<< February 2011 | Home | April 2011 >>

Indemnity: Limited "to the extent" of insured's negligence

frmo the desk of Judy Mendoza

The professional liability policy provides coverage for claims to the extent that they were caused by the insured’s negligent acts, errors, or omissions. Professional liability insurance only pays for damages caused by the insured, not for damages caused by other parties.
 
We recently reviewed a contract that included an indemnification provision containing the following statement: “This indemnity obligation applies regardless of whether or not such claim…is caused in part by the negligence or other fault of a party indemnified hereunder.”
 
In some jurisdictions, this language may expand the insured’s legal obligation to pay for damages that are partially caused by another party. In other jurisdictions, this language could impact comparative or contributory negligence statutes. The interpretation and enforceability of indemnity provisions depends upon the jurisdiction, statutes, and case law. There are significant differences on how different jurisdictions interpret and enforce indemnity provisions. Accordingly, when reviewing or drafting indemnity provisions, consultation with knowledgeable legal counsel is essential.
 
Here is an example of an indemnity provision that attempts to limit the design professional’s indemnification obligation to the proportionate share of the design professional’s negligence:
 
Sample provision: To the fullest extent permitted by law, Consultant shall indemnify Client, its officers, directors, partners, employees, and representatives from and against losses, damages, and judgments arising from claims by third parties, including reasonable attorneys’ fees and expenses recoverable under applicable law, but only to the extent they are found to be caused by a negligent act, error, or omission of Consultant or Consultant’s officers, directors, members, partners, agents, employees, or subconsultants in the performance of services under this Agreement.
 
In the following mutual indemnification provision this limitation is further clarified:
 
Sample provision: To the fullest extent permitted by law, Client and Consultant each agree to indemnify the other party and the other party’s officers, directors, partners, employees, and representatives from and against losses, damages, and judgments arising from claims by third parties, including reasonable attorneys’ fees and expenses recoverable under applicable law, but only to the extent they are found to be caused by a negligent act, error, or omission of the indemnifying party or any of the indemnifying party’s officers, directors, members, partners, agents, employees, or subconsultants in the performance of services under this Agreement. If claims, losses, damages, and judgments are found to be caused by the joint or concurrent negligence of Client and Consultant, they shall be borne by each party in proportion to its negligence.
Tags : , , , ,
Add a comment RSS feed for responses to this blog entry
Posted by Paul Riccardi on March 22, 2011 9:02:00 AM EDT #

Waiver of Subrogation Rights

from the desk of Nahom Gebre

When a party pays a claim caused by the negligence of another, the party who paid the claim is legally entitled to step into the shoes of the negligent party and pursue any claims that the negligent party may have. This concept is known as subrogation. Clients often require that consultants waive subrogation rights; this is done to provide finality to the settlement of claims. Clients want to know that if a claim is paid by their insurance carrier to a third party that the matter is settled and that they will not be facing renewed litigation by the insurance company seeking to recover money.

Design professionals should check with their broker as to how their other insurance policies address waiver of subrogation. The Schinnerer and CNA professional liability policy allows the insured firm to waive subrogation rights against their client. However, the waiver of subrogation rights has to be in a written agreement prior to a claim or circumstance.
 
For additional information, please see our Management Advisory on waiver of subrogation rights at http://www.schinnerer.com/risk-mgmt/Documents/ManagementAdvisories/Waiver-of-subrogation.pdf. (Access limited to policyholders only.)
Tags : , , ,
Add a comment RSS feed for responses to this blog entry
Posted by Paul Riccardi on March 18, 2011 9:26:00 AM EDT #

Japan’s Building Codes Saved Lives

Although the toll in lost life is still rising from Japan’s earthquake, it is safe to say that Japan’s building codes saved countless lives. As noted in a New York Times article, extra steel bracing, giant rubber pads, and embedded hydraulic shock absorbers are common features in Japan’s modern buildings. 

Historically, building codes have been reviewed and revised after every major earthquake, and design professionals (especially structural engineers) should pay close attention to the proposed revisions in building codes.
Tags : , ,
Add a comment RSS feed for responses to this blog entry
Posted by Paul Riccardi on March 16, 2011 1:45:00 PM EDT #

Be Wary of Prevailing Party Provisions

from the desk of Judy Mendoza

A recently reviewed contract contained the following provision:  “In any adjudication or claim under this Agreement, reasonable and necessary attorneys’ fees may be awarded to the prevailing party.”  

Any agreement on the recovery of legal fees by the prevailing party is a contractual condition a firm is free to assume. Professional liability insurance, however, may not cover the risk of the firm paying prevailing party costs related to a successful claim of negligence. The “Exclusions” section of the CNA professional liability policy specifically pertains to costs “arising out of the liability of others you assume under any oral or written contract or agreement, except that coverage otherwise available to you shall apply to your liability that exists in the absence of such contract or agreement.”
 
In any professional liability dispute, if the client attempts to recover its legal fees based on the contractual provision, the policy would neither defend the firm against such action nor pay on the firm’s behalf. The firm’s agreement to pay prevailing party legal fees is a contractual obligation chosen by the firm and is therefore its sole responsibility.
 
With very few exceptions, attorneys’ fees are not generally awarded or recoverable as damages. There are a few statutory causes of action that may permit a prevailing party to recover attorneys’ fees as an element of damages. However, there is no common law entitlement to recover attorneys’ fees. Therefore, professional liability insurance will only cover liability (including liability for the plaintiff’s attorneys’ fees) that would exist in the absence of a contract. There is no coverage for awards that are based on some contractual fee-shifting provision.
 
Prevailing party provisions often result in the coercion of the weaker party—often the design firm—by the financially stronger client. Even with a professional liability claim there may be pressure to settle, even with minimal liability, to prevent the policyholder from paying the legal fees of the client from the firm’s own assets. Often, a client can find one cause of action such as the breach of a milestone date, a forgotten design detail, or a change order that might be considered negligence on which it could prevail. Then the client can escalate the dispute and exaggerate legal fees. Such a gamble may be too much for the design firm.
, Inc.
While it is not a certainty that a client will use a prevailing party provision to coerce a settlement or that the policy will not cover legal fees, such a provision increases the likelihood of prolonged litigation, the exposure of the design firm’s assets, and the cost of any covered claim.
Tags : , , ,
Responses[2] RSS feed for responses to this blog entry
Posted by Paul Riccardi on March 3, 2011 9:14:00 AM EST #

Dams in Danger

Another infrastructure problem

As we have blogged about in this space before, America’s infrastructure is badly in need of repair. There is one area in particular that is being overlooked—our nation’s aging dams. According to the Association of State Dam Safety Officials, 4,400 of the nation’s 85,000 aging dams are considered susceptible to failure.

What could such a failure mean? In some cases, such as the Lake Isabella, California example used in this New York Times article from last week, there is at least a small chance of a deadly disaster along the lines of the Johnstown Flood that killed 2,200 in Pennsylvania in 1889. Even if a current dam failure doesn’t caused damages on the large and tragic scale of Johnstown, the impact would still be tremendous. In addition to the potential loss of human life, there would be economic and environmental damage to deal with.

The problem that is holding back dam repair, as with other types of needed infrastructure repair, is predictable: money. The bill for the necessary dam repairs will be in the tens of billions of dollars. Though Congress has appropriated money for some federal dam repair projects, about two-thirds of all dams are private, and state and local governments own most of the remainder. It is unknown how repairs to non-federal dams will be financed. Legislation to provide federal money has not made it through Congress.
 
Tags : ,
Add a comment RSS feed for responses to this blog entry
Posted by Scott Sweeney on March 1, 2011 8:06:00 AM EST #