Contractual Liability For Contractual Liability For Schools…Schools…

Making Smart Choices and Making Smart Choices and Finding the Negotiator WithinFinding the Negotiator Within

Contractual Liability For Contractual Liability For Schools…Schools…

Making Smart Choices and Making Smart Choices and Finding the Negotiator WithinFinding the Negotiator Within

Presented by Jessica K. Walls, Esq.Presented by Jessica K. Walls, Esq.Isaac, Brant, Ledman & Teetor LLPIsaac, Brant, Ledman & Teetor LLP

And Schools of Ohio Risk Sharing Authority, Inc.And Schools of Ohio Risk Sharing Authority, Inc.

So, What IS Negotiable?

• EVERYTHING is Negotiable!

• Remember who drafted the contract you are signing. The provisions in a contract were put there for a reason, and it probably wasn’t for your benefit.

Topics: Contractual Liability and Risk Management

• Risk Transfer (Hold Harmless and Indemnity Agreements)

• Legalities of Political Subdivisions Assuming Risk• “Additional Insured” Status• Waivers of Subrogation• Contractual Risk Transfer Strategies• COI’s – Function and Meaning• COI’s – Problems

Contractual Risk Transfer

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Risk Transfer• Hold Harmless and Indemnity Clauses

Hold Harmless: One party assumes an obligation to protect and defend another

Indemnification: One party agrees to pay for losses or damages incurred by another as a result of contract.

Forms of Hold Harmless and Indemnity Clauses

(1) Limited Form. Assume responsibility only for your own negligence.

i.e., “(A) shall indemnify and hold harmless (B) against all claims, damages and losses, arising out of or resulting from (A)’s work under this Agreement, but only to the extent caused by (A)’s negligence.”

Forms of Hold Harmless and Indemnity Clauses

(1) Intermediate Form. Assume responsibility for your sole negligence as well as negligence partly caused by your party.

i.e., “(A) shall indemnify and hold harmless (B) against all claims, damages and losses, arising out of or resulting from (A)’s work under this Agreement, that are caused in whole or in part by (A)’s negligence, regardless of whether or not such loss is caused in part by a party indemnified hereunder.”

Forms of Hold Harmless and Indemnity Clauses

(1) Broad Form. Assume responsibility for negligence, whether or not it is the fault of your party.

i.e., “(A) shall indemnify and hold harmless (B) against all claims, damages and losses, arising out of or in any way related to (A)’s work under this Agreement, even if such claims, damages or losses are caused by (B)’s negligent act or omission.”

Hold Harmless Provisions

• They are not the devil, but make sure you negotiate language you are comfortable with.

• Benefits:– Spells out who is responsible for injury or

damages arising out of the work performed.– Provides a means for recovery if the

contractor’s insurance does not cover the loss.

Political Subdivisions Have Limited Ability To Assume Risk Under The Law

• Schools and ESCs are political subdivisions• Amounts obligated under an indemnification or hold harmless clause must be

appropriated and certified when the contract is made as required by R.C. 5705.41(D)(1) in order to avoid the creation of debt in violation of Ohio Const. art. XII, Section 11

• Hence, an school district or ESC cannot enter into a contract unless there is assurance that there will be adequate funds to meet the school district or ESC’s obligations. A school district or ESC cannot satisfy this requirement if an indemnification or hold harmless clause included in the contract would permit a liability of an undefined and unlimited amount. In order to comply with R.C. 5705.41(D)(1), a contract containing an indemnification or hold harmless clause must specify a maximum dollar amount for which the school district or ESC is obligated, and that amount must be appropriated and certified as available for payment prior to the contract's execution.

• See Ohio Attorney General Opinion 99-049

“Additional Insured” Status• “Additional insureds” are entities that are

added as insureds to the commercial general liability or automobile liability policy by way of an endorsement or modifier.

• Naming an additional insured allows the additional insured to share the limits of insurance paid out for claims by the named insured

“Additional Insured” Status• Why Should Your School Be An Additional

Insured?• This reinforces the risk transfer accomplished

through hold harmless agreements.• Do this when you feel that someone else’s

insurance should be expected to offer you protection for a liability arising out of their work or their products and services.

• Examples: construction companies, suppliers who may produce a faulty batch or a bad product by faulty design or manufacture.

Risk Management Recommendations

• Require contracting party to furnish an original COI before work commences

• Require your school to be named as an Additional Insured

• Require a Hold Harmless Agreement in favor of the school

• Require insurance be placed with insurers with a current A.M. Best rating of no less than A: VII

Waiver of Subrogation--

One party, or both, may waive the right to sue the other.

Waiver of Subrogation• The law allows parties negotiating a

contract to apportion risk as they choose.• Subrogation is the legal method for an

insurer, after paying a covered claim, to pursue another party wholly or partially responsible for the loss.

• If the insured gives up those rights, the insurer is left without recourse.

Subrogation – Example • Subrogation is the right to pursue someone else’s

claim, to “stand in the place” of another person.• Example: A SORSA member’s building burns down

due to a third party’s negligence. Normally, the school would sue the negligent third party for causing the fire. If SORSA pays the claim and rebuilds the building, SORSA is then subrogated to the school’s claim against the negligent third party. The school’s claim against the negligent third party is assigned to SORSA and SORSA may pursue the third party and their insurance company to recover the amount paid rebuilding the building.

Why The Contractor Should Sign A Waiver of Subrogation

• This is a way for your school to make sure there is a back-up in the event that the other party neglected to name you as an additional insured.

Contractual Risk Transfer Strategies

• Have competent and knowledgeable legal counsel develop indemnity clauses that conform to the applicable statutes and common law requirements.

• Back up indemnity/hold harmless provisions with insurance requirements:– Liability Insurance– Limits of Insurance– Contractual Liability– Additional Insured/Waiver of Subrogation\

• Keep the requirements reasonable

Certificates of Insurance(COI’s)

• What is it? A standard form issued as evidence of a policy holders’ coverage and limits of liability.

• COI’s are used to show parties in a transaction what type of insurance is carried.

• Most COI’s are issued on forms that have been standardized by ACORD (Agency – Company Organization for Research & Development)

Example of an ACORD COI

Certificates of Insurance

• COI’s should be requested from:– Suppliers (Manpower, etc.)– Contractors

• COI requests should be included in:– Purchase orders– Temporary employment contracts– Construction contracts

Certificates of Insurance

• What to review in a COI– Coverage Requested– Limits requested– Name and address– Additional Insured– Waiver of Subrogation– At least 30 days notice of cancellation

COI’s : Problems• A certificate is not an insurance policy

– Evidence of insurance only

• Represents the coverage and limits at the time of issuance– At the time the Contract is executed– Limits may be reduced by paid claims

• A COI holder is not entitled to information regarding policy changes.– Only entitled to notice of cancellation

COI’s: Beware of Enforceable Disclaimer Language

• The controlling factor (whether coverage exists) for most courts is whether the COI contains disclaimer language

• “This Certificate is issued as a matter of information only and confers no rights upon the certificate does not amend, extend or alter the coverage afforded by the policies below.”

Contractual Liability Exclusions

• A Common Exclusion to look out for:– “This insurance does not apply to…

• Contractual Liability…for which the insured is obligated to pay damages by reason of the assumption of liability in a contract

Contractual Risk TransferExample Language

Minimum Insurance Requirements

• General Liability Coverage.– “Contractor shall maintain commercial general liability

insurance with a limit of not less than $1,000,000 each occurrence.”

– “The school district or ESC, its elected officials and employees, shall be named as additional insureds with respect to all activities under this Agreement.”

Contractual Risk TransferExample Language

Minimum Insurance Requirements

• Workers’ Compensation.– “Contractor shall maintain workers’ compensation

coverage as required by Ohio law.”– Never agree to provide workers’ comp coverage

for independent contractors.

Contractual Risk TransferExample Language

Minimum Insurance Requirements• Proof of Insurance.

– “Prior to the commencement of any work under this Agreement, Contractor shall furnish the school district or ESC with properly executed certificates of insurance for all insurance required by the Agreement. Certificates of insurance shall provide that such insurance shall not be canceled without 30 days prior written notice to the school district or ESC. Contractor will replace certificates of insurance expiring prior to completion of work under this Agreement.”

Indemnification/Hold HarmlessExample Contract Language

• “The contractor shall indemnify and hold harmless the school district or ESC, its agents and employees from any and all losses, claims, damages, lawsuits, costs, judgments, expenses or any other liabilities which they may incur as a result of bodily injury, sickness, disease or death, or injury to or destruction of tangible property including the loss of use resulting therefrom, caused in whole or part by the negligent act or omission of the contractor, any subcontractor, any person directly or indirectly employed by any of them or any person for whose acts any of them may be liable.”

Managing Contractual Risk Transfer, Cont.

• Bid Specification Requirements– Written safety program in place/distributed– Evidence of Safety Training– Complies with all local, state, and/or federal

statutes and regulations including, but not limited to OSHA, ORC, EPA, etc.

Questions?

Jessica K. Walls, Esq.

Isaac, Brant, Ledman & Teetor LLP

250 E. Broad Street, Suite 900

Columbus, OH 43215

(614) 221-2121