Construction Contract Insurance and Indemnification Clausesmedia.straffordpub.com/products/construction-contract... · 2011. 6. 14. · Construction Clauses: Insurance and Indemnity

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

Construction Contract Insurance and Indemnification Clauses Crafting Provisions to Allocate Risk and Minimize Liability

T d ’ f l f

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

TUESDAY, JUNE 14, 2011

Today’s faculty features:

James P. Bobotek, Senior Associate, Pillsbury Winthrop Shaw Pittman, Washington, D.C.

Tamara L. Boeck, Of Counsel, Stoel Rives, Boise, Idaho

Scott D. Cahalan, Partner, Smith Gambrell & Russell, Atlanta

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Construction Contracts:Construction Contracts: Crafting Insurance and

Indemnification ClausesIndemnification ClausesJames P. Bobotek

Pillsbury Winthrop Shaw Pittman LLP

Tips for drafting insurance provisionsTips 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 id tif h t f i d Clearly identify each 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;

66 Construction Contracts: Crafting Insurance and Indemnity Clauses James P. BobotekConstruction Contracts: Crafting Insurance and Indemnity Clauses James P. Bobotek

commences and also as a condition precedent to payment;

Tips for drafting insurance provisionsTips 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.

AVOID OUTDATED TERMS AND POLICIES!


Coverages Under a Typical CGL Policyg yp y

Coverage A – Bodily Injury and Property Damage

Coverage B Personal and Advertising Injury Coverage B – Personal and Advertising Injury

Supplementary Payments


Coverage A – Bodily Injury and Property DamageProperty Damage

I i A t Insuring Agreement What the insurer giveth

Exclusions Exclusions

What the insurer taketh away


C A I i A tCoverage A - Insuring Agreement

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


Coverage A Insuring AgreementCoverage 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


C A I i A tCoverage A - Insuring Agreement

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

ISO F CG 00 01 12 07


ISO Form CG 00 01 12 07

"Bodily injury" means bodily injury, sickness or disease sustained by a personsustained by a person, including death resulting from any of these at any y ytime.

ISO Form CG 00 01 12 07


"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; orinjury 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 the time of the "occurrence" that caused itthe time of the occurrence that caused it.

ISO Form CG 00 01 12 07


Coverage A - Insuring Agreementg g g

This insurance applies to "bodily injury" and "property damage" only if: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 periodduring the policy period . . .


"Occurrence" means an accident"Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.gSeems straightforward – but notMajor issue in construction defect cases –j

is faulty workmanship an occurrence?


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.


Products-Completed OperationsProducts Completed Operations

Must Occur Away from Your Premises.

To be included within the products completed operations hazard To be included within the products-completed operations 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 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).


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 Your Product. Includes goods or products 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 acquiredacquired.

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.


Products-Completed OperationsProducts 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.


the same project.

Products-Completed Operations:Sample ClauseSample 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 thethat 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.


CONSTRUCTION CONTRACTS:CONSTRUCTION CONTRACTS:CONSTRUCTION CONTRACTS:CONSTRUCTION CONTRACTS:Insurance and Insurance and

Indemnification ClausesIndemnification ClausesTamara L. Boeck

June 2011 • Boise/SacramentoJune 2011 • Boise/Sacramento

Construction Clauses: Insurance and IndemnityConstruction Clauses: Insurance and IndemnityConstruction Clauses: Insurance and IndemnityJune 2011 • Boeck – Boise/Sacramento

2270728338.2 pptx

Construction Clauses: Insurance and IndemnityJune 2011 • Boeck – Boise/Sacramento

Selecting InsuranceSelecting InsuranceSelecting InsuranceSelecting Insurance

• Umbrella/Excess InsuranceUmbrella/Excess Insurance• Workers’ Compensation• Builder’s Risk

Professional Liability• Professional Liability• Controlled Insurance Programs

Construction Clauses: Insurance and IndemnityConstruction Clauses: Insurance and IndemnityJune 2011 • Boeck – Boise/Sacramento

2370728338.2 pptx

Selecting Insurance (cont.)Selecting Insurance (cont.)Selecting Insurance (cont.)Selecting Insurance (cont.)

• Umbrella/Excess InsuranceUmbrella/Excess Insurance– Financial Practicality– Does it correspond to the underlying coverage?

Nature of the coverage project or company– Nature of the coverage – project or company


2470728338.2 pptx

Primary and excess insurer Primary and excess insurer maymay bebe obligated to defend and indemnify obligated to defend and indemnify insured who participates in an adjudicative administrative proceeding. insured who participates in an adjudicative administrative proceeding. AmeronAmeron International Corp v Insurance Co of the State of PennInternational Corp v Insurance Co of the State of Penn 5050AmeronAmeron International Corp. v. Insurance Co. of the State of Penn.,International Corp. v. Insurance Co. of the State of Penn., 50 50

Cal. 4th 1370 (2010)Cal. 4th 1370 (2010)

• Bureau of Recl’m Contract Officer (CO) determined that insuredBureau of Recl m Contract Officer (CO) determined that insured subcontract was responsible for defective siphons. Instead of challenging CO’s decision in U.S. Court of Federal Claims, Insured challenged the CO’s decision by appealing to Interior Board of Contract Appeals (IBCA). Following 22 days of “trial,” the Insured settled the claim for $10M and then sought to recover the settlement and defense costs from primary and excess insurers.

• Policy provided indemnification of “‘all sums which [Insured] shall become legally obligated to pay as damages’” and provided

f f “‘

Construction Clauses: Insurance and Indemnity

a defense duty for “‘any suit against the Insured seeking damages ….’” Policy did not define “suit” or “damages.”


2570728338.2 pptx

International Corp.International Corp. (cont)(cont)International Corp. International Corp. (cont)(cont)

• Trial court and appellate court applied holding of Foster-Gardner, Inc. v. National pp pp gUnion Fire Ins. Co., 18 Cal. 4th 857 (1998), in which the court applied the “literal meaning” of the word “suit” to mean an action filed in a court of law, and therefore, ruled that none of the policies provided coverage.

• Supreme Court reversed, stating that its holding in Foster-Gardner, whichSupreme Court reversed, stating that its holding in Foster Gardner, which concerned an administrative action designed to obtain a negotiated settlement of the insured’s liability for environmental pollution, was based on its concern that the order did not provide insurance companies with sufficient notice of the parameters of the action against the insured. In this instance, however, theparameters of the action against the insured. In this instance, however, the Supreme Court found that the adjudicative IBCA proceeding did not raise the same concern in that a complaint filed in the IBCA gave “as much, if not more, notice to insurers” as would a complaint filed in court, and noting the similarities between a court and an IBCA proceeding (the latter being authorized to conduct


bet ee a cou t a d a C p oceed g (t e atte be g aut o ed to co ducttrials, determine liability and award damages).


2670728338.2 pptx

• See also Clarendon America Insurance Co vSee also Clarendon America Insurance Co. v. StarNet Ins. Co., 186 Cal. App. 4th 1397 (2010), (California Calderon Alternative Dispute Process is “th fi t t i ti liti ti“the first step – in a continuous litigation process, and therefore, it meets the definition of “suit” in insurance policy).– As a result, developer was able to recover

defense costs incurred in defending against Calderon Notice


Calderon Notice.


2770728338.2 pptx

“Legally Obligated To Pay” Language in Primary and Umbrella Polices “Legally Obligated To Pay” Language in Primary and Umbrella Polices Important In Determining Whether Additional Insureds Will Be Paid Important In Determining Whether Additional Insureds Will Be Paid

Ohio Ohio CasCas. Ins. Co. v. Time Warner . Ins. Co. v. Time Warner Entm’tEntm’t Co., L.P., Co., L.P., , ,, ,(2008) 244 (2008) 244 S.W.3dS.W.3d 885 885

• As additional insured on subcontractor’s primary and umbrella polices, the p y pGC brought declaratory judgment action against subcontractor’s insurers to recover cost of removing and replacing fiber optic cable that subcontractor installed improperly.

• The umbrella policy included standard liability policy language:The umbrella policy included standard liability policy language: – “We will pay on behalf of the ‘insured’ those sums in excess of the

‘Retained Limit’ that the ‘Insured’ becomes legally obligated to pay by reason of liability imposed by law or assumed by the ‘Insured’ under an ‘insured contract’ because of ‘bodily injury ’ ‘property damage ’ orinsured contract because of bodily injury, property damage, or ‘advertising injury’ that takes place during the Policy Period and is caused by an ‘occurrence’ happening anywhere.”

• Holding – Because GC elected to repair and replace the defective cabling, the GC was at no time “legally obligated to pay” those sums Therefore the


the GC was at no time legally obligated to pay those sums. Therefore, the court concluded that the GC failed to establish that it was owed a duty as an additional insured.


2870728338.2 pptx


• Workers’ compensationWorkers compensation– Driven by state requirements– Know whether there are state exceptions for indemnity,

e g Gonzales v R J Novick Constr Co (1978) 20 C3de.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).


2970728338.2 pptx


• Builder’s riskBuilder s risk– Understand the scope of the policy to dovetail with other

project insurance, e.g., special environmental, natural resources, debris/waste removal, additional duration forresources, debris/waste removal, additional duration for project.

– Ensure policy requirements are incorporated into the construction contract, e.g., fire watch, security, off-siteconstruction contract, e.g., fire watch, security, off site storage, etc.


3070728338.2 pptx


• Professional liabilityProfessional liability– Is the project a DB, and who is obtaining coverage for the

professionals?– How broadly is “professional” defined in the policy?– How broadly is professional defined in the policy?


3170728338.2 pptx

Selecting Insurance (cont.)Selecting Insurance (cont.)Selecting Insurance (cont.)Selecting Insurance (cont.)• Controlled insurance programs

– Who is obtaining the program?– What does it encompass? – Limits sufficient? Project or rolling?j g– Who can satisfy the SIR?

• Forecast Homes, Inc. v. Steadfast Insurance Company (2010) 181 CA4th 1466,105 CR3d 200 (holding that only the(2010) 181 CA4th 1466,105 CR3d 200 (holding that only the named insured subcontractors, not the general contractor, had the right to satisfy the SIR per occurrence amounts).


3270728338.2 pptx

SIR “Per Claim” Applies to Whole Action SIR “Per Claim” Applies to Whole Action Clarendon America Insurance Co. v. North American Capacity Insurance Co. Clarendon America Insurance Co. v. North American Capacity Insurance Co.

(2010) 186 CA4th 556 112 CR3d 339(2010) 186 CA4th 556 112 CR3d 339(2010) 186 CA4th 556, 112 CR3d 339(2010) 186 CA4th 556, 112 CR3d 339reh'greh'g denieddenied

• Plaintiff insurer sued defendant insurer seeking a proportionate or g p pequitable share of sums expended to defend a residential developer, which they both insured under separate and consecutive general commercial liability policies, in a construction defect action involving eight homes in a residential developmentinvolving eight homes in a residential development.

• Policy provided a $25,000 “per claim” SIR, and defendant insurer argued that it had no duty to defend insured unless and until insured expended $200,000 (eight times $25,000).insured expended $200,000 (eight times $25,000).

• Court of Appeal reversed. – Insured (homebuilder) had objectively reasonable expectation

that SIR would apply to class action as a whole rather than


pp yeach of the homes constructed after the policy was issued.


3370728338.2 pptx

d Insurance and I d ifi iIndemnification

Scott D. Cahalan

34

Selecting InsuranceSelecting Insurance

Green Building Risks Green Building Risks Property damage Certification denial or delay Certification denial or delay Code compliance

D f t Defects Building performance

P l i j Personal injury

35


Green Building Property & Casualty Green Building Property & Casualty Insurance Green Building Replacement Green Building Replacement Green Upgrade Commissioning Commissioning

36


Green Building Liability Insurance Green Building Liability Insurance Indoor Environmental Endorsement Reputation Endorsement Reputation Endorsement

37


Indoor Environmental Endorsement covers Indoor Environmental Endorsement covers bodily injury that is “sustained within a green

building and caused by any substance or odor building and caused by any substance or odor produced by or originating from HVAC equipment or any other equipment or product q p y q p pwhose purpose is indoor climate, air quality, or water quality control.”

Must be a certified green buildings at time of loss.

38


Reputation Endorsement covers Reputation Endorsement covers Adverse green publicity event, and Adverse green defense costs Adverse green defense costs

39


Adverse Green Defense Costs Adverse Green Defense Costs Reimburses insured for the cost of defending

against an adverse green claim in a civil lawsuit against an adverse green claim in a civil lawsuit “demanding monetary or non-monetary relief, and alleging [the insured’s] failure to meet or g gcomply with industry recognized green building standards at one or more insured buildings.”

Must be a certified green buildings at time of loss.

40


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

41


SDI Advantages over BondsSDI Advantages over Bonds Cost Savings Longer Durationg Contractor Control Consistencyy Faster, Non-Adversarial Claims Higher Limits g Broader damages Bad faith damages

42


SDI disadvantages over Bondsg Financial risk Not appropriate for all contractors

i d d l i f b No independent analysis of subcontractors Defaults more likely No payment protection for subcontractors No payment protection for subcontractors No legal precedence Single source

43

Selecting InsuranceSelecting InsuranceThe standard 2001 CGL policy form excludes most claimsffor:

“Bodily injury” and “property damage” arising out of they j y p p y g gactual or threatened discharge, dispersal, release or escape ofpollutants into or upon land, the atmosphere or any watercourse or body of water. Pollutants means any solid, liquid,

th l i it t t i t i l di kgaseous or thermal irritant or contaminant, including smoke,vapor, soot, fumes, acids, alkalines, chemicals, or wastematerials.

44

Selecting InsuranceSelecting InsuranceExceptions to the CGL pollution exclusion include:

Addi i l i d• Additional insured• Hostile Fire• Building heating equipment (unless disbursed through ventilation

system)system)• Away from Insured’s Premises but only if bodily injury or property

damage is• Sustained within the building where the insured is performing operations

l f f b l d d h• Due to releases from parts of mobile equipment designed to contain suchpollutants

• Hostile Fire• Products and Completed Operations (but only to the extent notp p ( y

expressly excluded by other portions of the exclusion). ”

4545


Many believe that the exceptions to the CGLMany believe that the exceptions to the CGLpollution exclusion are inadequate because ofother limitations imposed by the exclusionother limitations imposed by the exclusion,inconsistent application by the courts, andthe existence of sublimitsthe existence of sublimits.

4646

Selecting InsuranceSelecting InsuranceMany insurance companies now offer Contractor’sy pPollution Liability Insurance, which generallycovers a Contractor’s liability for Third party claims for environmental liabilities associated Third party claims for environmental liabilities associated

with job-site operations of contractors Claims for remediation costs stemming from pollution

incidents resulting from contractor’s covered operationsc de ts esu t g o co t acto s cove ed ope at o s

4747

Additional InsuredsAdditional 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.

General Rule – the more words included, the narrower the coverage.

Some additional insured endorsements specifically omit coverage for completed operations; others don’t.

One size does not fit all.


Tips For Drafting Additional Insured RequirementsTips 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 – require copies of policies and endorsements.


Additional Insureds – Sample ProvisionAdditional Insureds Sample Provision

Th O th A hit t th L d th O ’ R t ti th I d ifi dThe Owner, the Architect, the Lender, the Owner’s Representative, other Indemnified 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 (except for workers’ compensation and professional liability insurance) as additional ( p p p y )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 indicateContractor 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 Contractor or its Subcontractors, or anyone for whom the Contractor or a Subcontractor may be liable


Subcontractor may be liable.

Additional Insureds - Policy EndorsementsAdditional Insureds Policy Endorsements

CG 20 10 11 85

Provides the additional insured with coverage for liability arising g y gout 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 workthe completed work



CG 20 10 03 97

Provides the additional insured with coverage only for liability g y yarising 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 tiactually performing operations; Does not include coverage for completed operations.



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 (ii) the relevant portion of named insured’s work has been put to its ( ) p pintended 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; 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



CG 20 37 10 01

Provides additional insured with coverage products-completed g p poperations 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.



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 Excludes injuries or damages suffered after (i) the named insured s work

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 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.



CG 20 37 7 04

Provides the additional insured with coverage for the products-l t d ti h d d i h l i t b thcompleted operations hazard caused in whole or in part by the

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;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.


Certificates of InsuranceCertificates 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 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 insuranceto 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.



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 Clarendon Am. Ins. Co. v. Aargus Sec. Sys., Inc., 870 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).



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 St t F I C 728 A 2d 1202 (D C 1999) Redmond v. State Farm Ins. Co., 728 A.2d 1202 (D.C. 1999).

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

2002).


Acord Certificate of Insurance – 5/2010


Acord Certificate of Insurance – 5/2010Acord Certificate of Insurance 5/2010

This certificate is issued as a matter of information only and confers no rights upon the certificate holder This certificateconfers 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.



IMPORTANT: If the certificate holder is an ADDITIONAL INSURED the policy(ies) must be endorsed IfINSURED, 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).



Notice of cancellation provision changesNotice 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 suchcertificate 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.

5/2010 A d f l 5/2010 Acord form language: Should any of the above described policies be cancelled

before the expiration date thereof, notice will be delivered in accordance with the policy provisions.


p y p


Suggested language in response to the 5/2010 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 i i il d t th O iinsurance company or companies, mailed to the Owner in the same method as would be required under the law of the jurisdiction in which the Project is located for mailing such notice to the first named insured, no less than thirty (30) , y ( )days in advance.


INDEMNITY AGREEMENTSINDEMNITY AGREEMENTS

Intermediate Form Indemnity

Broad Form Indemnity

Comparative (Limited) Form Indemnity


TYPES OF INDEMNITY AGREEMENTSTYPES OF INDEMNITY AGREEMENTS

Broad Form Indemnity: The indemnitor agrees toBroad 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 severely limit, the use of broad form indemnity o se e e y t, t e use o b oad o de typrovisions in construction contracts.



Intermediate Form Indemnity: The indemnitorIntermediate 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 sole fault oris 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 asindemnitor is not responsible for liability incurred as a result of the sole fault or negligence of the indemnitee.



Comparative (Limited) Form Indemnity: TheComparative (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 negligence. This type of agreement mirrors the eg ge ce s type o ag ee e t o s t eobligations imposed by tort law.


AIA A201 Indemnity ProvisionAIA A201 Indemnity Provision

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


AIA A201 Indemnity ProvisionAIA 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 li it d t tt ' f i i t f lti f flimited 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 ofonly 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 b t d t t b id d th i htshall not be construed to 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.

Sample Comprehensive Indemnity Provision:Basic IndemnificationBasic 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 their respective agents and employees (the “Indemnified Parties” and eachtheir 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 “IndemnifiedClaim”) arising directly or indirectly from the performance of the WorkClaim ), 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 t d t ti f t ibl t ( th th th W k it lf t th t tto or destruction of tangible property (other than the Work itself to the 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.


Sample Comprehensive Indemnity Provision:Economic Loss IndemnificationEconomic Loss Indemnification

The Contractor shall also indemnify, defend, and hold harmless the Indemnified Parties from and against Indemnified Claims forthe 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.


Sample Comprehensive Indemnity Provision: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 effectthat 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 minimummade 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.


g

Tips for drafting solid indemnity clausesTips for drafting solid indemnity clauses

“To the fullest extent permitted by law”; Do not run afoul of state-specific statutory anti-indemnity

provisions;provisions; Don’t forget to consider indemnity for economic loss – this

may require revisions to the waiver of consequential damages provision;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 Include language that allows for fees and costs associated with enforcing the indemnity obligation.


James P. BobotekSenior AssociateWashington DCWashington, DC2300 N Street, NWWashington, DC [email protected]


AntiAnti--Indemnity Statutes and Indemnity Statutes and Li it ti f Li bilit ClLi it ti f Li bilit ClLimitation of Liability ClausesLimitation of Liability Clauses• Minority view – invalidates limitation of liabilityMinority view invalidates limitation of liability

clauses • Majority view – upholds limitation of liability

clauses. These courts recognize that there is a difference between indemnification, which removes the incentive to act with due care, and aremoves the incentive to act with due care, and a limitation of liability, which merely allows parties to allocate risk through contract and, assuming that the limitation is reasonable does not remove the


the limitation is reasonable, does not remove the incentive to act with due care.


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Overview of AntiOverview of Anti--Indemnification StatutesIndemnification Statutes

• Generally, four 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 ) p g g q g

meet certain standards;3) Viewed as “risk allocation” verses anti-indemnity; and4) Requests to procure insurance (i.e. additional insured provisions)

do not generally violate anti-indemnity statute. – OR and OK are exceptions to this general rule.


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AntiAnti--Indemnity Statutes (cont.)Indemnity Statutes (cont.)AntiAnti Indemnity Statutes (cont.)Indemnity Statutes (cont.)• Examples:

– CA: Restricts transfer of risk for sole negligence or willful misconduct. Additional provisions include greater restriction related to residential housing. Allows owner and design

f i l t ll t i k f lprofessional to allocate risk more freely.– NC: Restricts indemnification in a design or construction

contract for liability arising out of bodily injury or property d i t l d b lti f th lidamage proximately caused by or resulting from the negligence, in whole or in part, of the indemnitee.


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Untwist Construction v. Untwist Construction v. AmtechAmtech Elevator Elevator ServicesServices, , Se cesSe ces,,

(VA 2010) 699 (VA 2010) 699 S.E.2dS.E.2d 223223• Court held that even though the subcontract’sCourt held that even though the subcontract s

indemnification provision violated anti-indemnification statute, the subcontractor had a

t d t t d f d d i d if th iseparate duty to defend and indemnify the prime contractor pursuant to the terms of the prime contract clauses, which were incorporated by reference into the subcontract.


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Untwist ConstructionUntwist Construction (cont.)(cont.)Untwist Construction Untwist Construction (cont.)(cont.)

• Indemnification provision was void• Indemnification provision was void. – To the fullest extent permitted by law … from and against claims,

damages, losses and expenses, including but not limited to attorneys’ fees arising out of or resulting from performance of the Workfees, 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 injury to or destruction of tangible property (other than the Work itself) including loss of use

l i h f b l h d i h l iresulting therefrom, but only to the extent caused in whole or in part by negligent acts or omissions of [Uniwest], 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,


y y , g , g ,loss or expense is caused in part by a party indemnified hereunder.


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Untwist ConstructionUntwist ConstructionU t st Co st uct oU t st Co st uct o

• Even though indemnification provision was void, Subcontractor had a e t oug de cat o p o s o as o d, Subco t acto ad aseparate duty to defend and indemnify the prime contractor pursuant to the terms of the prime contract clauses, which were incorporated by reference into the subcontract. The terms of the prime contract provided: – [Amtech] agrees to be bound to Uniwest by all the terms of the [Prime

Contract] and to assume toward Uniwest all of the obligations and responsibilities that Uniwest has by the [Prime Contract] assumed toward [Fountains] All terms and conditions contained in the [Primetoward [Fountains]. All terms and conditions contained in the [Prime Contract] which, by the [Prime Contract] or by operation of law, are required to be placed in [the] Subcontract[ ], are hereby incorporated herein as if they were specifically written herein.


herein as if they were specifically written herein.


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ExampleExampleExampleExample

• Blaylock Grading v Neal Everett Smith• Blaylock Grading v. Neal Everett Smith (NC 2008):– Blaylock hired Smith to perform land surveying.Blaylock hired Smith to perform land surveying.

Smith mis-surveyed the marks by about 1.7 feet. It required Blaylock to import fill, costing Blaylock in excess of $500 000 incosting Blaylock in excess of $500,000 in additional expenses.


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Example (cont.)Example (cont.)Example (cont.)Example (cont.)

• Blaylock (cont ):• Blaylock (cont.):– The contract contained a “risk allocation” provision which

stated:“[Defendants’ liability to plaintiff] for any and all injuries, claims, losses, expenses, damages or claim expenses arising out of this agreement, from any cause or causes, shall not exceed the total amount of $50 000 the amountshall not exceed the total 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


Conditions. Such causes include, but are not limited to, [defendants’] negligence, errors, omissions, strict liability, breach of contract or breach of warranty.”


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• Blaylock (cont ):• Blaylock (cont.):– Smith offered to pay his $50,000 and walk.

Blaylock rejected the offer and Blaylock y j yprevailed at trial.

– On appeal, the Court cited to a NC Supreme Court decision upholding a similar riskCourt decision upholding a similar risk allocation provision. Bottom line: equal bargaining strength allows the parties to


enforce their contact.


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• For similar outcome see: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 maximumTennessee (December 13, 2005) (holding maximum damages at $18,109.98 in lieu of the claim for over $200,000 in damages).

• “In order for [contractor] to obtain the benefit of a fee whichIn order for [contractor] to obtain the benefit of a fee which includes a lesser allowance for risk funding, [contractor] 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 h ll t d J&C’ t t l f f th i d d


shall not exceed J&C’s total fees for the services rendered on the project.”


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Limitation of liability enforceable against homeowner Limitation of liability enforceable against homeowner ZerjalZerjal v. v. DaechDaech & Bauer Constr., Inc. & Bauer Constr., Inc. jj ,,

(Ill. App. 2010) 939 NE (Ill. App. 2010) 939 NE 2d2d 10671067

• Homeowners filed breach of contract alleging that inspectorHomeowners filed breach of contract alleging that inspector did not inform them that the foundation was insufficient to support the home's load, the underlayment was decayed and structurally unstable, the walls were unstable and unable to support the necessary loads, water was entering the home at the footing and the foundation, the HVAC unit was blowing moist air against wooden components of the house and the home’s electrical system was installed and maintained in an unsafe manner. By the terms of the contract, the inspector’s liability was limited to the cost of the inspection, or $175.


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ZerjalZerjal (cont.)(cont.)ZerjalZerjal (cont.) (cont.)

• Court held that the inspector’s limitation of the• Court held that the inspector s limitation of the liability clause was valid. – The court rejected homeowner’s argument that the j gclause was against public policy and unconscionable.


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AntiAnti--IndemnityIndemnityAntiAnti Indemnity Indemnity

• California – enacted an exception that explicitly permits parties p p y p pto continue to limit their respective liability to each other.– Markborough California, Inc. v. Superior Court (1991) 227 CA3d

705, 277 CR 919 (holding that “a provision in a construction , ( g pcontract limiting a party’s liability to the developer of the property for damages caused by the engineer’s professional errors and omissions is valid under [the exception to the anti-indemnity statute] if the parties had an opportunity to accept, reject ormodify the provision.”).


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Possible Change In CA LawPossible Change In CA LawPossible Change In CA Law Possible Change In CA Law

• Proposed Senate Bill May overrule• Proposed Senate Bill – May overrule holding of court in Markborough California, Inc. – In effect, this legislation may bar limit of liability

provisions• Residential Construction Contracts?


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AntiAnti--Indemnity (cont.)Indemnity (cont.)AntiAnti Indemnity (cont.)Indemnity (cont.)

• Example:Example:– FL: Cannot require indemnification in a construction contract

for liability for damages to persons or property caused in whole or in part by the indemnitee UNLESS the contract contains aor 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. I t th t t i i d ifi ti fIn no event can the contract require indemnification for damages to persons or property caused by the indemnitee’s gross negligence; willful, wanton, or intentional misconduct; and punitive damages (unless caused by the indemnitor).


p g ( y )


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AntiAnti--Indemnification Statutes (cont.)Indemnification Statutes (cont.)AntiAnti Indemnification Statutes (cont.)Indemnification Statutes (cont.)• 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 to persons, (2) injury to property, (3) design defects, or (4) other loss, damage or expense

i i d (1) (2) (3) f hi i f h l li illf larising under (1), (2), or (3) of this section from the sole negligence or willful misconduct of the promisee or 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 f i t t k ’ ti t i d bof an insurance contract workers’ compensation, or agreement issued by 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 AS 46.


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AntiAnti--Indemnification Statutes (cont.)Indemnification Statutes (cont.)AntiAnti Indemnification Statutes (cont.)Indemnification Statutes (cont.)• City of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d

1271 (Al k 1994)1271 (Alaska 1994).– The Alaska Supreme Court held that AS 45.45.900

barred parties from negotiating away liability to anybarred parties from negotiating away liability to any extent. Note that the court specifically found that the Alaska legislature had considered – and rejected – an amendment to the anti indemnity statute that wouldamendment to the anti-indemnity statute that would have explicitly exempted limitation of liability clauses.


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AntiAnti--Indemnification Statutes (cont.)Indemnification Statutes (cont.)AntiAnti Indemnification Statutes (cont.)Indemnification Statutes (cont.)

• See also:See also:In Omaha Cold Storage Terminals, Inc. v. The Hartford Ins. Co., No. 8:03CV445, 2006 WL 695456 (D. Neb. Mar. 17, 2006), the United States District Court for the District of2006), the United States District Court for the District of Nebraska held that a provision limiting a party’s liability for its own negligence to $100,000 violated Nebraska’s anti-indemnity statute, which prohibits indemnification for one’s own negligence. The court concluded that any clause insulating or limiting a person’s liability for its negligent acts violated Nebraska’s public policy and anti-indemnity statute.


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AntiAnti--Indemnification Statutes (cont.)Indemnification Statutes (cont.)AntiAnti Indemnification Statutes (cont.)Indemnification Statutes (cont.)

• See 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)equipment).


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Common Law ImpactCommon Law ImpactCommon Law ImpactCommon Law Impact

• What is the impact on the clause?• What is the impact on the clause?– Early example: W. William Graham, Inc. v. City

of Cave City, 709 S.W.2d 94 (Ark. 1986) y ( )(holding that a limitation provision in an engineer’s contract was enforceable, but finding that it applied only to limit the engineer’sfinding that it applied only to limit the engineer s liability for negligence, not contract claims).


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Common Law Impact (cont.)Common Law Impact (cont.)Common Law Impact (cont.)Common Law Impact (cont.)

• How is the clause if otherwise valid under theHow is the clause, if otherwise valid under the anti-indemnity statute, or if no such statute exists, viewed by the jurisdiction?– Clear and plain language– Conspicuous

Bargaining strength of the parties– Bargaining strength of the parties– Public policy– Can it be construed as a “cap” rather than an


Can it be construed as a cap rather than an indemnity restriction?


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Tamara L. Boeck Of CounselBoise, ID(208) 387-4256 Direct ( )(208) 389-9040 Fax

Sacramento, CASacramento, CA(916) 447-0700 Direct(916) 447-4781 Fax


[email protected]


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Interaction Between Insurance and I d ifi iIndemnification

Risk allocation is the common threadRisk allocation is the common threadbetween insurance and indemnification

98


Insurance shifts risk of costs and liabilityInsurance shifts risk of costs and liabilityfrom the insured to its insurance company

99


Indemnification shifts risk of costs andIndemnification shifts risk of costs andliability from one contracting party toanotheranother.

100


While insurance may cover SOME risk While insurance may cover SOME risk shifted to a party through indemnification, insurance does not necessarily cover ALL insurance does not necessarily cover ALL risks shifted to a party through indemnification indemnification.

101


Example: Owner shifts risk of pollution Example: Owner shifts risk of pollution clean up to Contractor through indemnification but Contractor’s CGL indemnification, but Contractor s CGL policy excludes coverage for pollution clean up up.

102


A requirement to procure insurance for A requirement to procure insurance for another party may be an exception to an anti-indemnification statute indemnification statute.

103


Exceptions include:Exceptions include:• additional insured exception,

h i li i d• the insurance policy exception, and• the insurance cap on indemnity exception

104


CGL excludes liability assumed by the CGL excludes liability assumed by theinsured under a contract or agreement,UNLESS the insured purchases contractualUNLESS the insured purchases contractualcoverage endorsement

105


A/E’s professional liability policy typically A/E s professional liability policy typicallyexcludes contractually assumed liabilities,UNLESS such liability would haveUNLESS such liability would haveattached to A/E in the absence of suchagreement.agreement.

106


A/E’s indemnification obligations should be A/E s indemnification obligations should be limited to negligence to avoid loss of coveragecoverage

107


Additional insured status allows direct Additional insured status allows directcoverage in the event of a third-party claim,but typically only if the claim derives frombut typically only if the claim derives fromthe acts or omissions of the named insured.

108


Some courts have held that an additional insured Some courts have held that an additional insuredprovision is void if it is inextricably tied to anindemnification clause that is void under theapplicable State’s anti-indemnification statute. See,e.g., Walsh Constr. Co. v. Mutual of Enumclaw, 92P 3d 122 (O C A 2003) W E O’N il CP.3d 122 (Or. Ct. App. 2003); W.E. O’Neil Constr.Co. v. General Cas. of Illinois, 748 N.E. 2d 667(2001)(2001).

109

Interplay Between Indemnification P i i d IProvisions and Insurance

CGL excludes coverage for claims for bodily CGL excludes coverage for claims for bodilyinjury incurred by insured’s employeesarising out of employmentarising out of employment

But express obligation to indemnify forinjuries to employees may allow a claiminjuries to employees may allow a claimunder the contractual coverage endorsement

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