Schinnerer's RM Blog - indemnity tag

Florida Design Firms Need to Understand Their Legal Protections

Tue, 07 Feb 2012 16:00:00 GMT

Recently we have seen governmental agencies in Florida requiring professional service firms to accept broad contractual defense and indemnity obligations. This is a trend we are seeing across the U.S. state and local governments as they appear to be attempting to insulate themselves and their political leaders from any project risk. But design firms in Florida have protection from such uninsurable and unmanageable exposures—as long as they understand and enforce Florida law.

Contractual defense and indemnity provisions must conform to highly specific state law requirements. In Florida the legal constraints on such contractual obligations have always been somewhat unusual. While parties are fairly free to negotiate anything in private sector contracts, for the last decade in Florida there has been a law that precludes public entities from requiring contractual provisions that exceed the normal legal liability of design firms to correct harm to the extent it is caused by the design firm’s deficient performance. The actual provision that does this is Florida statute 725.8, which states: “a professional services contract entered into with a public agency may not require that the design professional defend, indemnify, or hold harmless the agency, its employees, officers, directors, or agents from any liability, damage, loss, claim, action, or proceeding, and any such contract provision shall be void as against the public policy of this state.” This prevents the governmental entity from requiring an upfront defense paid for by the design firm or a payment to indemnify the client related to “any” action. Therefore, the design firm’s exposure remains the reimbursement of costs, losses, or damages to the extent caused by the design firms’ negligence—which is within the scope of professional liability insurance coverage—recklessness, or intentional wrongful conduct.

This language is a great model for adoption in other states. It is an important protection that all construction-related professionals in Florida should be referencing when government agencies overstep their contractual authority.

Who Should Be Indemnified?

Mon, 10 Oct 2011 14:36:00 GMT

A recently reviewed contract contained an indemnification provision that required the design professional to indemnify the client as well as the state, the city, and the local transportation department. The design professional wanted to know who should be included when agreeing to indemnify a client.

Client-drafted indemnity provisions often include a long list of parties to be indemnified whose connection with the client or project is remote and may not ordinarily be entitled to indemnity under common law, i.e. in the absence of the contract. Beyond naming the client, a reasonable list of parties to be indemnified could include, but generally should be limited to the client’s officers, directors, partners, employees, and representatives. If some third party is damaged, such as a lender, that party is free to pursue its own legal remedies.

Design professionals should check with local legal counsel to determine how common law in the local jurisdiction handles indemnity obligations to parties other than the insured’s direct client. Agreeing to indemnify a party that has no common law entitlement to such indemnity might result in an uninsurable contractual obligation. The professional liability policy issued by CNA excludes coverage for 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.”

Communicating with Your Client

Tue, 12 Jul 2011 15:11:00 GMT

Does your client want to be named as an additional insured on your professional liability insurance policy? Does their agreement contain a broad indemnity provision that is not limited to damages caused by your firm’s negligence? Are the insurance requirements unreasonable?

If you’re not sure how to communicate to your client the issues involved with these contractual requirements, you may want to send them The Client’s Resource: Intro to Professional Liability Insurance. This Schinnerer publication responds to these issues and more. It also includes graphs that illustrate what policy limits other design firms similar to yours carry. This information may aid you in negotiating more reasonable insurance requirements.

The Client’s Resource: Intro to Professional Liability Insurance can be downloaded from the risk management section of the Schinnerer website. Here is the link: www.schinnerer.com/risk-mgmt/Documents/UnprotectedFiles/Intro-professional-liability.pdf

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

Tue, 22 Mar 2011 13:02:00 GMT

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.