Obligations With Insurance Coverage Drafting Indemnification - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A Insurance and Contractual Indemnification: Reconciling Competing Indemnity Obligations With Insurance Coverage Drafting Indemnification Provisions and Ensuring Adequate Coverage for Contractual Liabilities THURSDAY, APRIL 13, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: William K. McVisk, Shareholder, Johnson & Bell , Chicago Jessica E. Brown, Attorney, Reed Smith , Chicago 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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Insurance and Contractual Indemnification: Reconciling Competing Indemnity Obligations with Insurance Coverage William K. McVisk Johnson & Bell, Ltd. mcviskw@jbltd.com

The Wheelie Parties:  Plaintiff: Joe Biker  Defendants: Big Edison Electric & Power Co.; Big Tar Paving Contractors; Industrial City  Insurance: For Big Edison: SIR: $2 million First layer excess: Public Utility Insurance Co. For Big Tar: Primary: $1 million – Traveling Firemen Insurance Excess: $15 million – Traveling Firemen Insurance 6

The Accident On July 5, 2016, Joe Biker was riding his motorcycle on a street in Industrial City. He noticed an attractive woman looking out of her window as he rode, and decided to impress her by doing a wheelie. Unfortunately, he didn’t notice that there was speed bump in the street, and when he did the wheelie, he hit the speed bump and flipped over. Joe is now a paraplegic. He denies actually doing the wheelie. He alleges that the speed bump was unsafe because there were no chevrons marking the bump, so he didn’t see it coming, or he would have slowed down. 7

The Accident  Big Edison did electric utility work under the speed bump 5 months earlier.  Big Tar did the excavation and repaving. It was supposed to put chevrons on the speed bump.  Big Edison and Industrial City were supposed to have inspected the work when it was done. 8

The Question  How do Industrial City, Big Edison and Big Tar get the other parties to pay for the liability? 9

Three Primary Ways to Shift Risk 1) Contribution 2) Indemnity 3) Additional Insured Endorsement (Not discussed) Laws differ in each state, but follow patterns. 10

Is Contribution Allowed?  Illinois – yes  Arizona – no  Indiana – no  Pennsylvania – yes 11

Contribution – How it works  Illinois — Joint & Several liability – but if defendant is <25% at fault, joint liability limited to medical expenses. — No liability if plaintiff >50% at fault. — Each tortfeasor liable for proportionate share. — Good faith settlement with plaintiff releases contribution liability. — Employer’s contribution limited to W/C liability, unless waived by indemnity agreement. 12

Contribution – How it works  Pennsylvania — Joint and several liability — Comparative negligence. No recovery if plaintiff >50% at fault. — Joint tortfeasors can recover from each other for proportionate share. — Settlement with the plaintiff does not release contribution liability unless: • Settlement reached before right to secure a money judgment for contribution has accrued • Settlement provides pro rata reduction of plaintiff’s recovery against other tortfeasors for the share of the settling tortfeasor. — No contribution from employer unless employer has waived the exclusive remedy provision. 13

Contribution – How it works  Indiana — No joint and several liability. — No right of contribution. — Jury considers fault of all parties and non- parties who contribute. — No recovery if plaintiff >50% at fault. — Non-settling defendants get no credit for money paid by settling defendants. 14

Contribution – How it works  Arizona — No joint and several liability – liability is several only. — Comparative fault of plaintiff reduces recovery. No recovery if plaintiff conduct is intentional, willful or wanton. — Non-party fault considered to determine relative fault of each defendant, including defendants that settle prior to trial. — No right of contribution unless a party is vicariously liable for the conduct of another party. — Non-settling defendants get no credit for money paid by settling defendants. 15

Indemnity  Implied Indemnity — Illinois • Implied indemnity where party has vicarious liability for another party. — Pennsylvania • Implied indemnity for vicarious liability and active/passive negligence. — Indiana • Implied indemnity for derivative liability – i.e., vicarious liability. • No implied indemnity if party seeking indemnity has own fault. 16

Indemnity  Implied Indemnity (cont.) — Arizona • Implied indemnity for principal agent – i.e., where agent incurs liability acting on behalf of principal and agent is not at fault. • Active passive – one party creates dangerous condition and other fails in duty to keep premises safe. • No implied indemnity where party seeking indemnity was negligent. 17

Contractual Indemnity  General rules in most states — Contractual indemnity is allowed but will be strictly construed. — Will not be construed as indemnifying for own negligence unless clear. — Indemnification for own negligence prohibited by statute in certain situations, such as construction contracts in many states. 18

Contractual Indemnity  Illinois — Indemnity Act prohibits indemnification for own negligence in construction contracts. — Indemnity provisions in construction contracts construed as waiver of limitation on employer’s contribution liability. 19

Contractual Indemnity  Pennsylvania — Pass through indemnity (indemnification clause in main contract passes through to sub-contracts and sub-sub contracts) does not work unless contract language is clear and specific. — Indemnity provisions not construed as waiver of employer’s immunity from contribution unless clear and specific. 20

Contractual Indemnity  Indiana — Indemnity provisions in construction contracts cannot provide for indemnification of indemnitee’s sole negligence. OK if indemnitee is not solely at fault. — Subcontractors can be required to indemnify general contractor if clear and specific and general not solely at fault. 21

Insurance Coverage  CGL Policies exclude: — Liability assumed in contract — Liability for employee injuries  However, both exclusions have an exception for liability assumed in an “insured contract.”  “Insured contract” is defined as that part of a contract related to the insured’s business in which: — “you assume the tort liability of another ….” 22

Additional Insurance Coverage – Where two insurers may provide coverage, whose coverages pays first?  Co-Primary Coverage — “Other insurance” clauses generally provide for sharing coverage. — Illinois allows insured to choose which of 2 policies on same level of coverage will apply with a “targeted tender.” John Burns Constr. Co. v. Indiana Ins. Co. , 189 Ill.2d 570 (2000). • Targeted tenders only work on same layer of coverage. Kajima Constr. Services v. St. Paul Fire & Marine Ins. Co. , 227 Ill.2d 102 (2007). 23

Whose coverages pays first?  Primary vs. Excess Coverage — Most states require horizontal exhaustion – all primary insurance available to an insured must be exhausted before excess coverage will be triggered. Kajima Constr. Servs. v. St. Paul Fire & Marine Ins. Co. , 227 Ill.2d 102 (2007); Community Redevelopment Agency v. Aetna Cas. & Surety Co. , 50 Cal.App.4th 329 (1996). 24