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“Everybody Else Has Signed It. What’s Your Problem?”
Why Deep South Engineers Need to Present a United Front on the Indemnity Issue
Roger Guilian Volkert, Inc. Vice President General Counsel
Presenter
Everybody Else Has Signed It. Whats Your Problem? Why Deep South - - PowerPoint PPT Presentation
Everybody Else Has Signed It. Whats Your Problem? Why Deep South - - PowerPoint PPT Presentation
Everybody Else Has Signed It. Whats Your Problem? Why Deep South Engineers Need to Present a United Front on the Indemnity Issue Roger Guilian Volkert, Inc. Vice President General Counsel Presenter TRUE or FALSE? One short
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One short paragraph in a single contract can cost you and your shareholders your entire firm.
TRUE.
TRUE or FALSE?
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Indemnify (verb): To reimburse; compensate for loss or injury; give back; pay back; recompense for past loss; remunerate; repay; restore; return money paid out
- Legal Thesaurus, Second Edition. William C. Burton
Defend? Protect?
Indemnity is an agreement (a contract or a provision in a larger contract) by which one engages to save another from the legal consequence of the conduct of one of the parties, or of some other person
Definition of Indemnity
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Broad-Form Indemnity
Requires Engineer to indemnify Client for any losses arising out of the project for virtually any reason or due to the Client’s or other parties’ conduct, even if Engineer is completely free from fault
“ . . . connected with or arising out of the Project/ your Services . . .”
I nsurability problems
Intermediate-Form Indemnity
Requires Engineer to indemnify Client for any losses arising out of the project so long as Engineer has the slightest degree of fault
“ . . . caused in whole or in part by the fault of the Engineer . . .”
I nsurability problems
Limited-Form Indemnity
Requires Engineer to indemnify Client only for those losses that are actually caused by the professional negligence of the Engineer or its subconsultants
“ . . . to the extent caused by the Engineer’s negligent acts, errors, and omissions . . .”
I nsured for this!
Three Basic Forms of Indemnity
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Broad-Form Indemnity - Example
“Engineer agrees to indemnify and hold harmless Owner from and against any and all claims, damages, suits, causes of action, losses, and expenses (including attorneys’ fees and other expenses) arising out of, caused by, related to, or in any way connected with the Project or Engineer’s Services.
Intermediate-Form Indemnity - Example
“Engineer shall indemnify and hold harmless Owner from and against losses, damages, costs, claims, suits, and expenses (including reasonable attorneys’ fees) which are caused in whole or in part, directly or indirectly, by the negligence of Engineer in the performance of Services hereunder.”
Limited-Form Indemnity - Example
Engineer shall indemnify and hold harmless Owner for damages, judgments, costs, losses, and expenses (including reasonable attorneys’ fees) actually incurred by Owner to the extent caused by the negligent acts, errors, and omissions of Engineer (or its subconsultants) in the performance of professional services hereunder.”
“How Can I Tell Which One I’m Dealing With?”
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Limited-Form Indemnity limits the design professional’s liability to reimburse the owner/ indemnitee to only those losses actually suffered by the
- wner/ indemnitee as a direct result of the design professional’s negligent
professional acts
Grounded in a common law negligence standard
Must be a professional act, error, or omission
No obligation for the acts of others
Client/ Owner/ I ndemnitee responsible for its own acts and those of its agents
Who is the riskiest “agent” here, and the one with the most ability to manage risk on a project?
You guessed it
The Contractor
Why should you be responsible for the acts of the contractor?
I n-line with design professional’s policy of professional liability insurance
The Virtues of Limited-Form Indemnity
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Deep South Anti-Indemnify Statutes - Engineers
State Bars Indemnity for Client’s Sole Fault Bars Indemnity for Client’s Sole
- r Partial Fault
Limits Indemnity to
- nly YOUR
Negligent Acts Statute Comments Alabama No statute
In Alabama, sophisticated parties negotiating at arms-length will be held to the terms and conditions of the contract – even if unfair
Arkansas
Ark.Code §§ 4-56-104; 22-9-214
WOO PIG SOOEY! Louisiana
La.R.S. § 38:2216G
Does not protect design
- professionals. Only protects prime
contractors on public works.
Mississippi
- Miss. Code § 31-5-41
You can still be liable for acts of
- thers; just not client’s
Florida
Fla.Stat. § 725.08
- Fla. Stat. § 725.06
SUNSHINE! Georgia
- Ga. Code Ann. § 13-8-2(c)
GEORGIA’S ON MY MIND!
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NEW NORTH CAROLINA DESIGN PROFESSIONAL ANTI-INDEMNITY LAW On July 8, 2019, North Carolina Governor Roy Cooper signed into law NC House Bill 871
- Effective August 1, 2019
- Outlaws the duty-to-defend others against third-party claims
- Indemnity only for damages proximately caused by the A/E
- Applies to both public and private contracts
ACEC-NC led the coalition that got this landmark legislation passed.
- ACEC-NC
NCSS
- AIA/NC
ASLA-NC
BREAKING NEWS!!!
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ALABAMA
Maine
Nevada
North Dakota
Pennsylvania (existing statute protects owners only)
South Carolina (ACEC-SC undertaking an effort at this time!)
Vermont
Wisconsin
Wyoming
The trend is to pass anti-indemnity laws. NOW IS THE TIME.
States With No Anti-Indemnity Statutes
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“Our professional liability insurance covers any indemnity we agree to.”
FALSE.
TRUE or FALSE?
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Professional Liability Insurance policies do not cover all forms of indemnity
PLI only covers losses Engineer becomes legally liable for, to the extent caused by negligence in the performance of professional services
There must be a breach of the standard of care by the Engineer
The damages must have been caused by a negligent professional act
Professional Liability Insurance & Indemnity
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“I have read my professional liability insurance policy from cover to cover, and understand everything it says.”
TRUE or FALSE?
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Indemnity & Professional Liability Insurance
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Indemnity & Professional Liability Insurance
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“Indemnify” and “Defend” are the same thing.
FALSE.
TRUE or FALSE?
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Guilty Until Proven Innocent
Does not depend on the outcome of the claim
Inequitable
You may have to pay your client’s legal bills even if you don’t have to indemnify your client
Does not appropriately or authentically allocate risk to responsible parties best suited to manage that risk
Not insurable under professional liability insurance policies
What happens when the design professional is judged to be free from fault?
What happens when the court finds you are not liable but your client is?
I s Client going to reimburse you for all the attorneys’ fees you paid defending Client?
Guess what.
You’re probably going to have to keep paying for your Client’s lawyers.
The Defense-of-Claims-Obligation Problem
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Indemnify v. Defend – Separate & Distinct
INDEMNIFY DEFEND Depends on the outcome of the claim Triggered by receipt of the claim If limited, it is insurable Never insurable If limited, it is insurable Comes out of firm’s pockets Based on fault Irrespective of fault Based on fault Based on contract Obligation avoided upon MSJ, dismissal Obligation continues despite MSJ, dismissal Innocent until proven guilty Guilty until proven innocent
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We will continue to see unfair indemnity provisions until we speak as one
Clients hear conflicting messages from us on indemnity, and don’t believe us
When DPs “sign anything”, clients have no incentive to change
“Everyone else has signed this. What’s your problem?”
A united front insisting on fair, insurable indemnity is good for our profession
Realistic, fair fees
Keeps insurance premiums manageable
Reduces coverage litigation between DPs and Clients
Clients do not benefit from forcing uninsured liability onto underfunded DPs
You don’t really gain a competitive advantage by being more risky
Every project becomes a “bet the firm” project
You may be one bad project away from bankruptcy or having to sell your firm
Hope is not a strategy!
So, Why Should We Be United on Indemnity?
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Staffing Shortages; Finding Qualified Employees
Poaching
Seller’s Market
Cyber
Fiduciary Duty
P3, Design-Build
Surrender of Intellectual Property by Contract (“IP Grab” Clauses)
Works for Hire v. I nstruments of Service
Indemnity/ Duty to Defend
Standard of Care
Contracts
PLI Market is still relatively “soft” right now – decent premiums
Lots of consolidation in the PLI market – fewer insurers; higher capacity
Risk Trends From Around the Industry
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“I have a better understanding of indemnity, and will do my part as a design professional to insist on fair contracts.”
TRUE!
( Hopefully)
TRUE or FALSE?
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