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Presenting a live 90-minute webinar with interactive Q&A

Drafting Indemnification and Hold Harmless

Provisions in Commercial Contracts Scope and Exclusions, Enforcement Hurdles, Interplay With Insurance Coverage

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, OCTOBER 17, 2017

Kenneth M. Gorenberg, Partner, Barnes & Thornburg, Chicago

Katie Pfeifer, Of Counsel, Dorsey & Whitney, Minneapolis

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DRAFTING CONTRACTUAL

INDEMNIFICATION AND HOLD

HARMLESS AGREEMENTS

Kenneth M. Gorenberg

Barnes & Thornburg LLP

Chicago, Illinois

312-214-5609

kgorenberg@btlaw.com

Katie C. Pfeifer

Dorsey & Whitney LLP

Minneapolis, Minnesota

612-492-6947

Pfeifer.Katie@dorsey.com

October 17, 2017

6

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

7

CONTRACTUAL

INDEMNIFICATION:

BEYOND THE CONTRACT

LANGUAGE

8

Indemnification Agreements

Simple concept:

A contract that transfers risk.

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

“The foregoing indemnity obligation shall exclude any

Claim if, and to the extent, that the same arises out of the

negligence or willful misconduct of an Indemnified Party.”

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

Motor Carrying Industry

• As of 2015, 39 states had some type of anti-indemnity

statute with respect to the transportation industry

• Some prohibit motor carriers from being required to indemnify a

shipper against the shipper’s negligent and intentional acts

• Some prohibit unspecified third parties (i.e., a shipper, broker, etc.)

or non-motor carriers from requiring motor carriers to indemnify the

third party for negligent and intentional acts

• Some prohibit indemnification for negligence-based or intentional

act-based liability in any provision that affects a motor carrier

agreement

21

Oil Industry

• Louisiana, New Mexico, Texas and Wyoming have anti-

indemnification statutes specifically for the oil industry

• La. Rev. Stat. § 9:2780

• N.M. Stat. Ann. § 56-7-2

• Tex. Civ. Prac. & Rem. Code § 127.001 et seq.

• Wyo. Stat. § 30-1-131 et seq.

22

Health Care Industry

• Some jurisdictions prohibit indemnification of hospitals or

other essential public services for their own negligence

• Illinois: 215 ILCS 134/95 (“Nothing in this Section shall relieve any

person or health care provider from liability for his, her, or its own

negligence in the performance of his, her, or its duties arising from

treatment of a patient.”).

• California: Tunkl v. UC Regents, 60 Cal.2d 92 (Cal. 1963)

23

THE INTERPLAY BETWEEN

WORKERS’ COMPENSATION AND

INDEMNIFICATION

24

Typical Case:

• Factory worker is injured on the job by heavy machinery

• Worker collects worker’s compensation from his employer

for his injuries

• Worker sues the machine manufacturer for negligence

• Machine manufacturer has an indemnification agreement

with the worker’s employer

25

Is the Indemnification Obligation Affected by

the Worker’s Compensation Limitations?

• The majority of states: No

• But some states require the indemnity clause to

specifically express the intent that worker’s compensation

will not bar indemnification

• See, e.g., Gatley v. UPS, Inc., 662 F. Supp. 200 (D. Me. 1987)

(noting that a waiver of worker’s compensation immunity must be

clear and specific)

• Often called a “Kotecki Waiver,” named after Kotecki v. Cyclops

Welding Corp., 585 N.E.2d 1023 (Ill. 1991)

• Worker’s compensation policy may exclude indemnity

26

The Exceptions to the General

Rule • The Montana and Oregon workers’ compensation statutes

bar indemnification completely

• Burlington Northern RR v. Farmers Union Elevator Co., 717 P.2d

535 (Mont. 1985)

• Roberts v. Gray's Crane & Rigging, Inc., 697 P.2d 985 (Or. 1985)

27

Sample Language: Worker’s

Compensation and Indemnification

“In claims against any person or entity indemnified under

this Section 3.18 by an employee of the Contractor, a

Subcontractor, anyone directly or indirectly employed by

them or anyone for whose acts they may be liable, the

indemnification obligation under Section 3.18.1 shall not be

limited by a limitation on amount or type of damages,

compensation or benefits payable by or for the Contractor

or a Subcontractor under workers’ compensation acts,

disability benefit acts or other employee benefit acts.” AIA

A201 (2007) General Conditions § 3.18.2.

28

EXCULPATORY CLAUSES

• Also known as waiver, release or assumption of risk

• Unenforceable in Louisiana, Virginia and Montana

• Disfavored and strictly construed

29

INDEMNIFICATION

PROVISIONS: THE BASIC

QUESTIONS

30

The Four Basic Questions

• Indemnification is a contractual agreement; interpreted

under the same rules governing any other contract

• Goal is to ascertain the intent of the parties

• Four basic questions:

• Who are the Indemnitor and Indemnitee?

• What is the trigger of indemnification (e.g., claim, damages, losses

expenses, liabilities)?

• What types of claims are indemnified (e.g., bodily injury and

property damage; economic loss/breach of contract; intellectual

property)?

• What is the scope of indemnification (e.g., all claims, regardless of

fault; only claims arising out of indemnitor’s negligence, etc.)

31

Sample Language

“Supplier shall indemnify, defend, and hold harmless each of the

Indemnified Parties from and against, and accepts responsibility for, any and

all liabilities, damages, losses, settlements, claims, allegations, actions,

suits, penalties, fines, costs or expenses (including, without limitation,

reasonable attorneys’ fees and expenses) incurred by or asserted against any

Indemnified Party of whatever kind or nature (all of the foregoing, collectively,

“Claims”), which arise out of (i) a breach of any guaranty or warranty set forth

in this Indemnity Agreement, (ii) any Products and/or Services at any time

received by any of the Indemnified Parties from Supplier, (iii) the sale or

delivery to or use by any of the Indemnified Parties of any Products and/or

Services, (iv) the death, personal injury or property damage caused by the acts

or omissions of Supplier or any of its agents, employees, directors or officers,

or (v) any act or omission of Supplier or its employees or agents that

constitutes gross negligence, willful misconduct, or actual fraud. The

foregoing indemnity obligation shall exclude any Claim if, and to the

extent, that the same arises out of the negligence or willful misconduct of

an Indemnified Party.”

32

Sample Language

“Supplier shall indemnify, defend, and hold harmless each of the

Indemnified Parties in all suits, action or proceedings in which an

Indemnified Party is made a defendant for actual or alleged

infringement of any patent, trademark, copyright, and other similar

right or restriction, resulting from the use or sale of Products or

Services. Supplier will also pay and discharge any and all judgments

or decrees which may be rendered in any such suit, action or

proceedings against an Indemnified Party. If an Indemnified Party is

enjoined from using the Products (excluding Proprietary Products) sold

hereunder, Supplier shall, at Supplier’s expense, either procure for

such Indemnified Party the right to continue using said Products or

modify said Products to become non-infringing, or repurchase them

from the Indemnified Party at the original Sales Prices and the

transportation, installation (if any), and all other costs relating to the

purchase thereof.”

33

BEYOND THE BASICS:

KEY PROVISIONS AND

ENFORCEMENT OF

INDEMNITY PROVISIONS

• First/Third Party Claims

• Notice

• Defense

• Statutes of Limitations

• Exclusive Remedies/Limitations on Damages or Liability

• Choice of Law

34

First Versus Third Party Claims

• Two parties enter into a contract that includes an

indemnification provision: “Company A hereby agrees to

indemnify Company B from and against any and all claims

that arise from or in connection with this agreement.”

• Company A is now suing Company B for a claim arising

out of the agreement

• Company B calls you: Is Company A required to

indemnify me (including for the attorneys’ fees I am

incurring to defend against Company A’s claim)?

35

First Versus Third Party Claims

• Some courts say yes

• Zalkind v. Ceradyne, Inc., 194 Cal. App. 4th 1010 (Cal. Ct. App.

2011) (finding indemnity clause included direct actions)

• Other disagree

• Mead Corp. v. ABB Power Generation Inc., 319 F.3d 790 (6th Cir.

2003) (finding indemnity clause did not include direct actions)

• Drafting is key: be clear about your intent

36

Sample Language: First Versus

Third Party Claims

• To limit the indemnity provision to third party claims:

“Indemnitor at its own expense will indemnify, defend, and hold

harmless Indemnitee from any third party suit, claim or other legal

action that alleges …”

• To permit indemnification of both first and third party

claims:

“Indemnitor at its own expense will indemnify, defend, and hold

harmless Indemnitee from and against all claims, demands,

actions, suits, damages, liabilities, losses, settlements, judgments,

costs and expenses, whether or not involving a third party claim …”

37

First Party Claims: Attorneys’ Fees

• Delaware law does not allow recovery for attorneys’ fees

for first party claims, even if the text of the indemnification

provision discusses attorneys’ fees

• See In re West Pan, 372 B.R. 112 (S.D.N.Y. 2007) (applying

Delaware law)

• New York does not cover attorneys’ fees for first party

claims unless specifically provided

• See Hooper Assocs. v. AGS Computers, 74 N.Y.2d 487, 492 (N.Y.

1989)

38

Notice

• Most indemnification clauses require notice

• If notice is properly given, courts generally enforce the

indemnification provision

• See, e.g., Nesterczuk v. Goldin Mgmt., Inc., 911 N.Y.S.2d 367 (NY

2010)

• Some courts apply a prejudice standard, however,

especially where notice is not a condition precedent

• See, e.g., Smurfit Newsprint Corp. v. Southeast Paper

Manufacturing Co., 368 F.3d 944 (7th Cir. 2004) (predicting New

York law)

39

Notice

• To avoid litigation on notice issues, parties should clearly

state in the indemnification clause whether

indemnification is conditioned on notice, and may want to

consider stating whether litigation expenses incurred

before notice are covered

40

Sample Language:

Notice/Condition Precedent

“Each party as an Indemnitee under this Section shall, as a

condition precedent to defense and indemnification,

(a) promptly provide notice of the claim and reasonable

cooperation to the Indemnitor; and (b) not make any

admissions to any third party regarding the claim or settle

any indemnified claim except as approved by the

Indemnitor in writing.”

41

Sample Language: Notice/Lack of

Prejudice

“Whenever an Indemnitee becomes aware of a potential

Claim, it shall give notice in writing to Indemnitor as soon

as commercially reasonable after first notice thereof

(provided, however, that the failure of the Indemnitee to

provide such notice shall not affect Indemnitor’s obligations

under this Section X if such failure does not prejudice

Indemnitor).”

42

Duty to Defend Versus Indemnify

• Duty to defend is separate from and independent of duty to

indemnify

• Former is triggered immediately; does not require one to wait until

the end for reimbursement

• What does it entail: hiring counsel for indemnitee (and, likely

separately, for indemnitor, if also sued); paying costs of litigation

(discovery, depositions, expert fees, etc.)

43

Duty to Defend Versus Indemnify

• Under most states’ common law, there is no duty to defend

unless it is included in the contract

• See, e.g., Bellefleur v. Newark Beth Israel Med. Ctr., 66 A.D.3d 807

(N.Y. App. 2009); CSX Transp. V. Chicago & N.W. Transp. Co., 62

F.3d 185 (7th Cir. 1995)

• Without a duty to defend, and barring language providing recovery of

attorneys’ fees, there may be no right by the indemnitee to recover

its defense costs

• But see Klock v. Grosodonia, 674 N.Y.S.2d 187 (N.Y. App. Div. 1998)

(concluding that, based on agreement language, the right to indemnity

included recovery of the reasonable costs of defense incurred in good

faith)

44

Duty to Defend Versus Indemnify

• Some exceptions, though:

• See, e.g., Crawford v. Weather Shield Mfg., Inc., 44 Cal. 4th

541, 555 (Cal Ct. App. 2008) (“[T]he case law has long

confirmed that, unless the parties’ agreement expressly

provides otherwise, a contractual indemnitor has the

obligation … to accept and assume the indemnitee’s active

defense against claims encompassed by the indemnity

provision.”)

45

Indemnify Versus Hold Harmless • Most courts treat “indemnity” and “hold harmless” as

synonymous or duplicative • E.g., Praetorian Ins. Co. v. Site Inspection, LLC, 604 F.3d 509 (8th

Cir. 2010)

• Some see a distinction though • “Hold harmless” acts as an exculpatory provision that releases the

indemnitee from liability to the indemnitor (e.g., a defense to a claim by the indemnitor)

• E.g., Exxon Mobil Corp. v. New W. Petroleum, LP, 369 Fed. Appx. 805 (9th Cir. 2010); Fernandez v. K-M Indus. Holding Co., 646 F. Supp.2d 1150 (N.D. Cal 2009)

• Consider effect of “hold harmless” in jurisdictions that more liberally permit indemnification for first party claims

• Bottom line: Not safe to just use “hold harmless” if seeking indemnification for third party claims

46

Control of the Defense

• Parties should include control of the defense provisions to avoid conflicts

• Parties should identify the party responsible for controlling the defense and that the other party has an obligation to cooperate with the defense • Many default to the indemnitor taking on the duty to defend and the

control of the defense

• Need to consider the risks of that type of provision and the type of claims that could be subject to indemnification

• E.g., indemnitees often reserve the right the control defense of intellectual property claims

• Similar language should be included regarding settlements

47

Sample Language: Defense

“The indemnitor shall engage counsel, subject to the

approval of the relevant indemnitee (which approval may

be withheld by such indemnitee in its sole discretion), and

shall assume control of the defense of the Claim and pay

all expenses incurred in connection with such defense.

The indemnitee may, but does not have the obligation to,

engage its own counsel, at its own expense, and monitor

or associate in the defense of any such matter. The

Indemnitor shall not enter into any settlement or other

disposition of any indemnified claim which requires the

admission of liability or payment of money by the

indemnitee without the indemnitee’s prior written consent,

which shall not be unreasonably withheld.”

48

Statutes of Limitations

• State statutes of limitations on contract claims typically

include indemnification claims

• The running of the statute of limitations may depend on

the indemnification language

• If the indemnification provision indemnifies damages, the indemnifying

party becomes liable – and the SOL clock starts running – once the

indemnified party suffers an actual loss

• By contrast, if the indemnification clause indemnifies liabilities, the

indemnifying party becomes liable – and the SOL clock starts running –

as soon as the indemnified party becomes liable, regardless of

damages

• And the duty to defend obligation arises immediately upon a claim – and

therefore the SOL clock starts running then as well

49

Statutes of Limitations

• Of course, parties may contractually shorten the statute of

limitations

50

Damages Limitations

• Scenario

• Contract includes a consequential damages limitation

• Also includes a broad indemnification clause, covering “any and all

claims, damages, losses …”

• Can you be held liable for consequential damages (especially

consequential damages asserted in a third-party claim) through the

indemnification clause? MAYBE

• Need to coordinate any damages limitation with the scope

of the indemnification clause

51

Limitation of Liability

• Similar issue with limitations of liability (e.g.,

caps/baskets) in the broader contract

• Need to coordinate the indemnification clause with any

limitations of liability

52

Sample Language: Coordination of

Limitation of Liability with

Indemnification “Notwithstanding anything to the contrary provided herein,

including Article X (Indemnification), Party A shall not be

required to defend, indemnify or hold harmless Party B

under this Agreement or applicable law (1) unless the

aggregate amount of Claims during [the relevant time

period] exceed $ _____ [basket], in which case only the

excess shall be indemnified, or (2) to the extent the

aggregate amount of all Claims during [the relevant time

period] exceed $ _______ [cap].” [Subject to any

exceptions.]

53

Exclusive Remedy Provisions

• These provisions limit the indemnified party’s ability to

pursue recourse for claims not covered by the

indemnification provision

• Courts usually enforce these provisions except in cases of

fraud

54

Sample Language: Exclusive

Remedy Provision “The parties acknowledge and agree that their sole and exclusive remedy

with respect to any and all claims (other than claims arising from fraud,

criminal activity or willful misconduct on the part of a party hereto in

connection with the transactions contemplated by this Agreement) for any

breach of any representation, warranty, covenant, agreement or obligation

set forth herein or otherwise relating to the subject matter of this

Agreement, shall be pursuant to the indemnification provisions set forth in

this Article X. In furtherance of the foregoing, each party hereby waives, to

the fullest extent permitted under Law, any and all rights, claims and

causes of action for any breach of any representation, warranty, covenant,

agreement or obligation set forth herein or otherwise relating to the subject

matter of this Agreement it may have against the other parties hereto and

their Affiliates and each of their respective Representatives arising under

or based upon any Law, except pursuant to the indemnification provisions

set forth in this Article X.”

Avery & Perricone, Trends in M&A Provisions: Indemnification as an Exclusive Remedy, 16 MALR 1349 (Sept. 2013).

55

Choice of Law Provisions

• Choice of law provisions are certainly advisable, but …

• Choice of law is for entire contract

• You may not be able to contract around anti-indemnity

statutes

• Louisiana and New Mexico will not enforce choice of law provisions

that undermine their respective oil-industry anti-indemnification

statutes

• Oregon courts will not uphold choice of law provisions when used

to circumvent Oregon’s workers’ compensation law, which prohibits

contractual indemnity provisions

56

Attorneys’ Fees for Enforcing

Indemnification Agreement • Seventh Circuit frequently allows indemnitee to recover

attorneys’ fees for enforcing indemnity as a “make whole”

remedy

• Medcom Holding Co. v. Baxter Travenol Lab., Inc., 200 F.3d 518,

520-21 (7th Cir. 1999)

• Balcor Real Estate Holdings, Inc. v. Walentas-Phoenix Corp., 73 F.

3d 150, 153 (7th Cir. 1996)

• Krien v. Harsco Corp., 745 F.3d 313, 318 (7th Cir. 2014)

57

Attorneys’ Fees for Enforcing

Indemnification Agreement: Put it in

the Contract

“Supplier [indemnitor] shall pay all costs and expenses,

including but not limited to reasonable attorneys’ fees,

which may be incurred by any of the Indemnified Parties

[indemnitees] in connection with enforcing any provisions

of this Indemnity Agreement.”

58

INTERPLAY WITH INSURANCE

COVERAGE • Insurance and indemnity provisions are often construed

together.

• Pekin Ins. Co. v. Equilon Enterprises LLC, 2012 IL App (1st)

111529

• West Bend Mut. Ins. Co. v. Athens Construction Co., 2015 IL App

(1st) 140006

• West Bend Mut. Ins. Co. v. DJW-Ridgeway Bldg. Consultants, Inc.,

2015 IL App (2d) 140441

• Purchasing the required insurance may bar common law

claims for contribution or indemnity. See, e.g., Morsches

Lumber, Inc. v. Probst, 388 N.E.2d 284 (Ind. App. 1979)

59

Certificate of Insurance

60

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. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.

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).

61

“Insured Contract”

• ISO CGL standard definition f:

• That part of any other contract or agreement pertaining to your

business (including an indemnification of a municipality in

connection with work performed for a municipality) under which you

assume the tort liability of another party to pay for "bodily injury" or

"property damage" to a third person or organization. Tort liability

means a liability that would be imposed by law in the absence of

any contract or agreement.

62

“Additional Insured”

• Multiple ISO endorsements available

• Who will be an “additional insured”

• Name

• Category, e.g., vendors, owners, contractors, lessors of equipment

• Agreed in writing

• West Bend Mut. Ins. Co. v. MacDougall Pierce Const., Inc., 11 N.E.3d 531

(Ind. Ct. App. 2014)

• Westfield Ins. Co. v. FCL Builders, Inc., 948 N.E.2d 115 (Ill. App. 2011)

• Causation

• Burlington Ins. Co. v. NYC Transit Auth., 79 N.E.3d 477 (NY 2017)

• Ongoing operations or completed operations

63

Cautionary Tale

“Developer, its subsidiaries and affiliated companies, co-

owners, and joint venturers, if any, and their employees,

officers and agents shall be named as additional insureds

in each of Owner’s policies, except Workers’ Compensation

for liabilities assumed by Owner under the terms of this

Contract.”

64

Cautionary Tale

65

Cautionary Tale

“Developer, its subsidiaries and affiliated

companies, co-owners, and joint venturers, if any,

and their employees, officers and agents shall be

named as additional insureds in each of Owner’s

policies, except Workers’ Compensation, for

liabilities assumed by Owner under the terms of

this Contract.”

66

“Insured Contract” – 2013

• ISO endorsement CG 24 26 04 13 changes standard

definition f:

That part of any other contract or agreement pertaining to your

business (including an indemnification of a municipality in connection

with work performed for a municipality) under which you assume the

tort liability of another party to pay for "bodily injury" or "property

damage" to a third person or organization, provided the "bodily

injury" or "property damage" is caused, in whole or in part, by you or

by those acting on your behalf. However, such part of a contract or

agreement shall only be considered an "insured contract" to the

extent your assumption of the tort liability is permitted by law. Tort

liability means a liability that would be imposed by law in the absence

of any contract or agreement.

67

“Additional Insured” – 2013

changes “However, the insurance afforded to such additional

insured:

1. Only applies to the extent permitted by law; and

2. Will not be broader than that which you are

required by the contract or agreement to provide for

such additional insured.”

68

“Additional Insured” – “you/your”

• Named Insured

• Additional Insured

• Additional Named Insured

• Exclusions for “your product” and “your work”

69

“Additional Insured” – Privity?

• CG 20 33: “you and such person or organization have

agreed in writing in a contract or agreement that such

person or organization be added as an additional insured”

• CG 20 38 – “and…Any other person or organization you

are required to add as an additional insured under the

contract or agreement”

70

“Additional Insured” – Conflicts

• Separation of defense between Named Insured and

Additional Insured

• Insurer’s duties to Named Insured regarding Additional

Insured

• Named Insured often wants Insurer to accept Additional Insured’s

tender

• Paid for endorsement

• Limits contractual indemnity exposure

• But what if Named Insured has a high deductible or SIR?

71

“Additional Insured” v. “Other

Insurance” • Additional insured endorsement

• Primary and non-contributory endorsement

• Other insurance clause

Certain Underwriters at Lloyd’s v. Central Mut. Ins. Co.,

2014 IL App (1st) 133145

West Bend Mut. Ins. Co. v. DJW-Ridgeway Bldg.

Consultants, Inc., 2015 IL App (2d) 140441

72

Multiple indemnitors and AI

insurers

73

Thank You

Kenneth M. Gorenberg

Barnes & Thornburg LLP

Chicago, Illinois

312-214-5609

kgorenberg@btlaw.com

Katie C. Pfeifer

Dorsey & Whitney LLP

Minneapolis, Minnesota

612-492-6947

Pfeifer.Katie@dorsey.com