement      o s the
     negligence. This type o ag ee e t mirrors t e
     obligations imposed by tort law.



57 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
             AIA A201 Indemnity Provision



     The unedited AIA A201 provides that the contractor
     (indemnitor) will indemnify the owner (indemnitee)
     for loss caused by the negligent acts or omissions
            contractor      subcontractors,
     of the contractor, its subcontractors or others
     providing goods or services on behalf of these
     entities. This constitutes a comparative form
                provision                   contractor s
     indemnity provision, which limits the contractor's
     indemnification obligation "only to the extent of" its
     negligence.


58 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
             AIA A201 Indemnity Provision

     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 tt         fees, arising out of or resulting from performance
     li it d t attorneys'' f        i i     t f        lti f         f
     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
       h ll t be       t d to           t  b id         d       th  i ht
     shall not b construed t negate, abridge, or reduce other rights or
     obligation of indemnity which would otherwise exist as to a party or
     person described in this Paragraph 3.18. [Emphasis added.]

     General Conditions of the Contract for Construction, Document A201, American Institute of Architects, 2007 edition.




59 Construction Contracts: Crafting Insurance and Indemnity Clauses       James P. Bobotek
      Sample Comprehensive Indemnity Provision:
               Basic Indemnification


To the fullest extent permitted by law, the Contractor shall defend,
indemnify and hold harmless the Owner, Lender, Lender’s construction
consultant, Architect, consulting engineers, Owner’s Representative, and
                                                Indemnified Parties”
their respective agents and employees (the “Indemnified Parties and each
an “Indemnified Party”) from and against any and all claims, damages,
fines, penalties, losses and expenses, including reasonable attorney’s fees
and expert witness fees (“Indemnified Claims” and each an “Indemnified
Claim ), arising              indirectly,                            Work,
Claim”) 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, provided that such Indemnified
Claim is attributable to bodily injury, sickness, disease, or death or to injury
to d t ti           ft    ibl         t ( th th th Work it lf to the t t
t or destruction of tangible property (other than the W k itself t th extent
amounts are recovered pursuant to builder’s risk insurance), regardless
of whether or not such Indemnified Claim is caused in part by an Indemnified
Party.



60 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
      Sample Comprehensive Indemnity Provision:
            Economic Loss Indemnification




The Contractor shall also indemnify, defend, and hold harmless
the Indemnified Parties from and against Indemnified Claims for
economic loss (that is, 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, regardless of whether such Claim is caused in part
by an Indemnified Party.



61 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
      Sample Comprehensive Indemnity Provision:
                 Catch-
                 Catch-all Provision


Such obligations shall not be construed to negate, abridge, or
otherwise reduce any other right or obligation of indemnity which
would otherwise exist as to any Indemnified Party. Nothing herein
shall be construed to require the Contractor to indemnify an
Indemnified Party for an Indemnified Claim caused by or resulting
solely from that Indemnified Party’s own negligence. 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
                     g
indemnification obligation shall continue in full force and effect.


62 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
            Tips for drafting solid indemnity clauses



 “To the fullest extent permitted by law”;
 Do not run afoul of state-specific statutory anti-indemnity
  provisions;
 Don’t forget to consider indemnity for economic loss – this
  may require revisions to the waiver of consequential damages
  provision;
 Make first-party damages, or damages sustained directly by
  the indemnitee, a part of the indemnity agreement;
 Include language that allows for fees and costs associated
  with enforcing the indemnity obligation.




63 Construction Contracts: Crafting Insurance and Indemnity Clauses   James P. Bobotek
            Anti-
Overview of Anti-Indemnification Statutes


                                 anti indemnification
     – Generally, broad types of anti-indemnification
       statutes:
         1) Prohibiting indemnification for negligence and
            willful acts;
         2) Mixed prohibiting full risk shifting for certain
            claims or requiring it meet certain standards;
         3) Viewed as “Risk allocation” verses anti-indemnity


                                                            64


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Anti-
Anti-Indemnity Statutes
      p
• Examples:
     – CA: Restricts transfer of risk for sole negligence or
       willful misconduct. Additional provisions include
                                                   housing.
       greater restriction related to residential housing
       Allows Owner and design professional to allocate risk
       more freely.
     – NC: Restricts indemnification in a design or
       construction contract for liability arising out of bodily
       injury or property damage proximately caused by or
       resulting from the negligence, in whole or part of the
       indemnitee.                                               65


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Example
                   v.                   et.
• Blaylock Grading v Neal Everett Smith et
  al. (NC 2008):
     – Blaylock hired Smith to perform land
       surveying. Smith was off on setting the marks
       by about 1.7 feet. It required Blaylock to
        y                       q          y
       import fill, costing Blaylock in excess of
       $500,000 in additional expenses.

                                                   66


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
• Blaylock (cont):
     – The contract contained a “Risk Allocation” provision which
       stated:
       [Defendants’ liability to l i tiff] for        d ll injuries, claims,
       [D f d t ’ li bilit t plaintiff] f any and all i j i             l i
       losses, expenses, damages or claim expenses arising out of this
       agreement, from any cause or causes, shall not exceed the total
                  $50 000                      [defendants’]
       amount of $50,000, the amount of [defendants ] fee (whichever is
       greater) or other amount agreed upon when added under
       Special Conditions. Such causes include, but are not limited to,
       [defendants ] negligence errors omissions               liability
       [defendants’] negligence, errors, omissions, strict liability, breach
       of contract or breach of warranty.
                                                                          67


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Example
• Blaylock (cont):
     – Smith offered to pay his $50,000 and walk.
       Blaylock rejected the offer and Blaylock
       prevailed at trial.
     – On appeal, the Court cited to a NC Supreme
       Court decision upholding a similar risk
       allocation provision. Bottom-line: equal
       bargaining strength allows the parties to
       enforce their contact.                       68


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
              outcome,
• For similar outcome see:
     – Moore & Associates, Inc. v. Jones & Carter, Inc.,
       Case No. 3:05-0167, U.S. Dist. Ct. Middle Dist.
       Nashville, Tennessee (December 13, 2005) (holding
       maximum damages $18,109.98 in lieu of the claim for
            $200,000 damages).
       over $200 000 in damages)
         • “In order for [contractor] to obtain the benefit of a fee which
           includes a lesser allowance for risk funding, [contractor]
                           J&C's                        J&C s
           agrees to limit J&C s liability arising from J&C's professional
           acts, errors or omissions such that the total liability of J&C
           shall not exceed J&C's total fees for the services rendered on  69
               p j
           the project.”
Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Anti-
Anti-Indemnity
• Example
     – FL     Cannot require indemnification in a construction contract for
               y           g
       liability for damages to p           property
                                 persons or p p y caused in whole or in
       part by the indemnitee UNLESS the contract contains a
       monetary limitation on the extent of the indemnification that
       bears a reasonable commercial relationship to the contract and it
       was part of the project specifications or bid documents, if any. In
       no event can the contract require indemnification for damages to
       persons or property caused by the indemnitee's gross
                      willful wanton,
       negligence; willful, wanton or intentional misconduct; and
       punitive damages (unless caused by the indemnitor).
                                                                         70


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Anti-
Anti-Indemnification Statutes
      p
• Example
     – AL 45.45.900. A provision, clause, covenant, or agreement contained in,
       collateral to, or affecting a construction contract that purports to
       indemnify the promisee against liability for damages for (1) death or
       bodily injury t persons, (2) i j
       b dil i j      to                     to       t      design defects,
                                      injury t property, (3) d i d f t or (4)
       other loss, damage or expense arising under (1), (2), or (3) of this
       section from the sole negligence or wilful misconduct of the promisee or
           p              g     ,          ,       p
       the promisee's agents, servants, or independent contractors who are
       directly responsible to the promisee, is against public policy and is void
       and unenforceable; however, this provision does not affect the validity of
       an insurance contract workers' compensation, or agreement issued by
                                                     21,      provision, clause,
       an insurer subject to the provisions of AS 21 or a provision clause
       covenant, or agreement of indemnification respecting the handling,
       containment, or cleanup of oil or hazardous substances as defined in 71
       AS 46.
Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Anti-
Anti-Indemnification Statutes
• City of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d
        (Alaska 1994) The Al k S
  1271 (Al k 1994). Th Alaska Supreme C              held h
                                              Court h ld that AS
  45.45.900 barred parties from negotiating away liability to any
  extent. Note that the court specifically found that the Alaska
                                p        y
  legislature had considered – and rejected – an amendment to
  the anti-indemnity statute that would have explicitly exempted
                          clauses
  limitation of liability clauses.




                                                                72


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
      also,
• See also
     – Saia Food Distribs. & Club, Inc. v. SecurityLink from
       Ameritech, Inc., 902 So. 2d 46 (Ala. 2004) (holding
       maximum damages the owner could recover was
       $5,800, the purchase price of the equipment).




                                                               73


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Common Law Impact
• What is the impact on the clause?
     – Early example: W. William Graham, Inc. v.
                      City,      S.W.     94(Ark.
       City of Cave City 709 S W 2d 94(Ark 1986)
       (holding that an limitation provision in an
       engineer’s contract was enforceable, but
           g
       finding that it applied only to limit the
       engineer’s liability for negligence, not contract
         l i )
       claims).
                                                       74


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Common Law Impact
                    ,
• How is the clause, even if otherwise valid under the anti-
  indemnity statute or no such statute exists, viewed by
  the jurisdiction?
     Clear and plain l
   – Cl        d l i language
   – Conspicuous
   – Bargaining strength of the parties
   – Public policy
                                  p
   – Can it be construed as a “cap” rather than an
     indemnity restriction
                                                           75


Construction Clauses: Insurance and Indemnity
August 25, 2010   •   Boeck – Boise/Sacramento
Interaction Between Insurance and
          Indemnification
          I d   ifi i
   Indemnity apportions liability among those
    who share responsibility for an identified loss




                                                 76
Interaction Between Insurance and
          Indemnification
          I d   ifi i
   Insurance is a form of indemnification




                                             77
Interaction Between Insurance and
          Indemnification
          I d   ifi i
   CGL excludes liability assumed by the
    insured under a contract or agreement,
    UNLESS the insured purchases contractual
    coverage endorsement




                                           78
Interaction Between Insurance and
          Indemnification
          I d   ifi i
   A/E s
    A/E’s professional liability policy typically
    excludes contractually assumed liabilities,
    UNLESS such liability would have
    attached to A/E in the absence of such
    agreement.
    agreement.




                                                79
Interaction Between Insurance and
          Indemnification
          I d   ifi i
   A/E’s indemnification obligations should be
    A/E s
    limited to negligence to avoid loss of
    coverage




                                                  80
Interaction Between Insurance and
          Indemnification
          I d   ifi i
   Additional insured status allows direct
                                 third-
    coverage in the event of a third-party claim,
    but typically only if the claim derives from
                                        insured.
    the acts or omissions of the named insured.




                                                81
Interaction Between Insurance and
          Indemnification
          I d   ifi i
   Some courts have held that an additional insured
    provision is void if it is inextricably tied to an
    indemnification clause that is void under the
                       anti-                statute.
    applicable State’s anti-indemnification statute. See,
                Constr. Co.                Enumclaw,
    e.g., Walsh Constr. Co. v. Mutual of Enumclaw, 92
              (Or. Ct. App.
              (Or Ct App 2003)            O’Neil Constr.
    P.3d 122 (O . C . A . 2003); W.E. O’N il C    Constr.
    Co.               Cas.     Illinois,
    Co. v. General Cas. of Illinois, 748 N.E. 2d 667
     2001)
    (2001).



                                                       82
Interplay Between Indemnification
     Provisions and I
     P ii         d Insurance
   CGL excludes coverage for claims for bodily
    injury incurred by insured’s employees
    arising out of employment
   But express obligation to indemnify for
    injuries to employees may allow a claim
    under the contractual coverage endorsement




                                              83
              D
        Scott D. Cahalan
Smith, Gambrell & Russell, LLP
                St., NE., Ste.
1230 Peachtree St NE Ste 3100
       Atlanta, GA 30309
          (404)815-
          (404)815-3500
   scahalan@SGRLAW.com




                                 84

				
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