drafting indemnification and hold harmless provisions...
TRANSCRIPT
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Presenting a live 90-minute webinar with interactive Q&A
Drafting Indemnification and Hold Harmless
Provisions in Commercial Contracts Negotiating Scope and Exclusions, Overcoming Enforcement Hurdles,
Navigating Interplay With Insurance Coverage
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
TUESDAY, OCTOBER 6, 2015
Kenneth M. Gorenberg, Partner, Barnes & Thornburg, Chicago
Katie Pfeifer, Partner, Dorsey & Whitney, Minneapolis
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DRAFTING CONTRACTUAL
INDEMNIFICATION AND HOLD HARMLESS
AGREEMENTS
Kenneth M. Gorenberg
Barnes & Thornburg LLP
Chicago, Illinois
312-214-5609
Katie C. Pfeifer
Dorsey & Whitney LLP
Minneapolis, Minnesota
612-492-6947
October 6, 2015
What We’re Going to Talk About
• Common Law/Statutory Considerations for Contractual
Indemnification
• Exculpatory Clauses
• Key Provisions of Indemnification Agreements, Including
Sample Language, and Enforcing Indemnification
Provisions
• Interplay with Insurance Coverage
6
CONTRACTUAL
INDEMNIFICATION:
BEYOND THE CONTRACT
LANGUAGE
7
Indemnification Agreements
Simple concept:
A contract that transfers risk.
8
Purposes of Indemnification
Agreements • Allocation and transfer of risk
• Avoid application of strict contributory negligence
doctrines in some states
• Avoid (or attempt to avoid) fight amongst participants on
the project or in a transaction
• Obtain benefit of (typically) longer contract statute of
limitations (versus tort statute of limitations)
9
Statutory/Common Law Limitations
• Limits on transferring risk of your own negligence or
intentional acts
• Statutory anti-indemnity laws
• Interplay with workers’ compensation
10
COMMON LAW LIMITS ON
TRANSFERRING RISK OF
YOUR OWN NEGLIGENCE
OR INTENTIONAL ACTS
11
Restrictions on Indemnifying
Negligent Conduct • Indemnity agreements are generally strictly construed
against indemnitee
• In order for indemnitee to transfer risk of its own negligence, agreement needs to be unequivocal about that intent • See, e.g., Harleysville Ins. Co. v. Physical Distrib. Servs., Inc., 716
F.3d 451 (8th Cir. 2013) (language must be “clear and unequivocal”)
• For example, in California, unless explicitly stated otherwise, indemnity clauses only cover passive negligence (nonfeasance), not active negligence • See, e.g., Crawford v. Weather Shield Mfg. Inc., 44 Cal. 4th 541,
552 (Cal. Ct. App. 2008)
12
Restrictions on Indemnifying
Intentional Conduct • A number of courts have held that it is against public
policy to provide indemnification for intentional acts/punitive damages • See, e.g., Davis v. Commonwealth Edison Co., 336 N.E.2d 881 (Ill.
1975); Public Serv. Mut. Ins. Co. v. Goldfarb, 53 N.Y.2d 392 (N.Y. 1981)
• Still need to be aware of the source of the damage award: “[I]f punitive damages are awarded on any ground other than intentional causation of injury – for example, gross negligence, recklessness or wantonness – indemnity for compensatory damages would be allowable even though indemnity for the punitive or exemplary component of the damage award would be barred as violative of public policy.” Goldfarb, 54 N.Y.2d at 400-01.
13
Restrictions on Indemnifying
Intentional Conduct • In any event, drafting is key: the modern trend is that
provisions stating “any and all losses or claims” will only
include negligence
• See Gibbs-Alfano v. Burton, 281 F.3d 12 (2d Cir. 2002); Buenz v.
Frontline Transp. Co., 882 N.E.2d 525 (Ill. 2008)
• Note that strict liability generally can be indemnified the
same as negligence; it is not intentional conduct
• See, e.g., Deminsky v. Arlington Plastics Machinery, 657 N.W.2d
411 (Wis. 2003)
14
Sample Language: Shifting Risk of
Own Negligence
“This indemnification provision applies regardless of
whether or not the claim at issue was caused or alleged to
be caused in whole or in part by the party to be
indemnified.”
15
Sample Language: Limiting Risk
Transfer for Own Negligence “To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damages, loss or expense is caused in part by a party indemnified hereunder. …”
AIA A201 (2007) General Conditions § 3.18.1 (emphasis added).
16
Other Common Law Restrictions
• Agents: implied by law that agent is entitled to
indemnification by principal
• Obligation does not extend to damages suffered by
reason of the agent’s own fraud, misconduct, negligence
or other tort, or to the extent the agent exceeds his or her
authority
• 3 Am. Jur. 2d Agency § 243
• Parties can contract around these restrictions
17
STATUTORY ANTI-INDEMNITY LAWS
18
Anti-Indemnity Laws
• Prohibit indemnification agreements in certain contexts
(e.g., requiring Party A to indemnify for Party B’s own sole
negligence)
• Most states have enacted some type of anti-indemnity
statute
• Most commonly impact construction and oil-field related
contracts
• Can also impact contractual insurance obligations
19
Construction Industry
• More than 40 states have some form of anti-indemnity
statute preventing Party A to a construction contract from
indemnifying Party B for Party B’s negligence
• Exceptions: Alabama, Maine, Nevada, North Dakota,
Pennsylvania, Vermont, Wisconsin and Wyoming (although
Wyoming has an anti-indemnification statute applicable to oil
industry)
• Different standards regarding what types of construction
contracts/projects are affected
• Different scopes
20
Scope of Indemnification
• Narrow or Limited Form Indemnity
• Allows indemnification to indemnitee for losses exclusively caused
by the indemnitor’s negligence
• Any negligence by indemnitee will bar indemnification
• Mirrors the obligations imposed by tort law
• All states allow this type of indemnification
Allowed
Indemnification:
Subcontractor’s
Negligence
Not Allowed
Indemnification:
General’s
Negligence
21
Scope of Indemnification
• Intermediate Form Indemnity
• Allows indemnification to indemnitee for loss caused by
indemnitor’s fault or negligence
• Allows indemnification to indemnitee for which indemnitor and
indemnitee are jointly at fault
• What amount indemnitor pays – all or just the proportionate
share – depends on indemnification language
• Many states prohibit intermediate (as well as broad) form
indemnity agreements
Allowed
Indemnification:
Subcontractor’s
Negligence
(Potentially) Not
Allowed
Indemnification:
General’s
Negligence 22
Scope of Indemnification
• Broad Form Indemnity
• Broadest protection for indemnitee
• Requires indemnitor to indemnify indemnitee for all liabilities,
regardless of which party’s negligence caused the liability
• Most states limit or prohibit the use of broad form indemnity
provisions in construction contracts
Allowed Indemnification:
Subcontractor’s and General’s
Negligence
23
Construction Industry
• An exception to the prohibition against indemnification of
Party B for its own negligence: require Party A to
purchase insurance to cover the Party B
• Some states extend their anti-indemnity prohibition to additional
insured requirements
• For example, Arizona, California, Colorado, Kansas, Louisiana,
Montana, New Mexico, Oklahoma, Oregon, Texas and Utah
• For others, it’s a grey area
• Minnesota and Arkansas recently moved away from this exception:
see Minn. Stat. § 337.05 (2013); Ark. Code Ann. § 4-5-104 (Act
1120 effective 7/22/15)
24
Motor Carrying Industry
• As of 2013, 39 states had some type of anti-indemnity
statute with respect to the transportation industry
• Some prohibit motor carriers from being required to indemnify a
shipper against the shipper’s negligent and intentional acts
• Some prohibit unspecified third parties (i.e., a shipper, broker, etc.)
or non-motor carriers from requiring motor carriers to indemnify the
third party for negligent and intentional acts
• Some prohibit indemnification for negligence-based or intentional
act-based liability in any provision that affects a motor carrier
agreement
25
Oil Industry
• Louisiana, New Mexico, Texas and Wyoming have anti-
indemnification statutes specifically for the oil industry
• La. Rev. Stat. § 9:2780
• N.M. Stat. Ann. § 56-7-2
• Tex. Civ. Prac. & Rem. Code § 127.001 et seq.
• Wyo. Stat. § 30-1-131 et seq.
26
Health Care Industry
• Some jurisdictions prohibit indemnification of hospitals or
other essential public services for their own negligence
• Illinois: 215 ILCS 134/95 (“Nothing in this Section shall relieve any
person or health care provider from liability for his, her, or its own
negligence in the performance of his, her, or its duties arising from
treatment of a patient.”).
• California: Tunkl v. UC Regents, 60 Cal.2d 92 (Cal. 1963)
27
THE INTERPLAY BETWEEN
WORKERS’ COMPENSATION AND
INDEMNIFICATION
28
Typical Case:
• Factory worker is injured on the job by heavy machinery
• Worker collects worker’s compensation from his employer
for his injuries
• Worker sues the machine manufacturer for negligence
• Machine manufacturer has an indemnification agreement
with the worker’s employer
29
Is the Indemnification Obligation Affected by the
Worker’s Compensation Limitations?
• The majority of states: No
• But some states require the indemnity clause to
specifically express the intent that worker’s compensation
will not bar indemnification
• See, e.g., Gatley v. UPS, Inc., 662 F. Supp. 200 (D. Me. 1987)
(noting that a waiver of worker’s compensation immunity must be
clear and specific)
• Often called a “Kotecki Waiver,” named after Kotecki v. Cyclops
Welding Corp., 585 N.E.2d 1023 (Ill. 1991)
• Worker’s compensation policy may exclude indemnity
30
The Exceptions to the General Rule
• The Montana and Oregon workers’ compensation statutes
bar indemnification completely
• Burlington Northern RR v. Farmers Union Elevator Co., 717 P.2d
535 (Mont. 1985)
• Roberts v. Gray's Crane & Rigging, Inc., 697 P.2d 985 (Or. 1985)
31
Sample Language: Worker’s
Compensation and Indemnification
“In claims against any person or entity indemnified under
this Section 3.18 by an employee of the Contractor, a
Subcontractor, anyone directly or indirectly employed by
them or anyone for whose acts they may be liable, the
indemnification obligation under Section 3.18.1 shall not be
limited by a limitation on amount or type of damages,
compensation or benefits payable by or for the Contractor
or a Subcontractor under workers’ compensation acts,
disability benefit acts or other employee benefit acts.” AIA
A201 (2007) General Conditions § 3.18.2.
32
Exculpatory Clauses
• Also known as waiver, release or assumption of risk
• Unenforceable in Louisiana, Virginia and Montana
• Disfavored and strictly construed
33
BEYOND THE BASICS:
KEY PROVISIONS AND
ENFORCEMENT OF
INDEMNITY PROVISIONS
• First/Third Party Claims
• Notice
• Defense
• Statutes of Limitations
• Exclusive Remedies/Limitations on Damages or Liability
• Choice of Law
34
Overarching Questions
• Indemnification is a contractual agreement; it is
interpreted under the same rules governing any other
contract
• Goal is to ascertain the intent of the parties
• Four basic questions:
• Who are the Indemnitor and Indemnitee?
• What is the trigger of indemnification (e.g., claim, damages, losses
expenses, liabilities)?
• What types of claims are indemnified (e.g., bodily injury and
property damage; economic loss/breach of contract; intellectual
property)?
• What is the scope of indemnification (e.g., all claims, regardless of
fault; only claims arising out of indemnitor’s negligence, etc.)
35
First Versus Third Party Claims
• Two parties enter into a contract that includes an
indemnification provision: “Company A hereby agrees to
indemnify Company B from and against any and all claims
that arise from or in connection with this agreement.”
• Company A is now suing Company B for a claim arising
out of the agreement
• Company B calls you: Is Company A required to
indemnify me (including for the attorneys’ fees I am
incurring to defend against Company A’s claim)?
36
First Versus Third Party Claims
• Some courts say yes
• Zalkind v. Ceradyne, Inc., 194 Cal. App. 4th 1010 (Cal. Ct. App.
2011) (finding indemnity clause included direct actions)
• Other disagree
• Mead Corp. v. ABB Power Generation Inc., 319 F.3d 790 (6th Cir.
2003) (finding indemnity clause did not include direct actions)
• Drafting is key: be clear about your intent
37
Sample Language: First Versus
Third Party Claims
• To limit the indemnity provision to third party claims:
“Indemnitor at its own expense will indemnify, defend, and hold
harmless Indemnitee from any third party suit, claim or other legal
action that alleges …”
• To permit indemnification of both first and third party
claims:
“Indemnitor at its own expense will indemnify, defend, and hold
harmless Indemnitee from and against all claims, demands,
actions, suits, damages, liabilities, losses, settlements, judgments,
costs and expenses, whether or not involving a third party claim …”
38
First Party Claims: Attorneys’ Fees
• Delaware law does not allow recovery for attorneys’ fees
for first party claims, even if the text of the indemnification
provision discusses attorneys’ fees
• See In re West Pan, 372 B.R. 112 (S.D.N.Y. 2007) (applying
Delaware law)
• New York does not cover attorneys’ fees for first party
claims unless specifically provided
• See Hooper Assocs. v. AGS Computers, 74 N.Y.2d 487, 492 (N.Y.
1989)
39
Notice
• Most indemnification clauses require notice
• If notice was properly given, courts generally enforce the
indemnification provision
• See, e.g., Nesterczuk v. Goldin Mgmt., Inc., 911 N.Y.S.2d 367 (NY
2010)
• Some courts apply a prejudice standard, however,
especially where notice is not a condition precedent
• See, e.g., Smurfit Newsprint Corp. v. Southeast Paper
Manufacturing Co., 368 F.3d 944 (7th Cir. 2004) (predicting New
York law)
40
Notice
• To avoid litigation on notice issues, parties should clearly
state in the indemnification clause whether
indemnification is conditioned on notice, and may want to
consider stating whether litigation expenses incurred
before notice are covered
41
Sample Language: Notice/Condition
Precedent
“Each party as an Indemnitee under this Section shall, as a
condition precedent to defense and indemnification,
(a) promptly provide notice of the claim and reasonable
cooperation to the Indemnitor; and (b) not make any
admissions to any third party regarding the claim or settle
any indemnified claim except as approved by the
Indemnitor in writing.”
42
Sample Language: Notice/Lack of
Prejudice
“Whenever an Indemnitee becomes aware of a potential
Claim, it shall give notice in writing to Indemnitor as soon
as commercially reasonable after first notice thereof
(provided, however, that the failure of the Indemnitee to
provide such notice shall not affect Indemnitor’s obligations
under this Section X if such failure does not prejudice
Indemnitor).”
43
Duty to Defend Versus Indemnify
• Duty to defend is separate from and independent of duty to
indemnify
• Former is triggered immediately; does not require one to wait until
the end for reimbursement
• What does it entail: hiring counsel for indemnitee (and, likely
separately, for indemnitor, if also sued); paying costs of litigation
(discovery, depositions, expert fees, etc.)
44
Duty to Defend Versus Indemnify
• Under most states’ common law, there is no duty to defend
unless it is included in the contract
• See, e.g., Bellefleur v. Newark Beth Israel Med. Ctr., 66 A.D.3d 807
(N.Y. App. 2009); CSX Transp. V. Chicago & N.W. Transp. Co., 62
F.3d 185 (7th Cir. 1995)
• Without a duty to defend, and barring language providing recovery of
attorneys’ fees, there may be no right by the indemnitee to recover
its defense costs
• But see Klock v. Grosodonia, 674 N.Y.S.2d 187 (N.Y. App. Div. 1998)
(concluding that, based on agreement language, the right to indemnity
included recovery of the reasonable costs of defense incurred in good
faith)
45
Duty to Defend Versus Indemnify
• Some exceptions, though:
• See, e.g., Crawford v. Weather Shield Mfg., Inc., 44 Cal. 4th
541, 555 (Cal Ct. App. 2008) (“[T]he case law has long
confirmed that, unless the parties’ agreement expressly
provides otherwise, a contractual indemnitor has the
obligation … to accept and assume the indemnitee’s active
defense against claims encompassed by the indemnity
provision.”)
46
Indemnify Versus Hold Harmless • Most courts treat “indemnity” and “hold harmless” as
synonymous or duplicative • E.g., Praetorian Ins. Co. v. Site Inspection, LLC, 604 F.3d 509 (8th
Cir. 2010)
• Some see a distinction though • “Hold harmless” acts as an exculpatory provision that releases the
indemnitee from liability to the indemnitor (e.g., a defense to a claim by the indemnitor)
• E.g., Exxon Mobil Corp. v. New W. Petroleum, LP, 369 Fed. Appx. 805 (9th Cir. 2010); Fernandez v. K-M Indus. Holding Co., 646 F. Supp.2d 1150 (N.D. Cal 2009)
• Consider effect of “hold harmless” in jurisdictions that more liberally permit indemnification for first party claims
• Bottom line: Not safe to just use “hold harmless” if seeking indemnification for third party claims
47
Control of the Defense
• Parties should include control of the defense provisions to avoid conflicts
• Parties should identify the party responsible for controlling the defense and that the other party has an obligation to cooperate with the defense • Many default to the indemnitor taking on the duty to defend and the
control of the defense
• Need to consider the risks of that type of provision and the type of claims that could be subject to indemnification
• E.g., indemnitees often reserve the right the control defense of intellectual property claims
• Similar language should be included regarding settlements
48
Sample Language: Defense
“The indemnitor shall engage counsel, subject to the
approval of the relevant indemnitee (which approval may
be withheld by such indemnitee in its sole discretion), and
shall assume control of the defense of the Claim and pay
all expenses incurred in connection with such defense.
The indemnitee may, but does not have the obligation to,
engage its own counsel, at its own expense, and monitor
or associate in the defense of any such matter.”
49
Statutes of Limitations
• State statutes of limitations on contract claims typically
include indemnification claims
• The running of the statute of limitations may depend on
the indemnification language
• If the indemnification provision indemnifies damages, the indemnifying
party becomes liable – and the SOL clock starts running – once the
indemnified party suffers an actual loss
• By contrast, if the indemnification clause indemnifies liabilities, the
indemnifying party becomes liable – and the SOL clock starts running –
as soon as the indemnified party becomes liable, regardless of
damages
• And the duty to defend obligation arises immediately upon a claim – and
therefore the SOL clock starts running then as well
50
Statutes of Limitations
• Of course, parties may contractually shorten the statute of
limitations
51
Damages Limitations
• Scenario
• Contract includes a consequential damages limitation
• Also includes a broad indemnification clause, covering “any and all
claims, damages, losses …”
• Can you be held liable for consequential damages (especially
consequential damages asserted in a third-party claim) through the
indemnification clause? MAYBE
• Need to coordinate any damages limitation with the scope
of the indemnification clause
52
Limitation of Liability
• Similar issue with limitations of liability (e.g.,
caps/baskets) in the broader contract
• Need to coordinate the indemnification clause with any
limitations of liability
53
Sample Language: Coordination of
Limitation of Liability with Indemnification
“Notwithstanding anything to the contrary provided herein,
including Article X (Indemnification), Party A shall not be
required to defend, indemnify or hold harmless Party B
under this Agreement or applicable law (1) unless the
aggregate amount of Claims during [the relevant time
period] exceed $ _____ [basket], in which case only the
excess shall be indemnified, or (2) to the extent the
aggregate amount of all Claims during [the relevant time
period] exceed $ _______ [cap].” [Subject to any
exceptions.]
54
Exclusive Remedy Provisions
• These provisions limit the indemnified party’s ability to
pursue recourse for claims not covered by the
indemnification provision
• Courts usually enforce these provisions except in cases of
fraud
55
Sample Language: Exclusive
Remedy Provision “The parties acknowledge and agree that their sole and exclusive remedy
with respect to any and all claims (other than claims arising from fraud,
criminal activity or willful misconduct on the part of a party hereto in
connection with the transactions contemplated by this Agreement) for any
breach of any representation, warranty, covenant, agreement or obligation
set forth herein or otherwise relating to the subject matter of this
Agreement, shall be pursuant to the indemnification provisions set forth in
this Article X. In furtherance of the foregoing, each party hereby waives, to
the fullest extent permitted under Law, any and all rights, claims and
causes of action for any breach of any representation, warranty, covenant,
agreement or obligation set forth herein or otherwise relating to the subject
matter of this Agreement it may have against the other parties hereto and
their Affiliates and each of their respective Representatives arising under or
based upon any Law, except pursuant to the indemnification provisions set
forth in this Article X.”
Avery & Perricone, Trends in M&A Provisions: Indemnification as an Exclusive Remedy, 16 MALR 1349 (Sept. 2013). 56
Choice of Law Provisions
• Choice of law provisions are certainly advisable, but …
• Choice of law is for entire contract
• You may not be able to contract around anti-indemnity
statutes
• Louisiana and New Mexico will not enforce choice of law provisions
that undermine their respective oil-industry anti-indemnification
statutes
• Oregon courts will not uphold choice of law provisions when used
to circumvent Oregon’s workers’ compensation law, which prohibits
contractual indemnity provisions
57
Attorneys’ Fees for Enforcing
Indemnification Agreement • Seventh Circuit frequently allows indemnitee to recover
attorneys’ fees for enforcing indemnity as a “make whole”
remedy
• Medcom Holding Co. v. Baxter Travenol Lab., Inc., 200 F.3d 518,
520-21 (7th Cir. 1999)
• Balcor Real Estate Holdings, Inc. v. Walentas-Phoenix Corp., 73 F.
3d 150, 153 (7th Cir. 1996)
• Krien v. Harsco Corp., 745 F.3d 313, 318 (7th Cir. 2014)
58
INTERPLAY WITH INSURANCE
COVERAGE • Insurance and indemnity provisions are often construed
together.
• Pekin Ins. Co. v. Equilon Enterprises LLC, 2012 IL App (1st) 111529
• West Bend Mut. Ins. Co. v. Athens Construction Co., 2015 IL App
(1st) 140006
• West Bend Mut. Ins. Co. v. DJW-Ridgeway Bldg. Consultants, Inc.,
2015 IL App (2d) 140441
• Purchasing the required insurance may bar common law
claims for contribution or indemnity. See, e.g., Morsches
Lumber, Inc. v. Probst, 388 N.E.2d 284 (Ind. App. 1979)
59
Certificate of Insurance
60
Certificate of Insurance
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER 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. 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).
61
“Insured Contract”
• ISO CGL standard definition f:
• That part of any other contract or agreement pertaining to your
business (including an indemnification of a municipality in
connection with work performed for a municipality) under which you
assume the tort liability of another party to pay for "bodily injury" or
"property damage" to a third person or organization. Tort liability
means a liability that would be imposed by law in the absence of
any contract or agreement.
62
“Additional Insured”
• Multiple ISO endorsements available
• Who will be an “additional insured”
• Name
• Category, e.g., vendors, owners, contractors, lessors of equipment
• Agreed in writing
• Causation
• Ongoing operations or completed operations
63
Cautionary Tale
“Developer, its subsidiaries and affiliated companies, co-
owners, and joint venturers, if any, and their employees,
officers and agents shall be named as additional insureds
in each of Owner’s policies, except Workers’ Compensation
for liabilities assumed by Owner under the terms of this
Contract.”
64
Cautionary Tale
65
Cautionary Tale
“Developer, its subsidiaries and affiliated
companies, co-owners, and joint venturers, if any,
and their employees, officers and agents shall be
named as additional insureds in each of Owner’s
policies, except Workers’ Compensation, for
liabilities assumed by Owner under the terms of
this Contract.”
66
“Insured Contract” – 2013
• ISO endorsement CG 24 26 04 13 changes standard
definition f:
That part of any other contract or agreement pertaining to your
business (including an indemnification of a municipality in connection
with work performed for a municipality) under which you assume the
tort liability of another party to pay for "bodily injury" or "property
damage" to a third person or organization, provided the "bodily
injury" or "property damage" is caused, in whole or in part, by you or
by those acting on your behalf. However, such part of a contract or
agreement shall only be considered an "insured contract" to the
extent your assumption of the tort liability is permitted by law. Tort
liability means a liability that would be imposed by law in the absence
of any contract or agreement.
67
“Additional Insured” – 2013 changes
“However, the insurance afforded to such additional
insured:
1. Only applies to the extent permitted by law; and
2. Will not be broader than that which you are
required by the contract or agreement to provide for
such additional insured.”
68
“Additional Insured” – “you/your”
• Named Insured
• Additional Insured
• Additional Named Insured
• Exclusions for “your product” and “your work”
69
“Additional Insured” – Privity?
• CG 20 33: “you and such person or organization have
agreed in writing in a contract or agreement that such
person or organization be added as an additional insured”
• CG 20 38 – “and…Any other person or organization you
are required to add as an additional insured under the
contract or agreement”
70
“Additional Insured” – Conflicts
• Separation of defense between Named Insured and
Additional Insured
• Insurer’s duties to Named Insured regarding Additional
Insured
• Named Insured often wants Insurer to accept Additional Insured’s
tender
• Paid for endorsement
• Limits contractual indemnity exposure
• But what if Named Insured has a high deductible or SIR?
71
“Additional Insured” v. “Other Insurance”
• Additional insured endorsement
• Primary and non-contributory endorsement
• Other insurance clause
Certain Underwriters at Lloyd’s v. Central Mut. Ins. Co.,
2014 IL App (1st) 133145
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Multiple indemnitors and AI insurers
73
DRAFTING CONTRACTUAL
INDEMNIFICATION AND HOLD HARMLESS
AGREEMENTS
Kenneth M. Gorenberg
Barnes & Thornburg LLP
Chicago, Illinois
312-214-5609
Katie C. Pfeifer
Dorsey & Whitney LLP
Minneapolis, Minnesota
612-492-6947
October 6, 2015
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