Top Jurisdictional Issues Every Contractor Should Know

Mike Bradshaw-Regional Technical Director, Willis

Todd Schweitzer-AVP, Zurich Insurance Co.

September 21, 2012

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DISCLAIMER (We are not attorneys!)

Willis and Zurich are pleased to provide you with this presentation. Willis is an insurance consulting and brokerage firm. Zurich is a insurance company.

Willis and Zurich, it directors, officers, employees, agents, parent companies and any and all subsidiaries, divisions, and affiliates does not provide legal advice and nothing contained herein should be taken as or considered to be legal advice. Willis and Zurich take no responsibility for any actions taken or not taken on the basis of this presentation.

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Table of Contents

1. Contractual Risk Transfer Issues

2. Allocation Issues

3. Statute of Limitation/ Repose

4. Contractual Damage Limitations

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Types of Indemnity Agreements

• Broad Form

• Intermediate Form

• Comparative (Limited) Form

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Broad Form Indemnity

You transfer all risk of loss described in the contract regardless of who is at fault.

The indemnitor is responsible for all damages, even if the indemnitee is solely at fault.

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Intermediate Form Indemnity

You transfer all risk of loss described in the contract, except when the loss is entirely your fault.

The indemnitor is responsible for all damages even if they are just one percent at fault.

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Comparative (Limited) Indemnity Form

The indemnitor is responsible for only “it’s share” of liability arising from the contract.

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Contractual Risk Transfer Issues

Indemnity Agreement Interpretations: State law determines enforceability Courts will construe the plain language of the contract to

determine the intent of the parties Courts generally construe the agreement as a whole. They

consider all parts, (hold harmless and insurance provisions). Courts allow the admission of evidence outside the contract

where the intent of the parties is unclear. Courts will generally enforce the indemnity provisions against

the drafter of the contract when the language is ambiguous.

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Anti-Indemnity Statutes – What are they?

These are statutes that limit the scope of legal liability that one party may transfer to another through a contract. They vary from state to state.

The majority of states have some form of anti-indemnity statute.

The majority of states prohibit an indemnitee from assigning its sole negligence to an indemnitor.

The majority of states will allow indemnification for vicarious liability.

A minority of states will uphold a contract where the indemnitor indemnifies an indemnitee for its sole negligence….if it is “clearly stated” in the contract.

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Anti-Indemnity Statutes Summary

States that prohibit indemnity for the sole negligence of the Indemnitee:

AK, AZ, CA(1), GA, HI, ID, IN, LA, MD, MI, NJ, NH, SD, TN, VA & WV

States that void provisions for indemnification for losses arising from the indemnitee’s negligence, whether sole or concurrent.

AR, CO, CT, DE, FL, IL, KS, KY, MA, MN, MO, MS, MT, NC, NE, NM, NY, OH, OK, OR, RI, SC, TX, UT,

States that allow the indemnification of the sole negligence by the indemnitee.

AL, DC, IA, LA, ME, ND, OK, PA, VT & WY

(1) CA prohibits indemnity for concurrent negligence in contracts dated 01/01/2013.

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Anti-Indemnity Statutes Applied to Additional Insured Status

There are a number of states that prohibit anti-additional insured requirements, (prohibit requirements in subcontracts requiring subcontractors to add upper tier contractors and owners as additional insured to the sub’s policies).

CO, KS, MT, NM, OK, OR, TX & UT

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Additional Insured Issues

In addition to the indemnification provisions found in construction contracts, most contracts also call for the lower-tiered sub to named the upper-tiered contractor and owner as additional insured on the sub’s policy.

Some of the problems associated with this requirement are:

• The claims or damage did not “arise out of” the sub’s work

• Even if the claims or damage arise out of the sub’s work, the damages were caused after the sub’s work was completed and are excluded under completed operations exclusion.

• The sub’s policy are excess to any policies owned by the GC

• The contractor failed to tender a proper request for defense and indemnity

• The GC relied on a COI in affirming its status as an AI

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Additional Insured Issues (cont.)

• Courts have interpreted the “arising out of” clause very broadly so as to afford coverage to the AI, regardless of whether the named insured had any contributory negligence.

• Many carriers are trying to restrict coverage afforded to AI by changing policy language, for example: From “arising out of” to “caused in whole or in part by the NI’s acts or omissions…”

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AI Concerns-What to Consider

Upper-Tiered Contractors and Owners:

Review all AI endorsements and coverage to make sure it provides the protection you have required in your contract.

Lower-Tiered Contractors:

Work with your broker and insurers to make sure you are complying with the insurance terms in your construction contracts

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What are “Right to Repair” laws?

They are laws that allow a builder to address an owner’s claims of construction defects and provides a builder the chance to cure before the owner can commence litigation

States with Right to Repair laws:

AZ, CA, CO, FL, GA, HI, ID, IN, KS, KY, MS, MO, MT, NV, NH, ND, OR, SC, TN, TX, VA, WA, WV, WI.

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Allocation Issues

Triggers of Coverage

• Manifestation

• Continuous

• Injury in Fact

• Exposure

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Allocation Issues

• Pro Rata

• All Sums

• Choice of Law

• Horizontal verses Vertical Exhaustion

• Excess Coverage Impact

• Wrap Insurance Implications

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Statutes of Limitations/Repose

Statute of Limitations:

A state or federal law that refers to the period in which a suit must be brought. SOL’s may be “tolled”.

They can run from a low of 2 years (AL) to a high of 10 years (RI)

Statute of Repose:

Is the time period within which all suits must be brought. This is an absolute bar.

They can run from a low of 4 years (TN) to a high of 13 years in (AL)

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Concerns with SOL/SOR

• They vary State to State

• There is NO SOR on federal projects

• When does the SOL being to run?

• When does the SOR begin to run?

• What are “tolling” issues?

• How long should you keep your construction contracts/records?

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Damage Limitations

• Limitation of Liability Clauses

• Contract Limitations – Consequential; Liquidated

• “As Is” Provisions – Land Purchases / Property Sales

• Contract verses Tort Remedies

• Joint and Several Liability

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Top Jurisdictional Issues Every Contractor Should Know

Questions?

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Top Jurisdictional Issues Every Contractor Should Know

Thank You!

Mike Bradshaw

&

Todd Schweitzer