Structuring Construction Contract Insurance,
Indemnification, and Limitations on Liability
Clauses
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WEDNESDAY, MARCH 11, 2020
Presenting a live 90-minute webinar with interactive Q&A
Katie Pfeifer, Of Counsel, Dorsey & Whitney, Minneapolis
David Taubenfeld, Partner, Haynes & Boone, Dallas
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Drafting Insurance Provisions in
Contracts: What Does It Do, What Does It
Mean, and How Does It Work?
Katie C. PfeiferDorsey & Whitney LLP(612) 340-2600
Insurance Provisions
• Insurance requirements may provide a potential pool of money to pay a claim (i.e., pay for loss caused by an accident or incident; back-up an indemnification obligation)
• Insurance requirements can also require a party be named an Additional Insured (AI) on a policy
– Most commonly the CGL policy
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Drafting Insurance Requirements:
Initial Steps
• Identify the risks associated with the project
• Identify the insurance products available to cover those risks
• Discuss / negotiate allocation of the risks
• Get the brokers involved
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Drafting Insurance Requirements:
What to Include
• Required types / lines of insurance
• Who will be covered
• Limits of liability (how much is covered)
• Minimum carrier rating
• Right to receive coverage documents, carrier notices
• Other terms of coverage
• Bottom line: Specificity in drafting facilitates a clear path to enforce and recover in case of breach
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Drafting Insurance Requirements:
Lines of Coverage
• The “Typical” Requirements
– Builder’s Risk (property)
• Soft Costs coverage?
– Commercial General Liability (CGL)
– Workers’ Compensation
– Automobile Liability
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Sample Insurance Requirements Language
Party A agrees to provide and maintain, at Party’s A own cost and at all times during its performance under this Agreement and for the additional periods of time specified in section X below, insurance of the following types and amounts, written by insurance companies satisfactory to Company, authorized to do business in the state where the work is being performed, and having an A.M. Best’s Rating of not less than ___.
1. General Liability. CGL Insurance, providing coverage on an “occurrence,” rather than on a “claims-made” basis, under a policy form that provides coverage at least as broad in all material respects as that provided under a standard Insurance Services Office (“ISO”) form CG 00 01. Such policy shall include, but not be limited to, coverage for Bodily Injury, Property Damage, Personal and Advertising Injury, Contractual Liability (applying to this Agreement), and Products-Completed Operations Liability. Party A agrees to maintain at all times specified above a policy limit of at least $[XXXX] per occurrence, $[XXXX] Personal & Advertising Injury, $[XXXX] Products – Completed Operations, and $[XXXX] Aggregate.
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Sample Insurance Requirements Language (con’t)
2. Workers’ Compensation. Statutory workers’ compensation insurance covering Party A’s employees in compliance with all requirements of the Workers’ Compensation laws of all states in which Party A performs work under this Agreement. In addition, Party A shall carry Employer’s Liability insurance covering all operations and work hereunder in an amount not less than $[XXXX] for each coverage provided thereunder.
3. Automobile Liability. Automobile Liability insurance covering liability for Bodily Injury and Property Damage arising out of the ownership, maintenance or use of all owned, nonowned and hired automobiles and other motor vehicles utilized by Party A in connection with its performance under this Agreement. Such insurance shall provide a total liability limit for combined Bodily Injury and/or Property Damage in the amount of at least $[XXXX] per accident. Such policy shall include coverage for motor vehicle liability assumed under contract.
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Sample Insurance Requirements Language:
AIA Document A101TM – 2017 Exhibit A
§ A.2.3.1 Unless this obligation is placed on the Contractor pursuant to Section A.3.3.2.1, the Owner shall purchase and maintain, from an insurance company or insurance companies lawfully authorized to issue insurance in the jurisdiction where the Project is located, property insurance written on a builder’s risk “all-risk” completed value or equivalent policy form and sufficient to cover the total value of the entire Project on a replacement basis. The Owner’s property insurance coverage shall be no less than the amount of the initial Contract Sum, plus the value of subsequent Modifications and labor performed and materials or equipment supplied by others. The property insurance shall be maintained until Substantial Completion and thereafter as provided in Section A.2.3.1.3, unless otherwise provided in the Contract Documents or otherwise agreed in writing by the parties to this Agreement. This insurance shall include the interests of the Owner, Contractor, Subcontractors, and Sub-subcontractors in the Project as insureds. This insurance shall include the interests of mortgagees as loss payees.
§A.2.3.1.1 Causes of Loss. The insurance required by this Section A.2.3.1 shall provide coverage for direct physical loss or damage, and shall not exclude the risks of fire, explosion, theft, vandalism, malicious mischief, collapse, earthquake, flood or windstorm. The insurance shall also provide coverage for ensuing loss or resulting damage from error, omission, or deficiency in construction methods, design, specifications, workmanship, or materials. . . .
§ A.2.3.1.2 Specified Required Coverages. The insurance required by this Section A.2.3.1 shall provide coverage for loss or damage to falsework and other temporary structures, and to building systems from testing and startup. The insurance shall also cover debris removal, including demolition occasioned by enforcement of any applicable legal requirements, and reasonable compensation for the Architect’s and Contractor’s services and expenses required as a result of such insured loss, including claim preparation expenses. . . .
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Drafting Insurance Requirements:
Getting More Specialized
• Property
• Pollution
• Fidelity Bond / Crime Coverage
• Errors & Omissions Liability
• Directors & Officers Liability
• Employment Practices Liability
• Cyber Risk Coverage
• Intellectual Property
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Practical Considerations for Drafting
Insurance Requirements
• Remove “impossible” insurance requirements
– Requiring coverage “for any and all claims” or coverage “without limitation”
• Remove “impractical” insurance requirements
– Requiring policy lines that are not applicable
– Requiring outdated endorsements / forms
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Drafting (More Specific) Insurance
Requirements Language:
AI Coverage
• What is it?
– Risk transfer device that allows one party to obtain coverage under another party’s policy
• Benefits for AI:– Requires Named Insured’s insurer to bear primary risk
of loss
– Provides coverage without a premium
– Backs-up indemnity obligation
– Provides immediate defense
– Preserves AI’s own liability limits
– Particularly beneficial for companies who are self-insured or who have large retentions on their own policies
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Drafting (More Specific) Insurance
Requirements Language:
AI Coverage
• Implications for Named Insured
– Could provide broader coverage for AI than required by indemnity obligation (e.g., insuring AI’s sole negligence)
– Covered claim could be only tangentially connected to Named Insured’s operations, resulting in disproportionate risk transfer
– Claims by AI will erode the policy limits (less available for Named Insured)
– Increased insurance costs
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Drafting (More Specific) Insurance
Requirements Language:
AI Coverage• Certain policies not amenable or suited to AI
coverage
– D&O (possible, but need to understand potential implications)
– E&O / Professional
– Workers’ Compensation
• Do not use a blanket statement such as “Company is to be named as an additional insured on all policies required hereunder”
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AI Coverage v. Coverage for Indemnity
Obligations
Named Insured response (sometimes): Required to have contractual liability coverage under CGL, isn’t that enough?
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AI Coverage v. Coverage for Indemnity
Obligations
• CGL does include some contractual liability coverage
– Contractual liability exclusion
– Standard ISO form provides limited “give-back” coverage for Named Insured’s assumption of another’s tort liability
– Indemnitee becomes another claimant under policy
– Defense to indemnitee can be outside of limits (Supplementary Payments coverage)
• Claim against indemnitee for damages that insured has assumed the liability for in an “insured contract”
• “Insured contract” includes a defense obligation
• Can be no conflict between indemnitor and indemnitee
• Indemnitor and indemnitee must use same attorney
• Indemnitee has no insured status
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AI Coverage v. Coverage for Indemnity
Obligations
• AI receives direct policy rights
– Right to defense in addition to limits (most policies)
– Separation of insureds clause
– Separate counsel
– Insurer owes duties to the AI
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How To Become an AI
• Generally requires both a contract between the parties and an AI provision in an insurance policy
• A contractual obligation to provide insurance is ineffective unless the Named Insured’s policy contains an AI clause
– Usually in an endorsement
– Many different AI endorsements
– The endorsement matters
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Evolution of AI Coverage: Pre-2004
• CG 20 10 22 85
– “[L]iability arising out of ‘your work’”
• Courts applied a broad standard
• If the liability would not have arisen “but for” the named insured’s involvement, the AI has coverage
– Insurers unhappy with court-interpreted scope of coverage
– Still required by some contracts
• Can be hard to obtain
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Evolution of AI Coverage: 2004
• In response to cases providing AI coverage for the AI’s own negligence, ISO amended commonly-used AI endorsements
– Designed to make clear that AI’s sole negligence is not covered
• Result: AI has coverage only with respect to liability caused, in whole or in part, by the Named Insured’s conduct
• Also amendments (beginning in 1993) to limit AI coverage to “ongoing operations”; now requires a separate endorsement for completed operations coverage
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Evolution of AI Coverage: 2004
Includes copyrighted material of Insurance
Services Office, Inc., with its permission.
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Evolution of AI Coverage: 2013
• Three new restrictions
– Coverage provided only “to the extent permitted by law”
• Relates to anti-indemnity statutes
– Coverage “will not be broader than which you are required by the contract or agreement to provide”
• Ties AI coverage to contractual requirements
– Limits are lesser of contract requirement or policy declarations
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Evolution of AI Coverage: 2013
2004 CG 20 10
A. Section II. Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury”, “property damage” or “personal and advertising injury” caused, in whole or in part, by:
1. Your acts or omissions; or
2. The acts or omissions of those acting on your behalf;
in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.
2013 CG 20 10
A. Section II – Who is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury”, “property damage” or “personal and advertising injury” caused, in whole or in part, by:
1. Your acts or omissions; or
2. The acts or omissions of those acting on your behalf;
In the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.
However:
1. The insurance afforded to such additional insured only applies to the extent permitted by law; and
2. If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide such additional insured.
Includes copyrighted material of Insurance
Services Office, Inc., with its permission.
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Sample AI Language
“Party A’s CGL and Automobile Liability Insurance policies shall include Company, its directors, officers, and employees as Additional Insureds thereunder. Each such policy shall waive or otherwise prohibit insurer subrogation against Company and all such other Additional Insureds. Each such policy shall also include a severability of interests (or “separation of insureds”) provision. Party A shall require any subcontractors it hires to afford Company and other parties described above similar Additional Insured status, and to similarly waive or otherwise prohibit insurer subrogation against such Additional Insureds.
The Additional Insured status under Party A’s CGL policy shall be provided by a combination of Insurance Services Office (ISO) forms CG 20 10 and CG 20 37, or by other equivalent Additional Insured endorsement form(s) that provide both Premises and Operations and Completed Operations liability coverage that is at least as broad as that afforded by the above-referenced forms.”
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AI Requirements: Drafting Considerations
• Temporal
– “Ongoing operations” and “completed operations”
– Request the 1985 form (unlikely) or (more likely) combination of forms CG 20 10 and CG 20 37
• Monetary
– Lesser or greater of contract requirement or policy limits?
• Will depend on your intention
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AI Requirements: Drafting Considerations
• Degree of liability
– Limited to vicarious liability for Named Insured’s conduct, or includes AI’s sole or concurrent negligence?
– Request 1985 form or other pre-2004 form (if possible)
– Specify that AI coverage be “at least as broad as” Named Insured’s coverage under its policies
• Consider application of anti-indemnity statutes
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AI Requirements: Drafting Considerations
• Contractual privity
– Many contracts require Named Insured to name strangers as AI on policies, e.g., affiliated parties, consultants, etc.
– Can be problem with older additional insured forms, e.g., CG 20 33 07 04 provides cover only to party with whom Named Insured contracts
– Specify use of newer forms, or issuance of separate AI endorsements for each required party
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Drafting (More Specific) Insurance
Requirements Language:
Notice of Cancellation
• What is it: Notice from the insurer that the policy will be cancelled or terminated in XX days
– Different periods for different types of cancellation or termination (e.g., non-payment)
• Is it advisable to require such notice? Is it feasible?
• (Potential) Sample Language: “The policy shall include a requirement that the insurer provide at least thirty (30) days’ written notice to Company prior to the effective date of policy cancellation (ten (10) days’ notice in the event of cancellation due to nonpayment of premium).”
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Are the Requirements Met?
Certificates of Insurance
• Disputes can arise when a Certificate of Insurance provides something different from the insurance policy, and in particular when a Certificate of Insurance incorrectly identifies an AI
• But, several states in recent years have attempted to address these issues
• See, e.g., Minn. Stat. § 60A.39
– Provides that a certificate of insurance, when issued to any person other than the policyholder, must contain the following or similar statement: “This certificate or memorandum of insurance does not affirmatively or negatively amend, extend, or alter the coverage afforded by the insurance policy.”
– Also requires that a certificate provided to a third party must not provide for notice of cancellation that exceeds the statutory notice of cancellation provided to the policyholder or a period of notice specified in the policy
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Are the Requirements Met?
Certificates of Insurance
• Certificates of Insurance: Generally cannot create or alter coverage in policies
– Merely a temporally limited “snapshot” representation by agent or broker
– Many courts have declined to find justifiable reliance based on the language of the certificate
– Should not rely on them as solesource of verification
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SHOULD ANY OF THE ABOVE
DESCRIBED POLICIES BE CANCELLED
BEFORE THE EXPIRATION DATE
THEREOF, NOTICE WILL BE DELIVERED
IN ACCORDANCE WITH THE POLICY
PROVISIONS.
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Are the Requirements Met?
Certificates of Insurance
• Ideally, request a full copy of the Named Insured’s policy
• May not be that simple:
– For some companies, the extent of their insurance program, including limits and deductibles, is closely-held information
– Obtain and review the AI endorsement(s), at a minimum
– Review the Declarations / Other Insurance Clause, if possible
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Sample Compliance Language
“Prior to the commencement of any performance under this Agreement, Party A will provide Company with evidence that the insurance coverage required of Party A hereunder is in full force and effect. In the event any such insurance renews or is terminated during the course of Party A’s performance, Party A will promptly provide Company with evidence that such coverage will be renewed or replaced upon termination with insurance that complies with these provisions. Such evidence of insurance will be in the form of a standard Certificate of Insurance or other form of evidence of insurance acceptable to Company, and shall contain sufficient information to allow Company to determine whether there is compliance with these provisions. Such evidence of insurance shall be accompanied by copies of any Additional Insured endorsements or automatic Additional Insured policy provisions necessary to achieve compliance with the Additional Insured requirements of this Agreement.
Company reserves the right to require complete, certified copies of all required insurance policies, including endorsements, required by this Agreement, at any time.”
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© 2013 Haynes and Boone, LLP
Anti-Indemnification Acts
David R. Taubenfeld, Esq.
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• Anti-indemnity statutes prohibit certain types of indemnification
agreements in certain contexts
• Most states have enacted some type of anti-indemnity statute
• Most commonly impact oil & gas and construction-related contracts
• These statutes can also impact contractual insurance obligations.
Anti-Indemnity Acts, generally
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Oilfield Anti-Indemnity Acts
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Anti-Indemnity Acts
Oilfield Anti-Indemnity Acts
• Texas (Tex. Civ. Prac. & Rem. Code § 127.001, et seq.);
• Louisiana (La. R.S. 9:2780);
• New Mexico (N.M. Stat. Ann. § 56-7-2); and
• Wyoming (Wyo. Stat. §§ 30-1-131 to 30-1-133).
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Oilfield Anti-Indemnity Acts
Texas Oilfield Anti-Indemnity Act
• The Texas Legislature enacted the Texas Oilfield Anti-
Indemnity Act (Tex. Civ. P. & Rem. Code §§ 127.001-007) (the
“TOAIA”) after finding that some contractual indemnity
provisions foster an inequity on contractors who enter
agreements relating to oil and gas.
• Applies to agreements pertaining to, collateral to, or affecting
a well for oil, gas, or water, or to mine for a mineral.
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Oilfield Anti-Indemnity Acts
Texas Oilfield Anti-Indemnity Act
• Generally, the TOAIA provides that an indemnity provision in an oilfield
contract is void and unenforceable if it attempts to indemnify a person
against loss or liability for damage that:
• (1) “is caused by or results from the sole or concurrent negligence of the
indemnitee, his agent or employee, or an individual contractor directly
responsible to the indemnitee;” and
• (2) arises from personal injury, death, property injury, or any other loss,
damage, or expense that results from those things. Tex. Civ. P. & Rem.
Code § 127.003.
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Oilfield Anti-Indemnity Acts
Exceptions Under the Texas Oilfield Anti-Indemnity Act
Loss or liability for damages or an expense arising from:
(1) personal injury, death, or property injury that results from radioactivity;
(2) property injury that results from pollution, including cleanup and control of the
pollutant;
(3) property injury that results from reservoir or underground damage, including loss of
oil, gas, other mineral substance, or water or the well bore itself;
(4) personal injury, death, or property injury that results from the performance of services
to control a wild well to protect the safety of the general public or to prevent depletion of
vital natural resources; or
(5) cost of control of a wild well, underground or above the surface.”
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Oilfield Anti-Indemnity Acts
Exceptions Under the Texas Oilfield Anti-Indemnity Act
Section 127.005 – Safe Harbor Provision
• Act does not apply to an indemnity agreement if “the parties agree in
writing that the indemnity obligation will be supported by liability
insurance coverage to be furnished by the indemnitor,” subject to
limitations enumerated in the statute.
• The provision of the statute relating to insurance considers two types of
indemnity obligations:
• mutual indemnity obligations and unilateral indemnity obligations.
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Other States’ Oilfield Anti-Indemnity Acts
Louisiana Oilfield Anti-Indemnity Act (“LOIA”)
• Invalidates certain indemnification agreements contained in contracts
“pertaining to wells for oil, gas or water.” La. Rev. Stat. § 9:2780.
• Unlike the TOAIA, the LOIA does not apply to property damage, but is
limited to death or bodily injury to persons. Id. at §9:2780(A)-(B).
• LOIA also generally excepts out claims related to pollution, radioactivity,
oil spill cleanup and wild well costs. Id. at § 9:2780(F).
• If an indemnity provision as written violates the statute, it will be entirely
void. Meloy v. Conoco, Inc., 504 So. 2d 833, 839 (La. 1987).
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Other States’ Oilfield Anti-Indemnity Acts
New Mexico Oilfield Anti-Indemnity Act (“NMOAIA”)
• Prohibits indemnity provisions in agreements “pertaining to a well for oil, gas
or water, or mine for a mineral” that purport to indemnify an indemnitee for his
or her own negligence. N.M. Stat. Ann. § 56-7-2(A).
• Such an agreement means one: “(1) concerning any operations related to
drilling, deepening, reworking, repairing, improving, testing, treating,
perforating, acidizing, logging, conditioning, altering, plugging or otherwise
rendering services in connection with a well drilled for the purpose of
producing or disposing of oil, gas or other minerals or water; (2) for rendering
services in connection with a mine shaft, drift or other structure intended for
use in the exploration for or production of a mineral; or (3) to perform a portion
of the work or services [above].” Id. at § 56-7-2(B).
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Other States’ Oilfield Anti-Indemnity Acts
New Mexico Oilfield Anti-Indemnity Act (“NMOAIA”)
• Does not apply to distribution, processing, or transportation activities. See Holguin v
Fulco Oil Servs., LLC, 245 P.3d 42, 47-48 (N.M. App. 2010).
• Covers death, personal injury, property damage, as well as situations involving
radioactivity, pollution and wild-well control. “A provision…naming a person as an
additional insured…that would, if it were a direct or collateral agreement described
in…this section, be void, is against public policy and void.” N.M. Stat. Ann. § 56-7-
2.
• Even if agreement violates statute, courts will enforce the indemnity clauses to the
extent the clauses require indemnification for the indemnitor’s own fault.
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Other States’ Oilfield Anti-Indemnity Acts
Wyoming Oilfield Anti-Indemnity Act (“WOAIA”)
• Applies to agreements “pertaining to any well for oil, gas or water, or mine for
any mineral.” W.S. § 30-1-131.
• Covers almost any kind of damage (bodily injury, property damage, etc.).
• Wyoming case law limits the statute to agreements that involve work “closely
related to well drilling.” See Reliance Ins Co. v. Chevron USA Inc., 713 P.2d
766, 770 (Wyo. 1986).
• Provisions violating the statute are only “void and unenforceable to the extent
that such contract of indemnity by its terms purports to relieve the indemnitee
of from loss or liability for his own negligence.” See Wyo. Stat. § 30-1-131.
• No prohibition on insurance coverage.
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Construction Anti-Indemnity Acts
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Anti-Indemnity Acts
Construction Anti-Indemnity Acts
• Majority of states have enacted anti-indemnity acts, generally
applying to construction-related contracts or agreements.
• The statutes vary state by state. Some statutes prohibit
broad form indemnity agreements while other statutes
prohibit intermediate form indemnity agreements.
• All states allow limited form indemnity agreements.
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There are 3 forms of Indemnity
• Broad Form
• Intermediate Form
• Limited Form
Types of Indemnity Clauses
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Broad Form
• Indemnitor assume responsibility for indemnitee’s
negligence, regardless whether the indemnitor was at fault,
at partial fault, or at no fault at all.
• The entire risk of the loss is transferred to the indemnitor.
• This type of indemnity clause is most often unenforceable
under states’ anti-indemnity statutes.
Types of Indemnity Clauses
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Intermediate Form – Full Indemnity
• Indemnitor assumes responsibility for its own negligence, if
it is solely at fault or partially at fault. If the indemnitee is
solely at fault, there is not indemnity responsibility for the
indemnitor.
• Full Indemnity: If the indemnitor is partially at fault, he pays
all the damages.
Types of Indemnity Clauses
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Intermediate Form – Partial Indemnity
• Indemnitor assumes responsibility for its own negligence, if
it is solely at fault or partially at fault. If the indemnitee is
solely at fault, there is not indemnity responsibility for the
indemnitor.
• Partial Indemnity: Indemnitor only pays damages to the
extent the indemnitor was at fall. For example, if the
indemnitor is 30% at fault, he will only indemnify the
indemnitee for 30% of the damages.
Types of Indemnity Clauses
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Limited Form
• Indemnitor assumes only the responsibility for its own
negligence, if it is solely at fault.
• There is no protection if the indemnitee is even partially at
fault.
• All fifty states allow limited indemnity provisions.
Types of Indemnity Clauses
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Anti-Indemnity Acts
Construction Anti-Indemnity Acts
• States with Acts Prohibiting Broad Form Indemnity:
• Alaska, Arizona, Arkansas, California, Georgia, Hawaii,
Idaho, Indiana, Louisiana*, Maryland, Massachusetts,
Michigan, Nevada, New Hampshire, New Jersey, South
Carolina, South Dakota, Tennessee, Virginia, and West
Virginia
* specifically refers to public contracts
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Anti-Indemnity Acts
Construction Anti-Indemnity Acts
• States with Acts Prohibiting Intermediate Form Indemnity:
• Arizona*, California, Colorado, Connecticut, Delaware,
Florida*, Illinois, Iowa, Kansas, Kentucky, Louisiana*,
Minnesota, Mississippi, Missouri, Montana, New York,
North Carolina, Ohio, Oklahoma, Oregon, Rhode Island,
Texas, Utah, Washington, and Wisconsin.
*specifically refers to public contracts
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Anti-Indemnity Acts:
Additional Insured Loophole
• Arizona*, Colorado, Georgia, Kansas, Montana, Nebraska, New Mexico, Oklahoma, and Texas have all enacted legislation that addresses this additional insured loophole.
Some of These Statutes Close the Loophole
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Anti-Indemnity Acts
Construction Anti-Indemnity Acts
• States Without an Anti-Indemnity Act:
• Alabama, District of Columbia, Maine, North Dakota,
Pennsylvania, Vermont, and Wyoming (although Wyoming
has enacted an Oilfield Anti-Indemnity Act)
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Texas Construction Anti-Indemnity Act
Texas Insurance Code § 151 et. seq.
• Tex. Ins. Code § 151.101: Applicability
• Applies to a construction contract for a construction project for which an
indemnitor is provided or procures insurance subject to this chapter or
Title 10.
• This applicability requirement applies regardless whether the insurance
is provided or procured before or after execution of the contract.
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Texas Construction Anti-Indemnity Act
Texas Insurance Code § 151 et. seq.
• Tex. Ins. Code § 151.102
• A provision in a construction contract, or in an agreement collateral to or
affecting a construction contract, is void and unenforceable as against
public policy to the extent that it requires an indemnitor to indemnify, hold
harmless, or defend a party, including a third party, against a claim caused
by the negligence or fault, the breach or violation of a statute, ordinance,
governmental regulation, standard, or rule, or the breach of contract of the
indemnitee, its agent or employee, or any third party under the control or
supervision of the indemnitee, other than the indemnitor or its agent,
employee, or subcontractor of any tier.
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Texas Construction Anti-Indemnity Act
Texas Insurance Code § 151 et. seq.
• Definition of Construction Contract (Tex. Ins. Code § 151.001(5))
• A contract, subcontract, or agreement, or a performance bond
• Entered into or made by an owner, architect, engineer, contractor,
construction manager, subcontractor, supplier, or material or
equipment lessor
• for the design, construction, alteration, renovation, remodeling,
repair, or maintenance of, or for the furnishing of material or
equipment for, a building, structure, appurtenance, or other
improvement to or on public or private real property, including
moving, demolition, and excavation connected with the real property.
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Texas Construction Anti-Indemnity Act
Texas Insurance Code § 151 et. seq.
• Definition of Construction Project (Tex. Ins. Code § 151.001(2))
• Construction, remodeling, maintenance, or repair of improvements
to real property.
• The term includes the immediate construction location and areas
incidental and necessary to the work as defined in the construction
contract documents.
• A construction project under this chapter does not include a single
family house, townhouse, duplex, or land development directly
related thereto.
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Texas Construction Anti-Indemnity Act
Texas Insurance Code § 151 et. seq.
• EXCEPTIONS
• Employee Claims (Tex. Ins. Code § 151.103)
• Named Insured to an Insurance Policy (Tex. Ins. Code § 151.104(b))
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Texas Construction Anti-Indemnity Act
Texas Insurance Code § 151 et. seq.
• Section 151.105 Exclusions • Consolidated Insurance Programs
• Breach of contract or warranty actions
• Loan and financing documents (other than construction contracts to which
lenders are parties)
• General agreements of indemnity required by sureties
• Workers’ compensation benefits and protections
• Agreements subject to Ch. 127 of Tex. Civ. P. & Rem. Code
• License or access agreements with railroad companies
• Indemnity provisions pertaining to copyright infringement claims
• Construction contracts pertaining to residences
• Public works projects of municipalities
• Joint defense agreements entered into after claim is made
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Wyoming Case Law – Mid-Continent Cas. Co. v. True Oil Co., 767 F.3d 1000, 1006 (10th Cir. 2014).
• The Wyoming Anti-Indemnity Statute—Wyo. Stat. Ann. § 30-1-131—
voided an agreement that attempted to require a contractor to
indemnify an oil and gas well owner for the owner’s own negligence.
• However, a contract may include a clause requiring an indemnitor to
indemnify an indemnitee for the indemnitor’s own negligence.
Anti-Indemnity Statutes In Action
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North Dakota Case Law - Chapman v. HilandPartners GP Holdings, No. 1:13-cv-052, 2014 U.S. Dist. LEXIS 128119, at *16-18 (D.N.D. Sept. 10, 2014).
• North Dakota’s anti-indemnification statute—N.D.C.C. § 22-02-
10(2)—voided a master service contract that required a subcontractor
to indemnify an owner of a natural gas processing facility for the
owner’s own negligence.
• The North Dakota legislature enacted § 22-02-10 of the North Dakota
Century Code in 2009.
Anti-Indemnity Statutes In Action
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Mississippi Case Law – Deviney Constr. Co. v. Ace Util. Boring & Trenching, No. 3:13cv60-DPJ-FKB, 2014 U.S. Dist. LEXIS 88658, at *27-28 (S.D. Miss. June 30, 2014).
• Under Mississippi’s anti-indemnity statute, any promise to “indemnify
or hold harmless another person from that person’s own negligence is
void as against public policy and wholly unenforceable.” Miss. Code.
Ann. § 31-5-41.
Anti-Indemnity Statutes In Action
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Purpose of Indemnification Agreements
• Allocation and transfer risk (important element of the bid itself)
• Avoid application of strict contributory negligence doctrines in
some states
• Avoid (or attempt to avoid) fight amongst participants on the
project
• Obtain benefit of (typically) longer contract statute of limitations
(versus tort statute of limitations)
Indemnification Terms
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Sample Indemnification Provision
“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.
Indemnification Terms
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Basic Terms
• Who is the indemnitee and indemnitor?
• When is the indemnification triggered?
• What types of claims/allegations are to be indemnified?
• What is the scope of the indemnification?
Indemnification Terms
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Indemnitee and Indemnitor
• Indemnitor: party who owes the obligation to indemnify
• Indemnitee: party who receives the indemnification
“To the fullest extent permitted by law, the Contractor shall
indemnify and hold harmless the Owner 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….”
Indemnification Terms
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Trigger
Indemnification Terms
“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.”
– What is a “claim”?
– When is indemnification triggered?
• Claims – immediately
• “Damages, losses and expenses” – once incurred
• Consider adding “liabilities”
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Types of Claims/Allegations to be Indemnified
“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.”
– Construction contracts generally include indemnification to bodily injury or property damage type claims
• Insurance coverage more likely for these types of claims
– Some contracts also include indemnification for intellectual property type claims
Indemnification Terms
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Types of Claims/Allegations to be Indemnified (con’t)
• What about other claims?
– E.g., claims for breach of contract claims? Economic loss claims?
– Sample language: “arising, directly or indirectly, from the performance of the Work, breach of this Contract, or a Contractor Party’s negligence or willful misconduct with respect to the Project”
– Sample language: “Contractor shall indemnify, defend, and hold harmless the Indemnified Parties from and against Indemnified Claims for economic loss (i.e., Indemnified Claims not attributable to bodily injury, sickness, disease or death or to injury to or destruction of tangible property), but only to the extent such economic loss was caused by a breach of this Contract or a Contractor Party’s negligence or willful misconduct with respect to the Project.”
– Keep in mind that such language can create problems for insurance coverage
Indemnification Terms
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The Interplay Between Insurance and
Indemnification
Katie C. Pfeifer
Dorsey & Whitney LLP
(612) 340-2600
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Insurance and Indemnification
• Insurance and indemnity provisions are often construed together
• Purchasing required insurance may bar common lawclaims for contribution or indemnity
– See, e.g., Morsches Lumber, Inc. v. Probst, 388 N.E.2d 284 (Ind. App. 1979)
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How Broad Is AI Coverage, or Which Document Do
I Need to Review?
• Does the insurance obligation essentially back-stop the contractual indemnity obligation, or
• Does it cover more than the AI would be able to recover under the indemnity agreement?
• In other words, does the language of the relevant contract control the scope of coverage afforded to the AI, or does the insurance policy stand on its own?
• Answer: It Depends.
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Case study: In re Deepwater Horizon, 470
S.W.3d 452 (Tex. 2015)
• April 2010 explosion and sinking of the Deepwater Horizon oil-drilling rig (owned by Transocean), and the resulting discharge of oil into the Gulf of Mexico
– BP was the oilfield developer
• Damage resulted in much litigation, including an insurance coverage dispute
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Deepwater Horizon: The Indemnification
Obligation
• “Knock-for-knock” allocation of risk
– Transocean to indemnify BP for above-surface pollution, regardless of fault
– BP to indemnify Transocean for all pollution risk Transocean did not assume, i.e., subsurface pollution
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Deepwater Horizon: The AI Obligation in the
Drilling Contract
“[BP], 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 [Transocean’s] policies, except Workers’ Compensation for liabilities assumed by [Transocean] under the terms of this Contract.”
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Deepwater Horizon: The AI Coverage in the
Relevant Policy
• Extended “Insured” status to include “[a]ny person or entity to whom the ‘Insured’ is obligated by oral or written ‘Insured Contract’ … to provide insurance such as afforded by [the] Policy.”
• “Insured Contract”: “[A]ny written or oral contract or agreement entered into by the ‘Insured’ … and pertaining to your business under which the ‘Insured’ assumes the tort liability of another party to pay for ‘Bodily Injury’ [or] ‘Property Damage’ to a ‘Third Party’ or organization.”
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Deepwater Horizon: The Issue
• BP sought coverage under Transocean’s primary and excess policies, claiming AI status
– BP was self-insured for much of its liability
– Transocean had a potential of $750M of coverage
• Insurers (supported by Transocean) denied coverage, claiming the Drilling Contract made clear that Transocean was not responsible for liability for subsurface pollution and BP could not claim AI status for such claims
• Question: Does the Court look only to the Policy to determine BP’s AI status, or to the Drilling Contract as well?
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Deepwater Horizon: The Decision
• Texas Supreme Court (on certified question from the 5th Circuit)
– Because the grant of AI status incorporates definition of “Insured Contract,” it is necessary to look to the “Insured Contract” to determine the scope of coverage
– “[W]e determine the scope of coverage from the language employed in the insurance policy, and if the policy directs us elsewhere, we will refer to an incorporated document to the extent required by the policy.”
– Lesson: The policy controls in the first instance, but can direct you to look elsewhere
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Questions?
Katie PfeiferDorsey & Whitney LLP50 South Sixth Street, Suite 1500Minneapolis, MN 55402(612) [email protected]
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