Presenting a live 90-minute webinar with interactive Q&A Allocating Risk in Real Estate Leases: Contractual Indemnities, Additional Insured Endorsements and Waivers of Subrogation Structuring Lease Provisions and Coordinating With Insurance Coverage to Mitigate Landlord and Tenant Liability Risks THURSDAY, JUNE 25, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Lyndon F . Bittle, Partner, Carrington Coleman Sloman & Blumenthal , Dallas Neal J. Suit, Partner, Carrington Coleman Sloman & Blumenthal , Dallas The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Shifting Risk in Real Estate Leases: Indemnity and Insurance Provisions Lyndon F. Bittle lbittle@ccsb.com Neal J. Suit nsuit@ccsb.com Carrington, Coleman, Sloman & Blumenthal, L.L.P. | 901 Main Street , Suite 5500 | Dallas, Texas 75202 | www.ccsb.com
PROGRAM OVERVIEW Focus: Commercial Real Estate Leases Representing Lessor or Tenant Provisions to Allocate Risk 5
Risk-Shifting Mechanisms Indemnity Provisions Insurance Requirements Additional Insured Status Waiver of Subrogation 6
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Overview of Indemnity Clauses Broad form – Indemnitor assumes obligation to indemnify regardless of fault. Intermediate form – Indemnitor assumes obligation to indemnify as long as any fault rests with indemnitor. Limited form – Indemnitor obligated to indemnify only to the extent of its own fault in contributing to loss. 8
Broad Form Indemnity Clause Tenant indemnifies Lessor against: “claims , damages, losses and expenses . . . arising out of or resulting from the ownership, maintenance or use of the leased premises, whether it is caused in whole or in part by the negligence of Tenant or Lessor. The indemnification obligation shall extend to injuries and damages caused, or alleged to be caused, by the sole or concurrent negligence of Lessor. ” 9
Intermediate Form Indemnity Clause Tenant indemnifies Lessor against : “claims , damages, losses and expenses . . . arising out of or resulting, in whole or in part , from the negligence, errors, omissions, or failure to perform by Tenant.” 10
Limited Form Indemnity Clause Tenant indemnifies Lessor against: “claims , damages, losses and expenses . . . arising out of or resulting from the work, but only to the extent caused by the negligent acts or omissions of Tenant .” 11
Broad or Intermediate Indemnity FAIR NOTICE REQUIREMENTS Express Negligence Doctrine – Must expressly state the intent to require indemnification for the indemnitee’s own negligence. Conspicuousness Test – Indemnity clause must be conspicuous within the contract, i.e., bold, large font, all caps, underline, etc. 12
Anti-Indemnity Statutes An increasing number of states have anti-indemnity statutes that bar or limit scope of indemnity Generally prohibit or limit broad and intermediate form indemnity 13
Anti-Indemnity Statutes Scope varies by state Texas statute limited to construction Other states--broader statutes or case law May have employee-injury exception (“third - party over” claims) May also limit additional insured coverage 14
Indemnity Include Defense? Duty to defend is independent of duty to indemnify. Indemnity for defense costs might not create duty to defend. Include “and defend” in indemnity contract to create such duty. (Do you want it?) 15
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Review Insurance Requirements Beware “cut and paste” agreements. Beware old form insurance requirements. Confirm insurance requirements can be satisfied — talk to broker before signing. If you’re not a coverage lawyer, find one. Consider requesting specific ISO/AAIS forms, and review any requested forms. 17
Insurance “Forms” ISO = Insurance Services Office AAIS = American Ass’n of Insurance Services Not mandatory – insurers can use, modify, or write their own “Manuscript” policy – not based on form 18
ISO Form Numbers Type Series Form Month Year CG 20 11 04 13 CGL, AI series # 11 (Managers/Lessors) published April 2013 BP 04 02 07 13 Businessowner, AI series # 2 (Managers/Lessors) published July 2013 19
Insurance Requirements in Leases Insurance requirements in lease agreement should parallel allocation of responsibility between landlord and tenant. Compare Tenant’s Obligations sections with Tenant’s Insurance Requirements. Compare Indemnity sections with Insurance Requirements. Beware of adjusters’ agreement without binding parties to allocation. 20
Insurance Requirements in Leases General Liability Limits — aggregate per location? Owner as additional insured Property: “physical damage” Full replacement cost Causes of loss include flood, earthquake, etc.? Owner as Loss Payee or Additional Insured? 21
Insurance Requirements in Leases Business Interruption (time element coverage) Causes of loss? Physical damage to property Other causes? Scope of coverage? Monthly limit? Aggregate sublimit? Period of Restoration Extra expense Extended Business Insurance (ramp-up) 22
Insurance Requirements in Leases Owner cannot be additional insured: Workers’ Compensation Professional Liability 30-day notice of cancellation Will insurer or broker agree? Endorsed in policy or separate agreement with broker 23
BEWARE UNDUE RELIANCE ON CERTIFICATES OF INSURANCE 24
ACORD 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 .” 25
ACORD CERTIFICATE OF INSURANCE “THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.” CANCELLATION “ Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions .” 26
ACORD CERTIFICATE OF INSURANCE “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 ).” 27
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Additional Insured Coverage Transfers risk to insurance purchased by another party. Generally provides defense. Most contracts require both indemnity and AI status. 29
SUBTLE DIFFERENCES Additional Named Insured is not the same as Named as Additional Insured “Additional Named Insured” generally limited to affiliated companies, officers, etc. “Named as Additional Insured” means given AI status by category or scheduled endorsement. 30
SUBTLE DIFFERENCES Additional Insured generally does not include “employees, officers, agents, etc.” Contractual promise does not alter the policy. 31
SUBTLE DIFFERENCES Additional Insured is not the same as Loss Payee Loss Payee is not an insured, but entitled to be paid for losses to its property interest (landlord, mortgagee, secured lender, etc.) 32
Additional Insured Coverage Owners & Lessors obtain additional insured status on Tenants’ liability policies. Additional insureds often request broad AI coverage, including for their own negligence. Can Tenant comply with this request? 33
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