Risk Transfer in Commercial Contracts Leveraging Indemnity, Insurance - PowerPoint PPT Presentation

Presenting a live 90 ‐ minute webinar with interactive Q&A Risk Transfer in Commercial Contracts Leveraging Indemnity, Insurance and Limitation of Liability Clauses to Mitigate Risk WEDNES DAY, NOVEMBER 7, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f D. Hull Y oungblood, Jr., Of Counsel, The Ford Firm , S an Antonio, Texas kip Durocher, Partner, Dorsey & Whitney , Minneapolis S 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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Risk Transfer in Commercial Contracts Negotiating I ndemnity Agreements Presented by: Hull Youngblood – The Ford Firm, 210.731.6400, hull.youngblood@ford-firm.com

Types of Indemnity  Express Contractual Indemnity  Implied Indemnity 5 5

Types of Agreements Considered  M&A Agreements  Settlements  Employment  Officer/Director Agreements 6 6

Direct Indemnity Claims  Typical claim: Third Party vs. Indemnitee  Direct Claim: Indemnitee vs. Indemnitor 7 7

Common law Remedies  Can be broader than Indemnity  Less certain results  Plaintiff vs. Defendant perspective 8 8

Benefits Added by Indemnity  Customized protected class  Variable scope of damages  Administrative Certainty Ad i i t ti C t i t  Specific areas of coverage  Specific areas of coverage – types of negligence types of negligence 9 9

Indemnity for Gross Negligence  Some states allow indemnity for Gross Negligence S ll i d i f G N li - Arms length transaction - Parties represented by Counsel Parties represented by Counsel - Sophisticated Entities - Equality of bargaining power  Valero Energy Corp. v. M.W. Kellogg Constr. Co “…even when the indemnity protects a party from their own gross y y g negligence, such a fairly negotiated provision, between sophisticated parties, does not offend public policy. “ 10 10

Exclusivity of Remedy  The Parties acknowledge and agree that the remedies provided and set forth in Article X. Indemnification shall be the Parties’ sole and Indemnification, shall be the Parties sole and exclusive remedy with respect to any subject matter of this Agreement. The Parties agree that Seller is to have no liability or responsibility whatsoever to Buyer for any Claim or Losses of any nature, except as set forth in this Agreement. No party shall be g p y able to avoid the limitations expressly set forth in this Agreement by electing to pursue some other remedy remedy. 11 11

Exclusivity of Remedy  If remedy to retained funds is the exclusive remedy, then Indemnitor has fixed its absolute maximum liability.  Typically have carve outs in M&A Transactions. - Actual Fraud – requires intent - Capitalization – ownership of the shares or assets - Authority – authorization to enter into the transaction y 12 12

Avoiding Exclusivity of Remedy  Ex-contractual claims  Merger, Integration and Anti-Reliance Provisions (see p 14 of reference document for lengthy provision) (see p. 14 of reference document for lengthy provision)  Can you contract yourself out of fraud? 13 13

Avoiding Exclusivity of Remedy  Can you contract yourself out of fraud?  Yes, if you do it carefully. Disclaim reliance.  Factors Courts may consider - pages 16 & 17 of reference document  BUT, courts may imply an exclusion for ACTUAL fraud fraud. 14 14

Avoiding Exclusivity of Remedy  BUT, courts may imply an exclusion for ACTUAL f fraud. ( Abry Partners v F& W Acquisiton 891 A.2d 1032 (Del. Ch. 2006)) d “BUYER has no moral justification for escaping its BUYER has no moral justification for escaping its own voluntarily-accepted limits on its remedies against the Seller absent proof that the Seller itself acted in a consciously improper manner ” acted in a consciously improper manner.  Review related documents for Anti-reliance terms. 15 15

SPECIFICITY - Coverage  Typical Provision:  A agrees to defend and indemnify B from : A d f d d i d if B f ( ) (i) CLAIMS (Procedural) ( ) (ii) SOMEHOW RELATED TO (Causation) (iii) AN EVENT (Substantive) 16 16

SPECIFICITY - Coverage  Three components of “Claims”  “Procedural” – the processes included. - lawsuits, - demands, - injunctions, injunctions - subpoenas, - investigations. g 17 17

SPECIFICITY - Coverage  Examples of broad definitions on page 21 of reference document.  “Claims” means all claims, requests, accusations, allegations, assertions, complaints, petitions, demands, suits, actions, proceedings, governmental inquiries and investigations of any every nature, (including but not limited to subpoenas, expressions of interest, audits and all other phases of inquiries and investigations ), and causes of h f i i i d i ti ti ) d f action of every kind and description, including but not limited to any and all Claims sounding or arising, in whole or in part, in tort contract statute equity or strict liability in tort, contract, statute, equity or strict liability. 18 18

SPECIFICITY - Coverage  Three components of “Claims”  “Causation” – the connection between process and substance. - proximately caused by - arising from arising from - in connection with - incidental to incidental to 19 19

SPECIFICITY - Coverage  Three components of “Claims”  “Substantive” – the subject matter covered - performance/violation of the contract - violation of law - negligent actions or inactions - Indemnitors Conduct - violation of a representation or warranty violation of a representation or warranty 20 20

SPECIFICITY - Coverage  “Hold Harmless” - Controversy over definition - Equivalent to Indemnification - Equivalent to Indemnification - Equivalent to a “Release” - May create an obligation to advance expenses y g p - Why use it if meaning is unclear - Basura vs. Trash. 21 21

SPECIFICITY – Identifying Parties  “ Indemnitor” or “Indemnitee” “ Amalgamated Meatball and all of its employees, agents, representatives officers directors affiliates shareholders representatives , officers, directors, affiliates, shareholders, owners, members, managers, attorneys, subsidiary corporations , and advisors. “  Extras should be ‘specifically designated’. E t h ld b ‘ ifi ll d i t d’  Agent = authority to act vs. independent contractor g y p  Consultants, professionals, small contractors 22 22

SPECIFICITY – Burden of Proof  Mandatory Indemnity “…indemnification to the fullest extent permitted by law… “ & “Expenses reasonably incurred by an Indemnitee in defense …shall be advanced by the Partnership” advanced by the Partnership  “Shall indemnify” may shift burden to Indemnitor  When is the burden NOT shifted? 23 23

SPECIFICITY – Fair Notice  Express Negligence  Texas vs other jurisdictions  Texas vs. other jurisdictions  “Not My Negligence” exception. y g g  Five suggestions for compliance with Fair Notice requirements – pages 39 & 40 of reference document requirements pages 39 & 40 of reference document 24 24

Indemnity and Settlements  Typical Settlement provision: “Plaintiff shall defend and indemnify Defendant from any claim brought by or through Plaintiff arising from the EVENT ” EVENT.”  Huge expense and burden for Plaintiff  Huge expense and burden for Plaintiff  Try M&A rep and warranty system. T M&A d t t 25 25