Provisions in Commercial Contracts Negotiating Scope and Exclusions, - - PowerPoint PPT Presentation

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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 kgorenberg@btlaw.com Katie C. Pfeifer Dorsey & Whitney LLP Minneapolis, Minnesota 612-492-6947 Pfeifer.Katie@dorsey.com

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
• therwise, 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

• r 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

• r 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.)
• r 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
• ther 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

• r 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
• ut 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

• bligation … 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

• r 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
• f 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-

• wners, and joint venturers, if any, and their employees,
• fficers 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

• f 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

72

Multiple indemnitors and AI insurers

73

DRAFTING CONTRACTUAL INDEMNIFICATION AND HOLD HARMLESS AGREEMENTS

Kenneth M. Gorenberg Barnes & Thornburg LLP Chicago, Illinois 312-214-5609 kgorenberg@btlaw.com Katie C. Pfeifer Dorsey & Whitney LLP Minneapolis, Minnesota 612-492-6947 Pfeifer.Katie@dorsey.com

October 6, 2015

74