Indemnity 101: - PowerPoint Presentation

Slide1

Indemnity 101:Tips from Lessons Learned

Rick AlimontiAlimonti Law Offices, PC200 Mamaroneck Ave.Suite 304White Plains, NY 10601914.948.8044rick@alony.com

Arthur

J.

Park

Mozley Finlayson &

Loggins

LLP

5605

Glenridge

Drive,

Suite 900

Atlanta, GA 30342

404.256.0700

apark@mfllaw.comSlide2

So What is Indemnity?

What isn’t it?It is not a liability-shifting mechanism.It cannot bind a non party to whom you are liableVis-à-vis such a non party, you remain liable, and from their perspective, the indemnity may well be invisible.It is not insurance and, in fact, law is underdevelopedWhat is it?A risk management tool whereby one party (indemnitor) is answerable for the damage (and perhaps defense) of another (indemnitee).Slide3

When Will Indemnity Arise?

When a claim arises under circumstances in which another party is primarily responsible and/or contractually responsible to indemnify you.Slide4

Contractual Indemnity

Contract risk-management provisionOften “imposed” by party with greater bargaining power over more dependant party.Example:Imposed by Port Authority on airlines and contractorsImposed by airlines on service providersGoal: insulate one party for damages and defense costs “arising from” contractual relationship with another.Slide5

Contractual Indemnity

Is there an agreement?SignedIn Effect – not expiredBetween correct partiesSuperseded by another agreementNotice provisionVoided: release, bankruptcy, etc.Slide6

Types of Indemnity Agreements

Narrow form: only covers the indemnitor’s negligenceIntermediate form: covers indemnitee’s passive negligence and indemnitor’s negligenceBroad form: covers indemnitor’s negligence and even the indemnitee’s own negligenceMajority view: cannot cover gross negligence or intentional misconductSlide7

And Common Exceptions

The foregoing indemnity shall not apply in the event of injuries or damage to property caused by the reckless or wilful misconduct of the Airline or its agents and employeesAND/ORThe foregoing indemnity shall not apply in the event of injuries or damage to property caused by the sole negligence of the Airline or its agents and employeesSlide8

Example 1 - FBO

“FBO shall indemnify, defend, and save harmless owner, and owner’s officers, agents, employees, directors, successors and assigns, from and against any and all loss, claims, demands, costs, expenses of every nature, including reasonable attorney’s fees (including fees to enforce this clause) arising directly or indirectly from or in connection with the use and operation of the aircraft by FBO,

except

when any such claims arise from the

sole negligence of owner

.”

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Example 2 - what not to do

“BOB hereby agrees to indemnify, defend and hold harmless ADAM from and against (i) all claims, costs, expenses or damages of any nature whatsoever (including reasonable attorney fees and court costs) asserted against or incurred by ADAM resulting from the use of or in any way related to any work done under authority of the STC by any entity other than ADAM (or any other party licensed or authorized by it) after the completion of the transfer of the STC to BOB pursuant to these terms; and (ii) any claims, costs, expenses or damages asserted by any person or agent, or employee of BOB in performance of this Agreement, but excluding…any claims, costs, expenses or damages which are caused by or result from the

negligence or the fraudulent or willful misconduct of ADAM

.”Slide10

Obstacles to Indemnity

Questions of Fact?Issue of party’s sole negligence or reckless/wilful misconduct may form basis for argument that tender is “premature”.This will be particularly so if language is not clear on duty to defend and what triggers this duty.Slide11

Legal Principles Governing Indemnity Agreements

Choice of law: lex loci contractus,most significant relationship, orchoice of law clause in the contractContracts of indemnification are to be strictly construed against the indemnitee Duty to indemnify is a question of lawSlide12

Example 3

Contractor shall indemnify, defend, and hold harmless Airline for any and all claims, losses, and damages (including attorneys’ fees and court costs) arising out of or related to Contractor’s performance of the Contract, including claims brought by Contractor’s agents and employees.Slide13

Example 4 – service k with airline

Contractor shall release, indemnify, defend and hold harmless Delta…from and against any and all claims…which in any way arise out of or result from any act(s) or omission(s) by Contractor (or anyone directly or indirectly employed by Contractor or anyone for whose acts Contractor may be liable) in the performance or nonperformance of Services or other obligation under this Agreement…This Section shall apply regardless of whether or not the damage, loss or injury complained of arises out of or relates to the negligence (whether active, passive or otherwise) of, or was caused in part by [Delta]. However, nothing contained in this Section, shall be construed as a release or indemnity by Contractor of [Delta] from or against any loss, liability or claim arising from the sole negligence or willful misconduct of [Delta]. Slide14

When does duty to indemnify attach?

Contractual Indemnity distinguished from Insurance PolicyFor Indemnity [unlike insurance], duty to defend MAY NOT BE BROADER than duty to indemnifyNeed broad indemnity language or you may be footing defense bill until duty to indemnify is established.Slide15

Incident Occurs-Investigation

What are circumstances?Who are involved parties?Who has involvement in underlying incident or area in which it occurred?What does the applicable document say as to1. Indemnity?2. Insurance?Do you have documents to support additional insured status?Slide16

Triggering Indemnity: What do you do, and how do you know?

Notice of Claim – formal or informalThe sooner you advise the party from whom you seek the indemnity of the underlying occurrence, the betterPut it in writingInsurer will likely assist or handle but stay involvedAt the end of the day it is you, not the insurer, that is entitled to be indemnifiedSlide17

What can undermine indemnity?

Adhesion contract – contra preferentemPublic Policy – against “free ride”AmbiguityFailure to include specific claims, e.g., including claims by indemnitor’s employees – very importantPunitive damages not subject to indemnity – wrong party would be “punished”Slide18

The test for broad form indemnity

Majority view: not against public policyBut, indemnity agreement will not be construed to cover the indemnitee’s own negligence unless contract is clear and unequivocalInitial presumption against broad form indemnityLanguage must show a “clear intent” to indemnify the other party’s own negligence, but there are no “magic words” Slide19

Example 5 – broad form?

“The Contractor [C.R.A.] agrees to indemnify, defend and hold harmless Eastern [Air Lines],…directors, officers, employees, agents and representatives from and against all claims, liability, loss or expense, including legal fees and court costs, arising out of or in connection with this agreement including, but not limited to claims of employees of Contractor, claims of employees of Eastern and/or City, claims arising out of injury, death or property damage, direct or consequential, to any person or entity…The foregoing indemnification does not apply to any claims arising out of the gross negligence or willful misconduct of Eastern.”Slide20

Fact Pattern – Additional Insurance and Multiple Indemnities

Sally Slip, age 45, is employed by On-The-Spot Cleaners, Inc., a contractor that cleans aircraft interiors. On January 4, 2014, she had just completed cleaning an aircraft when she fell at the foot of the air stairs on a patch of black ice. She suffered a broken arm (humerus) and a concussion. She claims soft tissue damage, herniated disc and inability to ever return to work, i.e., permanent disability.Slide21

Fact Pattern (cont’d)

The aircraft she had just serviced was owned and operated by Excelsior Airlines.The accident took place on the Excelsior ramp at Sunshine Municipal Airport in Sunshine, New York. The town of Sunshine is the owner of the airport and Excelsior’s landlord.Excelsior is a small regional airline that contracts with Shovel & Salt for snow removal on the Excelsior ramp.Slide22

Some Critical Contract Language

Shovel & Salt Contract:Shovel & Salt is to perform no snow or ice removal within 50’ of an aircraft unless specifically requested by airline. If airline requests such services within 50’, Airline must indemnify Shovel & Salt against any damages to property related to the provision of this service.Slide23

Contract Language

Salt and Shovel contract requires snow removal on ramp upon 2” accumulation.According to contract, salt and sand are only applied “on demand” from ExcelsiorThere is no patrol obligation in contract, but Shovel & Salt nonetheless patrols for snow and ice and applies melting agents and salt as it deems appropriate.Slide24

Contract Language

Excelsior Airline Indemnity to Sunshine Township:Excelsior Airline agrees to indemnify and defend township for all injury and property damage arising out of Airline’s use of the leasehold unless caused by the sole negligence of Sunshine or Sunshine’s agents or employees.Slide25

Contract Language

On-the-Spot Contract with AirlineOn-the-Spot is required to indemnify and defend Airline for all claims for damages and personal injury arising out of On-the-Spot’s provision of services to Airline. However, the indemnity provision in the contract does not specifically extend to claims brought by On-the-Spot’s own employees. The contract is silent on this issue.Slide26

Contract Language

Shovel & Salt License with Sunshine Township:In order to provide services to airport tenants, Shovel & Salt has also entered into a license with Sunshine Township requiring Shovel & Salt to indemnify and defend Sunshine for all claims for damages and personal injury arising out of Shovel & Salt’s provision of services on any airport premises.On-the-Spot License with TownshipNONE ON FILE!Slide27

Hurray! You’re Indemnified!Now What?

You are still being suedYou are still in the captionAnd you may be giving away the control of your defenseDo you care?Yes! Why? Company Reputation; Adverse Press; Res Judicata; Jurisdictional Implications; Sanctions; Bad HandlingSlide28

After the Indemnity is Accepted:

Maintain active roleYou remain a clientYou may not want law firm to be doubling on defendants (waiver of privilege?)You will want role in defense and settlementYou may want counsel of your choosing, not indemnifying party’sSlide29

What About a Reservation of Rights

Party from whom you seek indemnity reserves rights to withdraw defense and/or decline indemnityIn vast majority of cases reservation is not effectuated and defense is not withdrawnNonetheless, you are on notice!Counsel cannot defend you while looking to escape indemnity – grounds for conflictShould you demand independent counsel?Slide30

MGLA 186 § 15. Non-liability of landlord; provisions in lease or rental agreement

Any provision of a lease [in which] by the use of any words whatsoever, the effect of which is to indemnify the lessor or landlord or hold the lessor or landlord harmless . . . from any or all liability to the lessee or tenant, or to any other person, for any injury, loss, damage or liability arising from any omission, fault, negligence or other misconduct of the lessor or landlord . . . shall be deemed to be against public policy and void.Compare: N.Y. Gen. Oblig. L § 5-322.1,

which is more limited in scope and applies to construction, renovation, maintenance, demolition etc. of propertySlide31

Limit in the construction context

“A covenant…in connection with…a contract or agreement relative to the construction, alteration, repair, or maintenance of a building…purporting to require that one party to such contract or agreement shall indemnify…the other party to the contract…against liability…caused by or resulting from the sole negligence of the indemnitee…is against public policy and void and unenforceable.”

O.C.G.A

. §

13-8-2(b)Slide32

Indemnity’s Cousin: Additional Insured Status

Separate and distinct from indemnity provisionShould Implement IndemnityShould be policed at renewalEndorsementsInsurance CertificatesMake clear that insured status is bargained-for provision and part of considerationSlide33

Additional Insured cont.

Also known as the duty to procure insuranceDoes the insurance meet the contractual obligations?Limits;Policy Period:Are there exclusions that essentially eviscerate the coverage required under the contract?Slide34

Exemplar Additional Insured Term:

In furtherance of the preceding indemnity obligation, contractor shall procure a comprehensive general liability policy having limits in the amount of $10X and $5X per occurrence with no deductible or self-insured retention. Said insurance shall be primary and shall displace any other insurance held by the Airline except to the extent the above limits are insufficient, in which case the Airline’s coverage shall be deemed excess.Slide35

Why the concern about deductible?

Actual CasePersonal injury action – passenger injured when aircraft door shut on foot by CatererCaterer had [we believe] US$1 Million SIR.Caterer accepted tender and then later rejected it as when value revealed.Why?It was their own money!Large SIR made insurance requirement somewhat illusorySlide36

So You’re an Additional Insured; Now What?

Positives?Potential to be covered to the same extent as the named insuredAdditional-Insured status may be less restrictive than indemnity vis-à-vis public policyLiabilities?Likely to be bound by policy termsDuty to cooperateDuty of notice, etc.Slide37

International Flights

Montreal ConventionDoes NOT create a cause of action for indemnification or contribution among carriers, but also DOES NOT preclude such actions under local laws.See Chubb Ins. Co. v. Menlo Worldwide Forwarding, Inc., 634 F.3d 1023, 1026 (9 Cir. 2011) citing In re Air Crash at Lexington, Ky., No. 5:07–CV–316, 2007 WL 2915187 (E.D.Ky. Oct. 5, 2007) (holding that the Warsaw Convention does not preempt a local law cause of action for apportionment among joint tortfeasors) Slide38

International Flights cont.

Warsaw ConventionSame as Montreal Convention re indem/contribSee Sompo Japan Ins., Inc. v. Nippon Cargo Airlines Co., Ltd., 522 F.3d 776, 785-87 (7th Cir. 2008) (holding that the Warsaw Convention does not preempt the Illinois Joint Tortfeasors Contribution Act).

SOL:

The plain language of the Montreal Convention makes clear that actions for indemnification and contribution are not subject to Article 35’s two-year statute of limitations. Slide39

PRACTICE TIPS – INDEMNITY

In reviewing or drafting contracts, make sure indemnity is broad, includes indemnity and defenseInclude injuries by agents and employees of contractorsAim for indemnity to be triggered by allegations, not facts, but know local lawSlide40

PRACTICE TIPS – INDEMNITY

When your request for indemnity is denied:Continue to defend the underlying actionDecision to settle underlying claim must be reasonableTrack all expenses following denial, including those incurred during enforcementDon’t be afraid to request a reconsiderationOptions to considerSharing agreement on verdict or settlementTolling agreement to pursue indemnity claims

Pay and

fight:

cross-claim,

third-party complaint, or subsequent lawsuit for breach of

contractSlide41

PRACTICE TIPS - INDEMNITY

Know the Chosen Law – Make sure it is clear in contractBe aware that contract may be subject to different law in different areas of operationBest to include:Choice of LawForum for DisputesPossible ADRSlide42

PRACTICE TIPS - INDEMNITY

Additional insurance provision should be co-extensive with indemnity (unless you are looking for more coverage)Maintain organized and up-to-date files includingLatest executed contractApplicable insurance policies and certificatesTender and acceptance histories – possible “precedents” for later useWatch for “upstream” exposureCircumvent the workers comp exclusion in policySlide43

Table of Georgia Authorities

Delta Air Lines, Inc. v. Swissport United States, Inc., No. 11 Civ. 1544, 2012 U.S. Dist. LEXIS 183622 (S.D. N.Y. Dec. 27, 2012) (pre-tender expenses and interest available in Georgia)JNJ Found. Specialists, Inc. v. D.R. Horton, Inc., 311 Ga. App. 269, 279 (2011) (indemnification agreement enforceable when definite and unambiguous) Lanier at McEver, LP v. Planners &

Eng’rs

Collaborative, Inc.

, 284 Ga. App. 204 (2007) (allowing recovery of enforcement expenses)

SRG

Consulting, Inc. v. Eagle Hospital Physicians, LLC

, 282 Ga. App. 842 (2006) (question of law)

Serv.

Merch

. Co. v. Hunter Fan Co.

, 274 Ga. App. 290 (2005) (“contract of indemnification must be construed strictly against the indemnitee”)

Park Pride v. City of Atlanta

, 246 Ga. App. 689, 689 (2000) (broad form must be stated “expressly, plainly, clearly and unequivocally”)

Myers v. Texaco Ref. & Mktg.

, 205 Ga. App. 292, 298 (1992) (court will “scrutinize the contract closely [regarding] an intent to indemnify the indemnitee against his own negligence”)

Kemira

, Inc. v. A-C Compressor Corp.

, 755 F. Supp. 1059 (S.D. Ga. 1991) (strict construction)

Eastern Air Lines, Inc. v.

C.R.A

. Transportation Co., Inc.

, 167 Ga. App. 16 (1983) (example of plain and unambiguous broad form agreement)

Delta Air Lines, Inc. v. McDonnell Douglas Corp

, 350 F. Supp. 738 (N.D. Ga. 1972)

aff’d

503 F.2d 239 (5th Cir. 1974) (liability disclaimers not against public policy)

Andrews Motors Co. v. Clement

, 127 Ga. App. 745 (1972) (liability disclaimers not against public policy)

Batson-Cook Co. v. Georgia Marble Setting Co.

, 112 Ga. App. 226 (1965) (clear intent for broad form) Slide44

QUESTIONSSlide45

Shifting gears to…Apportionment

Tackling the tug-of-war between pilot error, maintenance, and mechanical defectsSlide46

Apportionment cont.

Negligence: Depends on the statePure Joint & Several Liability – 8 StatesPure Several Liability – 8 States Variable Liability – 28 StatesHybrid and Variable Liability – 6 StatesEnsure that the “deep pocket dilemma” doesn’t harm your clientSlide47

A closer look at Georgia

2005 Tort Reform Act replaced joint and several liability with apportionment of damages by percentage of liability“in assessing percentages of fault, the trier of fact shall consider the fault of all persons or entities who contributed to the alleged injury or damages, regardless of whether the person or entity was, or could have been, named as a party to the suit.” O.C.G.A. § 51-12-33(c). Slide48

Georgia cont.

If damages are actually apportioned by the jury, there is no right of contribution. O.C.G.A. § 51-12-33(b).BUT most cases settle before reaching a jury…And “the right of indemnity, express or implied, …shall continue unabated and shall not be lost or prejudiced by compromise and settlement of a claim.” O.C.G.A. §

51-12-32(b).