Insurance, Indemnities, & Emerging Risks...2019/07/17 · intentional infliction of emotional distress, equitable relief, joint and several liability, vicarious liability, personal

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What Every Risk Professional Needs to Know

Insurance, Indemnities, & Emerging Risks

July 17, 2019

Kevin R. SiskSenior Vice PresidentLockton [email protected]

mailto:[email protected]

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Office, Warehouse & Equipment Leases Transportation Agreements Construction Agreements / EPC Contracts Subcontract Agreements Vendor / Supplier Agreements Master Service Agreements Auto Rental / Lease Agreements Confidentiality Agreements Non-Compete Agreements Employee Leasing Agreements Consulting Agreements

IT Agreements Purchase Orders Purchase & Sale Agreements (PSAs) Events / Catering Service Agreements Sidetrack Agreements Joint Venture Agreements Drilling Contracts Chartering Agreements Easements / Right of Way Agreements Maintenance Agreements And many others, including Insurance Policies!

Where can contractual liability be assumed

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The company either: Assumes the risk (i.e. self insures) Transfers the risk to another party (via contract/agreement – also known as

“Pass Through Indemnity”) Transfers the risk to an insurance company

Does the typical insurance policy cover these contractual liabilities? It depends on: Allocation of exposures in contract (i.e. what is assumed) Design and structure of insurance (i.e. what is covered)

What happens when risk is contractually assumed?

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Indemnify To reimburse (another) for a loss suffered because of a third party’s or one’s own act or default. 2. To

promise to reimburse (another) for such a loss. 3. To give (another) security against such a loss.

Hold Harmless To absolve (another party) from any responsibility for damage or other liability arising from a situation

What’s The Difference? Most courts hold that “indemnity” and “hold harmless” are synonymous – E.g., Medcom Holding Co. v.

Baxter Travelnol Lab., Inc., 200 F.3d 518 (7th Cir. 1999); Praetorian Ins. Co v. Site Inspection, LLC, 604 F.3d 509 (8th Cir. 2010)

Some courts disagree, finding that a “hold harmless” clause is an exculpatory provision releasing the indemnitee from liability to the indemnitor (as opposed to third parties) • 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)

Components of an Indemnity Clause

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Release 1) v. to give up a right as releasing one from his/her obligation to perform under a contract, or to relinquish a right

to an interest in real property. 2) v. to give freedom as letting out of prison. 3) n. the writing that grants a release. A release extinguishes any actual or potential claims the releasor may have against the releasee without regard to

third parties. In contrast, an agreement to indemnify does not apply to claims between the parties to the agreement. Rather, it obligates the indemnitor to protect the indemnitee against claims brought by persons not a party to the provision

Loss The disappearance or diminution of value, usually in an unexpected or relatively unpredictable way

Liability A financial or pecuniary obligation

Negligence The failure, on the part of the person causing the injury, to use the reasonable amount of care that is required in a

particular situation. In order to prove negligence, you have to establish that the person causing the injury was not only the actual cause of the injury but also the proximate cause (or legal cause), of the injury.


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An indemnity arises from a promise by the indemnitor to make them ‘whole’ against existing or future loss and/or liability.

An indemnity creates a potential cause of action between the indemnitee and the indemnitor.

Conversely, a release “suppresses” a cause of action, and extinguishes any actual or potential claims the releasor may have against the releasee without regard to third parties.

Typical release language is generally "release, discharge, relinquish."

Typical indemnity language is "indemnify, save, protect, save/hold harmless."


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The duty to defend and duty to indemnify are separate and distinct obligations.

The duty to defend does not depend on the outcome of the claim, whereas the duty to indemnify does not arise unless the outcome of the claim is adverse.

In other words, the contractual duty to defend a claim may be broader than, and arise more often than, the duty to provide indemnity

Duty to Defend vs. Duty to Indemnify

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Losses?

Liabilities?

Claims?

“Claims”, defined as

“Claims” is used as a reference, individually and collectively, for any and all accusations, allegations, assertions, losses, expenses, costs, damages, liabilities, claims, demands, liens, causes of action, suits, judgments, settlements, adjustments, obligation to indemnify others, regulatory proceedings, citations, orders, decrees, harm, infringements, loss of services, loss of wages, loss of consortium, loss of society, awards, and taxes, of any nature, kind, or description (including without limitation, costs, expenses, reasonable attorney fees, court costs, fines, penalties, interest, cleanup, remediation, debris removal, and well control) that may be brought or asserted against an indemnitee by any person or legal entity whomsoever

“Claims”, defined as

“Claims” shall mean all claims, losses, damages (including, but not limited to, special, punitive, exemplary, general, compensatory, direct, indirect, incidental, or consequential damages), demands, causes of action, lawsuits, proceedings, spousal and survivor’s actions, fines, penalties, taxes, judgments, liens, encumbrances, costs, obligations (including indemnities), and liabilities of every kind and character, under common law, equity, statute, or otherwise, whether based on tort, contract, or statutes that may or could be asserted including without limitation, actions in rem or in personam, civil or criminal actions, claims and/or causes of action based on negligence, gross negligence, malice, intentional acts or omission, intentional infliction of emotional distress, equitable relief, joint and several liability, vicarious liability, personal and/or bodily injury, property damage, mental anguish, illness, death, past or future loss of wages or earning capacity, strict liability, and/or wrongful death, and all reasonable costs, expenses, and fees related to investigation, settlement, defense and litigation, including court costs, attorneys’ and experts’ fees, arising out of, related to, or in any way connected with this Agreement, any Order or the Work.

What are you being indemnified for?

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Narrow Or Limited Indemnity Allows indemnification for losses exclusively caused by the indemnitor’s negligence. Any negligence by

indemnitee will bar indemnification. Mirrors the indemnity obligations imposed by tort law (as opposed to contribution)

Intermediate Indemnity Allows indemnification where indemnitor and indemnitee are both at fault/negligent (can be full or

partial), but no indemnification for indemnitee’s sole negligence

Broad Form Indemnity Indemnitor indemnifies indemnitee for all liabilities, even those arising from indemnitee’s sole negligence Beware of anti-indemnity statutes or case law limiting or prohibiting broad form indemnity. Of the three types of indemnities, the broad form tends to create the most potential problems.

Types Of Indemnity Provisions

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Allocation of Exposures In Contract

* Not mentioned in either contract but tends to be endorsed to contractor.** In several cases, both a footage and turnkey contract can revert to daywork and change exposure allocations.

IADC Drilling Contract Summary Exposure Identification ChartDaywork Footage** Turnkey**

Contractor Operator Contractor Operator Contractor Operator

Sound Location Contractor’s Surface Equipment Contractor’s In-Hole Equipment Corrosive Elements Operator’s Equipment Hole Underground Damage Operator’s Materials Wild Well * *Pollution

Spills (Surface) Blowouts (etc.)

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“Knock-for-Knock” Indemnity Company [Group] assumes any and all responsibility for their people and

property regardless of the sole, joint, concurrent, partial negligence of Contractor [Group]

Contractor [Group] assumes any and all responsibility for their people and property regardless of the sole, joint, concurrent, partial negligence of Company [Group]

Allocation of Exposures in Contracts

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(c) INJURY TO PERSONS.

(i) CONTRACTOR ASSUMES FULL RESPONSIBILITY AND LIABILITY FOR AND AGREES TO DEFEND, RELEASE, INDEMNIFY, AND HOLD HARMLESS COMPANY GROUP FROM AND AGAINST ALL CLAIMS (INCLUDING, BUT NOT LIMITED TO, CLAIMS FOR CONTRACTUAL INDEMNITY) RELATED TO PERSONAL INJURY, ILLNESS, OR DEATH SUFFERED BY ANY MEMBER OF CONTRACTOR GROUP THAT ARISE OUT OF, IN CONNECTION WITH, INCIDENT TO OR RESULT DIRECTLY OR INDIRECTLY FROM THIS AGREEMENT OR THE SERVICES PROVIDED UNDER THIS AGREEMENT AND APPLICABLE TO WORK REQUESTS

(ii) COMPANY ASSUMES FULL RESPONSIBILITY AND LIABILITY FOR AND AGREES TO DEFEND, RELEASE, INDEMNIFY, AND HOLD HARMLESS CONTRACTOR GROUP FROM AND AGAINST ALL CLAIMS (INCLUDING, BUT NOT LIMITED TO, CLAIMS FOR CONTRACTUAL INDEMNITY) RELATED TO PERSONAL INJURY, ILLNESS, OR DEATH SUFFERED BY ANY MEMBER OF COMPANY GROUP THAT ARISE OUT OF, IN CONNECTION WITH, INCIDENT TO OR RESULT DIRECTLY OR INDIRECTLY FROM THIS AGREEMENT OR THE SERVICES PROVIDED UNDER THIS AGREEMENT AND APPLICABLE TO WORK REQUESTS

Sample “Knock for Knock” Indemnity

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(d) INJURY TO PROPERTY.

(i) CONTRACTOR ASSUMES FULL RESPONSIBILITY AND LIABILITY FOR AND AGREES TO DEFEND, RELEASE, INDEMNIFY, AND HOLD HARMLESS COMPANY GROUP FROM AND AGAINST ALL CLAIMS (INCLUDING, BUT NOT LIMITED TO, CLAIMS FOR CONTRACTUAL INDEMNITY) TO ANY CONTRACTOR GROUP MEMBER’S PROPERTY OR EQUIPMENT, EITHER OWNED, RENTED, CHARTERED, BORROWED, LEASED, OPERATED BY, OR IN THE CONTROL OF, ANY MEMBER OF CONTRACTOR GROUP (INCLUDING, BUT NOT LIMITED TO, THE PROPERTY WHICH IS THE SUBJECT OF THE SERVICES UNDER THIS AGREEMENT OR WHICH IS PROVIDED BY COMPANY) THAT ARISE OUT OF, IN CONNECTION WITH, INCIDENT TO OR RESULT DIRECTLY OR INDIRECTLY FROM THIS AGREEMENT OR THE SERVICES PROVIDED UNDER THIS AGREEMENT AND APPLICABLE TO WORK REQUESTS, AND CONTRACTOR SHALL RELEASE, INDEMNIFY AND HOLD HARMLESS ALL MEMBERS OF COMPANY GROUP FROM AND AGAINST ANY CLAIM, WHETHER KNOWN OR UNKNOWN, ON ACCOUNT OF SUCH PROPERTY LOSS OR DAMAGE.

(ii) COMPANY ASSUMES FULL RESPONSIBILITY AND LIABILITY FOR AND AGREES TO DEFEND, RELEASE, INDEMNIFY, AND HOLD HARMLESSCONTRACTOR GROUP FROM AND AGAINST ALL CLAIMS (INCLUDING, BUT NOT LIMITED TO, CLAIMS FOR CONTRACTUAL INDEMNITY) TO ANY COMPANY GROUP MEMBER’S PROPERTY OR EQUIPMENT, EITHER OWNED, RENTED, CHARTERED, BORROWED, LEASED, OPERATED BY, OR IN THE CONTROL OF, ANY MEMBER OF COMPANY GROUP (INCLUDING, BUT NOT LIMITED TO, THE PROPERTY WHICH IS THE SUBJECT OF THE SERVICES UNDER THIS AGREEMENT OR WHICH IS PROVIDED BY CONTRACTOR) THAT ARISE OUT OF, IN CONNECTION WITH, INCIDENT TO OR RESULT DIRECTLY OR INDIRECTLY FROM THIS AGREEMENT OR THE SERVICES PROVIDED UNDER THIS AGREEMENT AND APPLICABLE TO WORK REQUESTS, AND COMPANY SHALL RELEASE, INDEMNIFY AND HOLD HARMLESS ALL MEMBERS OF CONTRACTOR GROUP FROM AND AGAINST ANY CLAIM, WHETHER KNOWN OR UNKNOWN, ON ACCOUNT OF SUCH PROPERTY LOSS OR DAMAGE.


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(e) THIRD PARTY CLAIMS.

(i) EXCEPT AS PROVIDED IN THIS AGREEMENT TO THE CONTRARY, CONTRACTOR SHALL RELEASE, DEFEND, INDEMNIFY, AND HOLD HARMLESS COMPANY GROUP TO THE EXTENT THAT THIRD PARTY CLAIMS ARISING OUT OF OR RESULTING FROM THE PERFORMANCE OF THIS AGREEMENT OR ANY WORK REQUEST FOR PERSONAL INJURY, ILLNESS, DEATH, PROPERTY (WHETHER REAL OR PERSONAL OR OWNED OR LEASED) DAMAGE AND LOSS ARE CONTRIBUTED TO OR CAUSED BY (WHETHER DIRECTLY OR INDIRECTLY) THE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL OR WANTON MISCONDUCT OF ANY MEMBER(S) OF CONTRACTOR GROUP.

(ii) EXCEPT AS PROVIDED IN THIS AGREEMENT TO THE CONTRARY, COMPANY SHALL RELEASE, DEFEND, INDEMNIFY, AND HOLD HARMLESS CONTRACTOR GROUP TO THE EXTENT THAT THIRD PARTY CLAIMS ARISING OUT OF OR RESULTING FROM THE PERFORMANCE OF THIS AGREEMENT OR ANY WORK REQUEST FOR PERSONAL INJURY, ILLNESS, DEATH, PROPERTY (WHETHER REAL OR PERSONAL OR OWNED OR LEASED) DAMAGE AND LOSS ARE CONTRIBUTED TO OR CAUSED BY (WHETHER DIRECTLY OR INDIRECTLY) THE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL OR WANTON MISCONDUCT OF ANY MEMBER(S) OF COMPANY GROUP.


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“Company” shall have the meaning set forth in the Preamble of this Agreement.

“Company Group” shall mean the following entities and Persons individually and collectively: Company, Company’s co-venturers, co-owners, partners, joint venturers, co-lessees, co-working interest owners, lessors, adjacent property owners, Company’s clients, and its and their respective Affiliates; its and their contractors and subcontractors of any tier (excluding Contractor Group), and agents, representatives, consultants, servants, directors, officers, assigns, managers, members, shareholders, employees, and invitees of all of the foregoing.

“Contractor” shall have the meaning set forth in the Preamble of this Agreement.

“Contractor Group” shall mean the following entities and Persons individually and collectively: Contractor and its respective Affiliates, its and their contractors and subcontractors of any tier, and the agents, representatives, consultants, servants, directors, officers, assigns, managers, members, shareholders, employees, and invitees of all of the foregoing.

“Group” Definitions

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Should the indemnity provided just to one Party or to the Party’s “Group”?

The “Group” is completely negotiable and can include any number of additional parties such as: Company/Owner (or Contractor/Tenant – depending on what side you are on), its parent, subsidiary and affiliated companies Company/Owner’s contractors and subcontractors of all tiers, All other parties with whom Company/Owner has a contractual relationship, and its and all of their officers, directors, employees (including without limitation, direct, borrowed,

special, or statutory employees), agents, assigns, invitees, consultants, co-venturers, co-lessees, co-operators, customers, clients, and its and any of their representatives, spouses, relatives, dependents, estates and

heirs, and the subrogees of all said parties.

Handle with care and understanding – significant risks can be allocated here

Pass Through Indemnity Considerations

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Leases range from a Full Service Gross Lease to a Triple Net (NNN) lease on the other end of the spectrum. A full service gross lease typically has one rate for the space that includes all of the expenses of the space such as taxes,

insurance, maintenance and utilities. A NNN lease listing states the base lease rate for the space and then will charge a NNN fee or CAM (Common Area

Maintenance) charges on top of the base rate. In this case, the NNN fee or CAM charges will be the owners actual cost of running the building and typically includes taxes, insurance and maintenance.

There are a range of options in the middle of these two that are typically called a gross lease or modified gross lease.

Unfortunately, the terminology does not accurately describe the full situation and the common interpretation to the terms Gross, NNN and CAM are very broad.

Gross leases and modified gross leases associated with commercial real estate typically involve greater landlord responsibilities.

Net leases are one of the most common types of commercial real estate eases and tend to favor landlords more than tenants

There are many variations and you will need to review the specific lease to determine the allocations of risk and expenses.

Types of Leases

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3.18.1 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 attorney’s 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, damage, loss, or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity that would otherwise exist as to a party of person described in this Section 3.18.

AIA Document 201-2017

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A court “cannot expand the contractual language beyond the contract’s express language.”

“We are precluded from expanding the scope of this coverage beyond that stated in the contract based solely upon what this Court may perceive to be the improperly expressed intentions of the parties.” Ideal Lease Service v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex. 1983).

Removing ambiguity is usually best!

What does this mean?

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Where a transaction involves sophisticated business entities, there is “little reason to depart from the usual rule of holding parties to their bargain.”

“The same rules that apply to contracts in general govern the interpretation of insurance contracts.”

“Courts are not in the business of writing insurance contracts. Our duty is to apply unambiguous contracts as they are written.” Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653, 656 (5th Cir. 1999).

Remember: It doesn’t matter what you “meant.” Once you are in court, you get what’s written!

Net Result

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Sample Indemnity Clause “NOTWITHSTANDING ANY PROVISIONS OF THIS AGREEMENT TO THE CONTRARY,

COMPANY SHALL RELEASE EACH MEMBER OF CONTRACTOR GROUP FROM ANYLIABILITY FOR, AND SHALL DEFEND, INDEMNIFY AND PROTECT EACH MEMBER OF CONTRACTOR GROUP FROM AND AGAINST ANY AND ALL CLAIMS RESULTING FROM….”

Sample Insurance Clause (ISO) We will pay those sums that the insured becomes legally obligated to pay as damages

because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

Indemnity vs Insurance

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Exclusions (ISO) / This insurance does not apply to: Expected Or Intended Injury Contractual Liability Liquor Liability Workers' Compensation And Similar Laws Employer's Liability

This exclusion does not apply to liability assumed by the insured under an "insured contract". Pollution Aircraft, Auto Or Watercraft "Property damage" to:

Property you own, rent, or occupy; [Real and] Personal property in the care, custody or control of the insured;

Insurance

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"Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages: (1) That the insured would have in the absence of the contract or agreement; or (2) Assumed in a contract or agreement that is an "insured contract", provided the "bodily injury" or

"property damage" occurs subsequent to the execution of the contract or agreement. Solely for the purposes of liability assumed in an "insured contract", reasonable attorneys' fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of "bodily injury" or "property damage", provided:

(a) Liability to such party for, or for the cost of, that party's defense has also been assumed in the same "insured contract" and

(b) Such attorneys' fees and litigation expenses are for defense of that party against a civil or alternative dispute resolution proceeding in which damages to which this insurance applies are alleged.

Contractual Liability Exclusion (ISO)

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a. A contract for a lease of premises. However, that portion of the contract for a lease of premises that indemnifies any person or organization for damage by fire to premises while rented to you or temporarily occupied by you with permission of the owner is not an "insured contract"

b. A sidetrack agreement;

c. Any easement or license agreement, except in connection with construction or demolition operations on or within 50 feet of a railroad;

d. An obligation, as required by ordinance, to indemnify a municipality, except in connection with work for a municipality;

e. An elevator maintenance agreement;

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. Paragraph f. does not include that part of any contract or agreement:

(1) That indemnifies a railroad for "bodily injury" or "property damage" arising out of construction or demolition operations, within 50 feet of any railroad property and affecting any railroad bridge or trestle, tracks, road-beds, tunnel, underpass or crossing;

(2) That indemnifies an architect, engineer or surveyor for injury or damage arising out of:(a) Preparing, approving, or failing to prepare or approve, maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawings and specifications; or(b) Giving directions or instructions, or failing to give them, if that is the primary cause of the injury or damage; or

(3) Under which the insured, if an architect, engineer or surveyor, assumes liability for an injury or damage arising out of the insured's rendering or failure to render professional services, including those listed in (2) above and supervisory, inspection, architectural or engineering activities.

“Insured contract" means: (ISO)

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INSURED CONTRACT The words “Insured Contract”, wherever used in this Policy, shall mean any written

contract entered into by the “Insured” where the “Insured” assumes the tort liability of another party to pay for “Bodily Injury” or “Property Damage” to which this Policy applies to a “Third Party”. Tort liability means a liability that would be imposed by law in the absence of any written contract. Written contract includes any written indemnity agreement entered into by the “Insured” with a “Third Party”.

THIRD PARTY The words “Third Party”, wherever used in this Policy, shall mean any company, entity,

or person other than an “Insured” or other than a subsidiary, owned or controlled company or entity of an “Insured”. Notwithstanding Definition 14(c) of this Policy, an employee of an “Insured” shall be treated as a “Third Party”.

“Insured contract" means: (London)

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Supplementary Payments - Coverages A and B (ISO)

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If we defend an insured against a "suit" and an indemnitee of the insured is also named as a party to the "suit", we will defend that indemnitee if all of the following conditions are met:

a. The "suit" against the indemnitee seeks damages for which the insured has assumed the liability of the indemnitee in a contract or agreement that is an "insured contract"

b. This insurance applies to such liability assumed by the insured;c. The obligation to defend, or the cost of the defense of, that indemnitee, has also been assumed by the insured in the same "insured

contract"d. The allegations in the "suit" and the information we know about the "occurrence" are such that no conflict appears to exist between the

interests of the insured and the interests of the indemnitee;e. The indemnitee and the insured ask us to conduct and control the defense of that indemnitee against such "suit" and agree that we can

assign the same counsel to defend the insured and the indemnitee; andf. The indemnitee:

(1) Agrees in writing to:(a) Cooperate with us in the investigation, settlement or defense of the "suit"(b) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the "suit"(c) Notify any other insurer whose coverage is available to the indemnitee; and(d) Cooperate with us with respect to coordinating other applicable insurance available to the indemnitee; and

(2) Provides us with written authorization to:(a) Obtain records and other information related to the "suit" and(b) Conduct and control the defense of the indemnitee in such "suit".

So long as the above conditions are met, attorneys' fees incurred by us in the defense of that indemnitee, necessary litigation expenses incurred by us and necessary litigation expenses incurred by the indemnitee at our request will be paid as Supplementary Payments. Notwithstanding the provisions of Paragraph 2.b.(2) of Section I - Coverage A - Bodily Injury And Property Damage Liability, such payments will not be deemed to be damages for "bodily injury" and "property damage" and will not reduce the limits of insurance.

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Care, Custody OR Control

Exclusions - This insurance does not apply to:

j. Damage To Property - "Property damage" to:

(1) Property you own, rent, or occupy, including any costs or expenses incurred by you, or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another's property;

(3) Property loaned to you;

(4) Personal property in the care, custody or control of the insured;

Care, Custody OR Control; Own, Rent, or Occupy

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"CARE" DEFINED

Care is close attention to, watchful oversight, charge or supervision of, concern with, and attention to one's needs and those of others. In issues that involve negligence, the amount of care required under a given set of circumstances is in direct proportion to the apparent risk. As the level of danger increases, the level of caution required increases proportionately.

"CUSTODY" DEFINED

Custody is the care and control of a thing. Black's Law Dictionary defines it as the keeping, guarding, care, watch, inspection, preservation, or security of a thing, carrying with it the idea of the thing being within the immediate personal care and control of the person who has custody of it.

"CONTROL" DEFINED

Control means to exercise restraining or directing influence over, or to regulate, restrain, dominate, curb, hold from action, overpower, counteract, or govern. Black's Law Dictionary defines it to mean power or authority to manage, direct, superintend, restrict, regulate, direct, govern, administer, or oversee.


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Aspen Insurance UK, Ltd. v. Dune Energy, Inc., No. 10-30335 (5th Cir. 2010) Dune operated several oil and gas wells and suffered an oil leak caused by a

catastrophic failure of a flowline. Leak resulted in approximately 146 barrels of oil being released onto leased property. Aspen argued policy excludes:

Damage to "property rented or occupied by the insured” and Pollution liabilities if the damage occurs to “property leased by, or in the care, custody or

control of the insured.“

Dune argued lease of mineral rights was not a lease of property in the "traditional sense"

Surface rights to the property were not “owned, leased or otherwise in Dune's possession."

Care, Custody OR Control, Property thatYou Own, Rent or Occupy

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Dune also argued that a mineral lease alone "does not convey title or rights to the surface of the land” Thus damage done to the surface of the land should not be considered damage to Dune's property

Court: “Dune's argument that its mineral lease did not extend to the damaged property is of no consequence.”

In addition to excluding damage to property that Dune owns, rents, or occupies, the unambiguous language of the policy excludes coverage for "the soil, minerals, water or any other substance on, in or under such owned, leased, rented or occupied property."

Court Granted Aspen’s motion for summary judgment

Care, Custody OR Control, Property thatYou Own, Rent or Occupy

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PIONEER EXPLORATION, L.L.C., Plaintiff–Appellant v. STEADFAST INSURANCE COMPANY - No. 13–30802. (5th Cir. 2014)

Pioneer operated well located on property owned by separate landowner, which suffered blowout

Pioneer’s rights to operate well was under a fairly common mineral lease agreement, which covered 284 acres of landowner

Blowout contaminated roughly 12 acres of land Zurich’s policy contained exclusions for property damage and/or clean up of

property/sites “owned, rented or occupied” by any insured 5th circuit affirmed district court’s ruling in favor of Zurich

Property you Own, Rent or Occupy

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This Policy does not insure and none of the coverages provided by this Policy apply to Loss arising out of or in any way relating to any of the following: Any Claim by or on behalf of any Insured against any other Insured.

Some will grant exceptions to the exclusion: This Policy does not apply to…Any claim brought by or on behalf of any insured

against any other insured under this Policy. This Exclusion does not apply to a claim initiated by a third-party and that arises out of an indemnification given by one insured to another insured in an insured contract.

INSURED VS. INSURED Exclusion

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6.1 Insurance Policies to be obtained by Contractor

Contractor must (and in doing so bears the sole responsibility for determining the requirements of those Laws relating to insurance) procure and maintain the following minimum insurances, unless Company has expressly stated otherwise in writing

Contractual Insurance Requirements

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INSURANCE REQUIREMENTS. At any and all times during the term of this Contract and without limiting the indemnity obligations or liability of Contractor or its insurers, Contractor shall, at Contractor’s sole cost and expense, procure and maintain in full force and effect, and shall require its subcontractors to procure and maintain, insurance of not less than the types and not less than the limits and amounts set forth below with an insurance carrier or carriers satisfactory to Company. The insurance requirements set forth herein are supplementary to and shall in no circumstance not limit or restrict as to amount, extent or otherwise, the defense and indemnity obligations undertaken by Contractor under this Contract (including but not limited to in Sections (____,_____) hereof.


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Ironshore Specialty Ins. Co. v. Aspen Underwriting, Ltd. 788 F.3d 456 (5th Cir. 2015)

Endeavor (insured by Ironshore) and Basic (insured by Aspen) entered into a knock-for-knock indemnity agreement, each agreed to support their indemnity obligation with separate insurance in the amount of $5 million

Basic’s insurance did not expressly limit coverage for Endeavor as an additional insured to this $5 million

Total liability arising for two Basic Energy fatalities likely exceeded $5 million

Ironshore brought case against Basic's excess insurers (Aspen) contending that Basic's insurers were obligated to provide coverage up to the full limits of their policies because the policies did not expressly limit the coverage available to an additional insured

Basic / Aspen contended that the insurance policies incorporated a $5 million limit because the policies referred to the MSA

5th circuit agreed with Basic / Aspen, in large part due to Deepwater Horizon, relied on definition of Insured and Insured Contract to allow reference to MSA. Concluded MSA wording was a limit on additional insured coverage

Additional Insured Concerns

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Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Marine Ins. Co., 2016 N.Y. App. Div. LEXIS 5930 (Sept. 15, 2016)

Plaintiff construction managers argued they were intended to be included as an additional insured under the prime contractor’s CGL policy

Additional insured provision which read, in relevant part, “an insured [is] any person or organization with whom you have agreed to add as an additional insured by written contract…”

Court held that only those who have a direct written contract with the named insured have coverage under this endorsement

Additional Insured Concerns

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1.1.1 Waiver of Subrogation. All of Contractor’s insurance policies [optional:], whether or not required by this Contract, shall be endorsed to contain a waiver on the part of the insurer, by subrogation or otherwise, of all rights against Company Group, but only for, and to the extent of, the insured risks and liabilities assumed by Contractor under this Contract. [optional – make reciprocal] Waiver of Subrogation. All of Company’s insurance policies, [optional] whether or not required by this Contract, shall be endorsed to contain a waiver on the part of the insurer, by subrogation or otherwise, of all rights against Contractor Group, but only for, and to the extent of, the extent of the insured risks and liabilities assumed by Company under this Contract.

1.1.2 Primary and Noncontributory. All of Contractor’s insurance policies [optional:], whether or not required by this Contract shall be primary (and shall receive no contribution from) any insurance or self-insurance in favor of any member of the Company Group, but only for, and to the extent of, the insured risks and liabilities assumed by Contractor under this Contract. [optional: make reciprocal]All of Company’s insurance policies, [optional: whether or not] required by this Contract shall be primary (and receive no contribution from) any insurance or self-insurance in favor of any member of the Contractor Group, but only for, and to the extent of, the insured risks and liabilities assumed by Company under this Contract.

1.1.3 Additional Insured. All of Contractor’s insurance policies [optional:] whether or not required by this Contract, and excluding Worker’s Compensation and Professional Liability, shall be endorsed to name Company Group as additional insureds, but only for, and to the extent of, the insured risks and liabilities assumed by Contractor under this Contract). [optional - make reciprocal]All of Company’s insurance policies [optional: whether or not] required by this Contract, and excluding Worker’s Compensation and Professional Liability, shall be endorsed to name Contractor Group as additional insureds, but only for, and to the extent of, the insured risks and liabilities assumed by Company under this Contract.

Optional for more restrictive language – substitute “indemnity obligations” for “risks and liabilities”


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Actual Insurance. Notwithstanding the minimum coverages specified in Sections 11.1.1-11.1.5 above, should Contractor maintain on a general, blanket, comprehensive or similar basis any insurance, including but not limited to excess liability insurance or contractual liability insurance, in amounts greater than such minimums, then the actual insurance which Contractor shall providehereunder will be such larger amounts carried by Contractor (or indicated in any certificate of insurance furnished by Contractor) and not the minimums referenced in Sections 11.1.1-11.1.5 above.

Should any of Contractors insurance policies, whether or not required by this agreement, contain provisions (including but not limited to additional insured endorsements, contractual liability coverages, or primary insurance status) which purport to limiteither Contractor Group’s or Company Group’s coverage to any minimum limits and/or coverages required by written contract, the limits and/or coverages required in this Contract shall automatically be amended to require the sum of all limits and scopes of coverages of Contractor’s liability insurance policies (whether primary, excess, umbrella, or otherwise).

OPTIONAL: Company may, in its sole and exclusive direction, elect to remove itself and/or any/all members of Company Group asadditional insured(s) at any time, including retroactively.


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As regards any liability of the “Insured” which is covered under this Policy and arises in any manner whatsoever out of the operations or existence of any joint venture, joint lease, joint operating agreement or partnership (hereinafter called the “Joint Venture”) in which the “Insured” has an interest:(a) the Underlying Insurance(s), or (b) the Self Insured Retention, and(c) the Limits of Liability of Underwriters under this Policy,shall be limited to the product of:

(i) the percentage interest of the “Insured” in said “Joint Venture” or such percentage as takes account of any acceptance by Underwriters as set out in Definition 14(d), and

(ii) the Underlying Insurance(s), the Self Insured Retention and the Limits of Liability specified by this Policy, respectively. Where the percentage interest of the “Insured” in said “Joint Venture” is not set forth in writing, the percentage to

be applied shall be that which would be imposed by law at the inception of the “Joint Venture”. Such percentage shall not be increased by the insolvency, bankruptcy, or receivership of any members of the said “Joint Venture” or any other parties. Nothing contained in this Joint Venture clause shall make this Policy subject to the terms of any other insurance.

JOINT VENTURES (London)

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SECTION II - WHO IS AN INSURED

If you are designated in the Declarations as:a. An individual, you and your spouse are insureds, but only with respect to the conduct of a business of which you are the sole owner.b. A partnership or joint venture, you are an insured. Your members, your partners, and their spouses are also insureds, but only with respect to the conduct of

your business.c. A limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your business. Your managers are

insureds, but only with respect to their duties as your managers.d. An organization other than a partnership, joint venture or limited liability company, you are an insured. Your "executive officers" and directors are insureds,

but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders.e. A trust, you are an insured. Your trustees are also insureds, but only with respect to their duties as trustees.

Any organization you newly acquire or form, other than a partnership, joint venture or limited liability company, and over which you maintain ownership or majority interest, will qualify as a Named Insured if there is no other similar insurance available to that organization. However:a. Coverage under this provision is afforded only until the 90th day after you acquire or form the organization or the end of the policy period, whichever is

earlier;b. Coverage A does not apply to "bodily injury" or "property damage" that occurred before you acquired or formed the organization; andc. Coverage B does not apply to "personal and advertising injury" arising out of an offense committed before you acquired or formed the organization.

No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.

JOINT VENTURES (ISO)

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D. OWNERSHIP INTEREST LIMIT OF LIABILITY

Subject to Paragraphs A., B. and C. above, the most the Company will pay for all Loss arising from the same, related or continuous Pollution Incident shall not exceed the product of the Insured’s fractional interest in the real property, mineral rights, oil or gas wells or other assets associated with such Loss multiplied by the amount of such Loss.

JOINT VENTURES (Company Specific)

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Two types of follow form coverage typically appear in excess liability policy formats today: true follow form and conditional follow form. These can be contrasted with stand-alone (or no follow form) excess policies.

True follow form coverage consists of a paragraph or two stating that all coverage terms of the underlying policy are adopted and that the excess layer will follow those terms and conditions, the only exception being policy limits.

Under a conditional follow form excess policy, the terms and conditions of the underlying policy are also adopted but only to the extent that those underlying terms and conditions do not conflict with the terms of the excess policy. The format includes many of its own terms and conditions that control in the event that they conflict with the terms of the underlying policy.

A stand-alone excess policy provides coverage on its own terms and conditions. There is no follow form provision; this form of excess coverage is self-contained. In many ways, it resembles an umbrella policy without the drop down feature.

Umbrella / Excess Liability Pitfalls

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Sample True Follow Form: We will pay on behalf of the insured, except as otherwise stated in this policy,

those amounts of loss for which coverage is provided under the definitions, terms, conditions, limitations and exclusions of the controlling underlying insurance in effect at the inception of this policy and which exceeds the total limits of liability of underlying insurance as stated in Items 3.a. and 3.b. of Schedule A—Schedule of Underlying Insurance of this policy

Sample Conditional Follow Form This policy, except where provisions to the contrary appear herein, is subject to

all of the conditions, agreements, exclusions, and limitations of and shall follow the underlying insurance in all respects. This includes changes by endorsement.


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RESTRICTIVE AS UNDERLYING

If any Underlying Policy with limits of liability in excess of the Controlling Underlying Policy (the “Intervening Policy”) contains terms, conditions, exclusions or limitations more restrictive than the Controlling Underlying Policy, whether on the effective date of this Policy or at any time during the Policy Period of this Policy, this Policy shall be deemed to follow those more restrictive terms, conditions, exclusions or limitations of the Intervening Policy.


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This Policy will only apply in excess of any reduced or exhausted limits of liability of the Underlying Policies to the extent that such reduction or exhaustion is caused by payment of amounts on account of occurrences, claims or loss that are covered under this Policy.


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Insurance Primer: Horizontal vs. Vertical

Exhaustion of Concurrent Coverage

Horizontal Exhaustion: Policyholder must exhaust all triggered primary and umbrella layers before tapping into excess policies

Vertical Exhaustion: Policyholder can access excess policies once the immediately underlying policies’ limits are exhausted, even if other lower-level policies during different policy periods remain unexhausted

Exhaustion of Primary Liability Limits

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EMJ Corp. v. Hudson Specialty Ins. Co., 2016 U.S. App. LEXIS 115046 (5th Cir. Aug. 16, 2016) (Mississippi)

In early 2005, Westchester was a commercial umbrella insurer for EMJ Corporation, a general contractor building a J.C. Penney store in Southaven, Mississippi. Umbrella policy limit was $25,000,000.

During that project, EMJ subcontracted with Contract Steel Construction, Inc. for steel erection services. As part of the subcontract, Contract Steel agreed to obtain insurance to protect it and EMJ from personal injury claims. Contract Steel purchased a commercial umbrella policy from Hudson Insurance with a $5,000,000 limit.


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Contract Steel installed a ladder leading from the ground to the roof of the building. The ladder was too short and was installed at an angle. Contract Steel made EMJ aware of this and EMJ accepted the ladder as it was. Two weeks later, a building inspector examining Contract Steel's work fell off the ladder and suffered a severe spinal injury.

The inspector filed suit against a group of defendants, including EMJ, in Mississippi state court seeking damages of $25 million. All of the defendants were dismissed until only EMJ was left and EMJ settled for five million dollars. Of this amount, EMJ's primary liability insurer covered one million dollars. Westchester covered the remaining four million dollars.


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The court ruled that both policies were excess and “mutually repugnant” conflicted with each other.

Under this state of affairs in Mississippi law, contribution is pro rata

Court determined that Westchester's policy (with a $25,000,000 limit) must pay 5/6 of the settlement amount and Hudson's policy (with a $5,000,000 limit) must pay the remaining 1/6. This reduced the damages owed by Hudson to 1/6 of four million dollars, or $667,000.


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Wal-Mart Stores, Inc. v. RLI Ins. Co., 292 F.3d 583 (8th Cir. 2002). Wal-Mart entered vendor agreement with halogen lamp manufacturer As part of the vendor agreement, the manufacturer agreed to (1) indemnify Wal-Mart

for any liability resulting from the sale of its lamps, (2) name Wal-Mart as an additional insured under its liability policies, and (3) maintain at least $2 million in coverage.

To comply with these requirements, the manufacturer maintained a $1 million primary and a $10 million umbrella. Wal-Mart had its own $10 million primary policy providing coincidental excess coverage over any other insurance "[t]hat was bought specifically for [Wal-Mart]."

A lamp manufactured by the insured caused a fire in which a little girl was burned. Her claim was settled for $11 million. The manufacturer's primary insurer paid its $1 million limit. Wal-Mart filed this declaratory judgment action to determine which insurer was obligated to pay the remainder of the settlement.

Effect of an Indemnity Agreement on Other Insurance Clause

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The pivotal provision in the view of the District Court was the “other insurance” clause in RLI's policy.

Whenever the insured is covered by other primary, excess or excess-contingent insurance not scheduled on this policy as scheduled underlying insurance this policy shall apply only in excess of, and will not contribute with, such other insurance. This policy shall not be subject to the terms, conditions or limitations of any such other insurance. In the event of payment under this policy where the insured is covered by such other insurance, we shall be subrogated to all of the insured's rights of recovery against such other insurance.


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The parties agree that Wal-Mart was an “insured” of RLI for purposes of this clause. They also agree that National Union's policy was not scheduled insurance on the RLI policy. This provision states that RLI's policy will apply only in excess of other unscheduled insurance.

Court looked to the competing “other insurance” clause in National Union's policy that covered Wal-Mart. It states that National Union's insurance was primary unless specified conditions occurred as described in part “B. Excess Insurance.” This clause, in relevant part, read: This insurance is excess over any of the other insurance, whether primary,

excess, contingent or on any other basis: 4) That was bought specifically for an Insured.


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Contrary to the ordinary "true umbrella" rule, the Eighth Circuit decided that the manufacturer's umbrella policy was required to pay the next $10 million of the settlement, not Wal-Mart's primary policy providing coincidental excess coverage. It did so for three reasons.

First, the indemnity agreement between the parties exhibited the contractual intent that all losses arising out of the sale of the lamps should be allocated to the manufacturer, not Wal-Mart.

Second, Wal-Mart was an additional insured under the subject umbrella. The court thought that to make Wal-Mart liable to the umbrella insurer in the declaratory judgment action would be to violate the so-called "anti-subrogation rule," which generally prohibits an insurer from recovering insurable losses from its own insured.

Third, the court concluded that "to make Wal-Mart or [Wal-Mart's insurer] liable to [the umbrella insurer] would simply be the first step in a circular chain of litigation that ultimately would end with [the umbrella insurer] still having to pay the $10 million."


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This is not to say, however, that indemnity agreements always govern insurance-allocation issues.

RLI cited a case in which, on facts similar to these, the indemnity agreement was not given effect. See Reliance Nat'l Indem. Co. v. General Star Indem. Co., 72 Cal.App.4th 1063, 85 Cal.Rptr.2d 627 (1999).

However, there are many more cases ruling that indemnity agreements determine the allocation of liability in an insurance dispute. See Rossmoor Sanitation, Inc. v. Pylon, Inc., 13 Cal.3d 622, 119 Cal.Rptr. 449, 532 P.2d 97 (1975).

A leading commentator summarizes this situation by observing that “an indemnity agreement between the insureds or a contract with an indemnification clause may shift an entire loss to a particular insurer notwithstanding the existence of an ‘other insurance’ clause in its policy.”


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A court may give the "other insurance" clauses precedence over the indemnity agreement where: The "other insurance" clause contains specific language preventing the umbrella

policy from becoming subordinate to an indemnity agreement; The facts and circumstances surrounding the insurance placement do not support

the idea that the parties intended that the insurance policies would follow the indemnity agreement;

The indemnity agreement is not effective in transferring the risk of loss for purposes of the claim under consideration;

The indemnity agreement is void under the local anti-indemnity statute; A later action for indemnity would be barred under the doctrine of res judicata

under the common law of the forum; and/or There is no legal possibility of "circuity of action" for some other reason.


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When offering to limit indemnity “To the extent of [the other parties’] insurance” Just that listed in the agreement/exhibit or all of their insurance?

What does this statement really mean? “To the extent such claims are promptly and actually recoverable under insurance policies”

More narrow “To the extent of [$__________] May or may not be insured!

“On Location/Premises” vs. Caused By vs. “Arising Out Of” Work/Location/Premises Survival Clause

Warranties, Indemnities and Insurance to survive at a minimum?

Tips to Manage Contractual Exposures

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Arnold Oil Properties LLC v. Schlumberger Technology Corp., No. 11-6053 (10th Cir. 2012) - Oklahoma

Schlumberger negligently placed too much cement in the hole; Arnold sued but Schlumberger relied on indemnity and limitation of liability provisions

Arnold argued that the indemnity provision was a true indemnity from third party claims and did not operate to exculpate Schlumberger from claims by Arnold

Moreover, the limitation of liability provision was unenforceable due to unequal bargaining position.

The jury agreed that there was unequal bargaining position

One of Arnold’s drillers said he did not attempt to negotiate because he understood from “casual conversation” that the indemnity provisions were non-negotiable and that it was unlikely that either of the other two contractors that could perform the work would negotiate those terms either

10th Circuit upheld the jury’s finding of unequal bargaining position which negated both the indemnity provision and the limitation of liability.

Unequal Bargaining Position

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Contractor warrants that all Services performed hereunder shall be performed in a good and workmanlike manner in accordance with standard oilfield industry practices, and Contractor shall exercise diligence to ensure the correctness and safe transport of all Samples, log, test, and other data to the extent practicable. Contractor will give Company the benefit of its best judgment based upon its experience interpreting information and making recommendations, either written or oral, as to logs, or tests, or other data, type or amount of material or service required or to be furnished, or manner of performance or in prediction of results. Contractor’s recommendations and predictions are opinions only and do not constitute any guarantee or certainty, due to: (i) theimpracticability of obtaining first-hand knowledge of the many variable conditions, (ii) the reliance on inferences, measurements, and assumptions which are not infallible, and/or (iii) the necessity of relying on facts and supporting oilfield services furnished by others.

NOTWITHSTANDING THE FOREGOING, NO WARRANTY IS GIVEN CONCERNING, AND CONTRACTOR GROUP SHALL HAVE NO RESPONSIBILITY OR LIABILITY FOR, THE ACCURACY OR COMPLETENESS OF ANY LOG, TEST OR OTHER DATA, THE DESIGN, ENGINEERING, PERFORMANCE, OR EFFECTIVENESS OF PRODUCTS, MATERIALS, RENTALS OR SUPPLIES USED, RESERVOIR OR SEISMIC DATA (INCLUDING, WITHOUT LIMITATION, SOFTWARE MODELS), RECOMMENDATIONS GIVEN, OR RESULTS OF THE SERVICES RENDERED. CONTRACTOR SHALL NOT BE HELD RESPONSIBLE OR LIABLE FOR ANY LOSS OR DAMAGE ARISING FROM OR RELATING TO THE RESULTS AND/OR RECOMMENDATIONS SUGGESTED BY SUCH WORK, NOR IS THE WORK INTENDED TO PROVIDE THE BASIS FOR ANY DECISIONS SUBSEQUENTLY MADE BY COMPANY, WHICH ARE AND SHALL REMAIN COMPANY’S SOLE RESPONSIBILITY. CONTRACTOR WILL NOT BE RESPONSIBLE OR LIABLE FOR ACCIDENTAL OR INTENTIONAL INTERCEPTION OF, OR TAMPERING WITH, DATA OR SAMPLES BY OTHERS, NOR DOES CONTRACTOR GUARANTEE OR WARRANTY THE SAFE STORAGE OF, THE LENGTH OF TIME OF STORAGE, OR AGAINST THE LOSS OF OR DAMAGE TO ANY SAMPLES, DIGITAL TAPES, DISKS, OPTICAL LOGS, OR PRINTS, OR OTHER SIMILAR PRODUCTS OR MATERIALS.

Warranty

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E. Express Warranties Only; Disclaimers.

THE FOREGOING WARRANTIES IN THIS ARTICLE 6 FOR WORK ARE IN LIEU OF AND NEGATE ALL OTHER WARRANTIES, WHETHER ORAL, WRITTEN, EXPRESS, IMPLIED, STATUTORY, REGULATORY, PURSUANT TO GOVERNMENT REQUIREMENTS, OR AT LAW. WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY SHALL NOT APPLY. CONTRACTOR’S WARRANTIES AND OBLIGATIONS, AND COMPANY’S REMEDIES, HEREUNDER (EXCEPT AS TO TITLE) ARE SOLELY AND EXCLUSIVELY STATED HEREIN, AND COMPANY, ON BEHALF OF ITSELF AND COMPANY GROUP, WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OTHER REPRESENTATION, WARRANTY, RIGHT, REMEDY, CLAIM OR CAUSE OF ACTION ARISING FROM, OR RELATING TO, THIS AGREEMENT. ARTICLE 6 SHALL APPLY TO ANY ENTITY OR PERSON WHO MAY BUY, RENT, ACQUIRE, OR USE THE PRODUCTS, RENTALS OR SERVICES, INCLUDING ANY ENTITY OR PERSON WHO OBTAINS THE PRODUCTS, RENTALS OR SERVICES FROM COMPANY, AND SUCH ENTITY OR PERSON SHALL BE BOUND BY THE LIMITATIONS HEREIN. COMPANY AGREES TO PROVIDE SUCH SUBSEQUENT TRANSFEREE CONSPICUOUS, WRITTEN NOTICE OF THIS AGREEMENT AND OBTAIN THEIR CONSENT TO THE SAME.

Warranty

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Contractor shall retain and exercise the authority and right to direct and control the manner in which all Work for Company is performed; provided, however, that Company retains the general right, but is in no way obligated, to observe Contractor in the performance of Work contemplated hereunder. It is the express understanding and the intention of the Parties that Contractor shall act as an independent contractor at all times, and no relationship of master and servant or principal and agent shall exist between Company and any employees, agents, or representatives of Contractor. Contractor shall have no right or authority to supervise, instruct, or give orders to any of Company’s employees, agents, or invitees nor to the employees of any contractor or subcontractor of Company; all such persons shall remain under Company’s direct and sole supervision and control at all times. Any communications by Company or its employees to Contractor shall, with respect to the scope of Work, be given only to Contractor’s designated superintendent or representative.

INDEPENDENT CONTRACTOR CLAUSE

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Lease Comments

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Lease Comments

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Lease Comments

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3.03 C In the event that, during the Term of this Lease, it is determined that the Leased Premises of any

improvements, personal property, fixtures or any other matter or thing comprising of or located within the Leased Premises must be removed, altered, modified, improved, reconstructed, added to or changed in order to be in compliance with the requirements of Title III of the Americans with Disabilities Act of 1990, Public Law 101-336, as amplified by the final rule promulgated by the Department of Justice in Section 28 of the Code of the Federal Regulations, part 35, as the aforesaid Act of Regulations may be hereafter modified or amended (the “ADA”) or any other law, code, statute, regulation or ordinance applicable to the Leased Premises (including without limitation the 1990 Clean Air Act and the Texas Architectural Barriers Act), such removal, alteration, modification, improvements, reconstruction, addition or change shall be undertaken by Tenant at the sole cost of Tenant so that the Leased Premises and all aspects thereof shall be in compliance with the ADA and all other laws, codes, statutes, regulations and ordinances applicable thereto. Prior to commencing such work, the Tenant shall notify Landlord of the work to be undertaken. The failure of Tenant to undertake such work shall constitute an Event of Default.

Lease Comments

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4.04. Care of the Leased Premises. Tenant shall maintain the Leased Premises in a clean, attractive condition, and not commit or allow any waste or damage to be committed on or to any portion of the Leased Premises, and at the expiration or termination of this Lease shall deliver up the Leased Premises to Landlord in as good condition as at date of possession by Tenant, ordinary wear and tear excepted.

4.07 (b). Tenant shall indemnify and hold harmless Landlord from and against all costs (including attorneys' fees and costs of suit), losses, liabilities, or causes of action arising out of or relating to any alterations, additions or improvements made by Tenant to the Leased Premises, including but not limited to any mechanics' or materialmen's liens asserted in connection therewith.

Lease Comments

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5.01 Condemnation, Loss or Damage. If the Leased Premises, Building, or any part thereof shall be taken or condemned for any public purpose (or conveyed in lieu or in settlement thereof) to such an extent as to render the remainder of the Building or Leased Premises, in the opinion of Landlord, not reasonably suitable for occupancy, this Lease shall, at the option of either party, forthwith cease and terminate, and all proceeds from any taking or condemnation of the Building and the Leased Premises shall belong to and be paid to Landlord. If this Lease is not so terminated, Landlord shall repair any damage resulting from such taking, to the extent and in the manner provided in Section 5.02, and Base Rental hereunder shall be abated to the extent the Leased Premises are rendered untenantable during the period of repair and thereafter be adjusted on an equitable basis considering the areas of the Leased Premises taken and remaining.

Lease Comments

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5.02. Fire or Other Casualty; Certain Repairs.

(a) In the event of a fire or other casualty in the Leased Premises, Tenant shall immediately give notice thereof to Landlord. If the Leased Premises shall be partially destroyed by fire or other casualty so as to render the Leased Premises untenantable in whole or in part in the opinion of Landlord, the Base Rental provided for herein shall abate as to the portion of the Leased Premises rendered untenantable until such time as the Leased Premises are made tenantable as determined by Landlord and Landlord agrees to commence and prosecute such repair work promptly and with reasonable diligence, or if such destruction results in the Leased Premises being untenantable in substantial part for a period reasonably estimated by Landlord to be 6 months or longer after Landlord's insurance settlement, or in the event of total or substantial damage or destruction of the Building where Landlord decides not to rebuild, then all Rent owed up to the date of such damage or destruction shall be paid by Tenant and this Lease shall terminate upon notice thereof to Tenant. Landlord shall give Tenant written notice of its decisions, estimates or elections under this Section 5.02 within 60 days after any such damage or destruction.

(b) Should Landlord elect to effect any repairs under Sections 5.01 or 5.02(a), Landlord shall only be obligated to restore or rebuild the Leased Premises to a Building Standard condition, and then only to the extent that insurance proceeds are actually available to Landlord therefor. In the event the Base Rental or any portion of the Base Rental is abated under Sections 5.01 or 5.02(a), the expiration date of the Term specified in Section 1.02 shall be extended for the period of such abatement.

Lease Comments

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5.06. Recourse Limitation. Tenant specifically agrees to look solely to Landlord's interest in the Building for the recovery of any judgment from Landlord, it being agreed that Landlord (and its partners, officers, directors and shareholders) shall never be personally liable for any such judgment. In addition, Tenant also agrees that Tenant shall not be entitled to recover from Landlord nor any of its agents, servants, employees, partners, officers, directors or shareholders any indirect, special or consequential damages Tenant may incur as a result of a default under this Lease or other action by Landlord, its agents, servants, employees, partners, officers, directors or shareholders. The provisions contained in the foregoing sentences shall not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord, or any other action not involving the liability of Landlord to respond in monetary damages from assets other than Landlord's interest in the Building.

Lease Comments

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5.08. Default by Tenant. 5.14. Insurance, Liability, Indemnity, Subrogation and Waiver. (a) Tenant shall maintain at its sole expense fire and extended coverage insurance in the amount of the full replacement cost with

vandalism, malicious mischief and theft endorsements and with the addition of the all other peril coverage (formerly known as all risk) and a sprinkler leakage endorsement and flood coverage (where applicable), on all property, including removable trade fixtures, located in the Leased Premises and on non-Building Standard leasehold improvement.

(b) Tenant shall, at its sole expense, maintain in effect at all times commercial general liability insurance, including contractual liability coverage, naming Landlord and its agents and representatives (specifically including but not limited to _________ Partners and the Building manager) as additional insureds, and providing that the policy is primary and non-contributory, issued by and binding upon some solvent insurance company authorized to do business in Texas and satisfactory to Landlord and with an A.M. Best rating of at least A VIII, with bodily injury and property damage limits of no less than $1,000,000.00 combined single limit for each occurrence and $3,000,000.00 in the aggregate for all liability including products and completed operations coverage. Tenant shall provide to Landlord (i) copies of the declaration page and the additional-insured endorsement of the policy of such insurance prior to the Commencement Date of the Term, (ii) copies of the renewal declaration page and additional-insured endorsement at least 30 days prior to the expiration date of any such policies, and (iii) copies of the new declaration page and additional-insured endorsement at least 30 days prior to terminating, or changing insurance companies for, any such policies.

(c) Tenant agrees to release, indemnify, defend and hold harmless Landlord and Landlord's partners, agents, directors, officers,employees, invitees and contractors, from and against any and all liabilities, claims, demands, expenses, fees, fines, penalties, suits, proceedings, actions and causes of action of any and every kind and nature (including, but not limited to, legal and investigative costs and all other reasonable costs, expenses and liabilities from the first notice that any claim or demand is to be made or may be made) arising or growing out of or in any way connected with Tenant's use, occupancy, management or control of the Leased Premises or the Complex, Tenant's operations or activities in the Building or the Complex, any breach of this Lease by Tenant or any act, omission or neglect of Tenant or Tenant’ agents, partners, directors, officers, employees, invitees or guests, or any person, firm or corporation contracting with Tenant relating to the Leased Premises. This obligation to indemnify shall not be limited in any way by any limitation of the amount or type of damages, compensation or benefit payable under applicable worker's compensation acts, disability benefit acts or other employee benefit acts. The provisions of this paragraph shall survive the termination of the Lease with respect to any claim arising before such termination.

Lease Comments

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5.17. Entire Agreement, Binding Effect, Severability. This Lease and any written addenda and all exhibits hereto (which are expressly incorporated herein by this reference) shall constitute the entire agreement between Landlord and Tenant; no prior written or prior or contemporaneous oral promises, inducements, representations or agreements not embodied herein shall be binding or have any force or effect. Landlord’s agents do not and will not have authority to make any promises, agreements, or representations not expressly contained in this Lease, and Tenant will make no claim on account of any representation whatsoever, whether made by a renting agent, broker, officer or other representative of Landlord, or which may be contained in any circular, prospectus or advertising relating to the Leased Premises, the Building, the Complex or otherwise, unless the same is specifically set forth in the Lease. This Lease shall not be amended, changed or extended except by written instrument signed by both parties hereto. The provisions of this Lease shall be binding upon and inure to the benefit of the heirs, executors, administrators, successors and assigns of the parties, but this provision shall in no way alter the restrictions on assignment and subletting applicable to Tenant hereunder.

Lease Comments

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5.25. Environmental and Land Use Matters. Tenant shall not use, store, treat, transport, manufacture, refine, handle, produce, allow, or dispose of hazardous materials on, or affecting the Leased Premises or Complex in any manner that violates federal, state or local laws, ordinances, rules, regulations or policies governing the use, storage, treating, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials (collectively, “Environmental Laws”). For purposes of this agreement, “Hazardous Materials” shall mean any flammable substances, explosives, radioactive materials, hazardous wastes, toxic substances, pollutants, pollution, or related materials specified in any of the Environmental Laws. Tenant indemnifies Landlord against, and agrees to hold Landlord harmless from, any and all loss, cost or expense that Landlord may incur as a result of violations of Environmental Laws arising out of or in connection with the use of the Leased Premises and/or Complex, and such indemnity shall survive the term of this agreement and any and all renewal terms. Landlord shall also be provided with an indemnity agreement, in form and content satisfactory to Landlord, from the guarantors, if any, of Tenant’s obligations hereunder, and the Principals of Tenant designated by Landlord (collectively the “Principals”) in which the Principals indemnify Landlord against and agree to hold Landlord harmless from any and all loss, cost or expense that Landlord may incur as a result of violations of Environmental Laws in connection with the Leased Premises, which violations occurred during the term of the lease created by this agreement and such indemnity shall survive the termination of the lease created hereby. The indemnity of Landlord shall expire on a date 5 years after the termination of the lease term unless Landlord has notified Tenant before such date that a violation or suspected violation had been discovered or claimed, in which case the indemnity will survive as to the claimed or suspected violation to the maximum extent permitted by law.

Lease Comments

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RISK MANAGEMENT • EMPLOYEE BENEFITS • RETIREMENT SERVICES

Our Mission | To be the worldwide value and service leader in insurance brokerage, risk management, employee benefits and retirement services

Our Goal | To be the best place to do business and to work© 2019 Lockton, Inc. All rights reserved.

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Kevin R. SiskSenior Vice PresidentLockton Companies(713) [email protected]

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Documents

Insurance, Indemnities, & Emerging Risks...2019/07/17 · intentional infliction of emotional distress, equitable relief, joint and several liability, vicarious liability, personal