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 WEDNESDAY, OCTOBER 19, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Kenneth M. Gorenberg, Partner, Barnes & Thornburg , Chicago Katie Pfeifer, Of Counsel, Dorsey & Whitney , Minneapolis 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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DRAFTING CONTRACTUAL INDEMNIFICATION AND HOLD HARMLESS AGREEMENTS October 19, 2016 Kenneth M. Gorenberg Katie C. Pfeifer Barnes & Thornburg LLP Dorsey & Whitney LLP Chicago, Illinois Minneapolis, Minnesota 312-214-5609 612-492-6947 kgorenberg@btlaw.com Pfeifer.Katie@dorsey.com
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 • 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 (narrow or limited form, intermediate, broad) 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 Not Allowed Indemnification: Indemnification: Subcontractor’s General’s Negligence 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 (Potentially) Not Allowed Allowed Indemnification: Indemnification: Subcontractor’s General’s Negligence 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
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