Contractual Liability For Schools… Making Smart Choices

Report
Contractual Liability For
Schools…
Making Smart Choices and
Finding the Negotiator Within
Presented by Jessica K. Walls, Esq.
Isaac, Brant, Ledman & Teetor LLP
And Schools of Ohio Risk Sharing Authority, Inc.
So, What IS Negotiable?
• EVERYTHING is Negotiable!
• Remember who drafted the contract you are
signing. The provisions in a contract were put
there for a reason, and it probably wasn’t for
your benefit.
Topics: Contractual Liability
and Risk Management
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Risk Transfer (Hold Harmless and Indemnity Agreements)
Legalities of Political Subdivisions Assuming Risk
“Additional Insured” Status
Waivers of Subrogation
Contractual Risk Transfer Strategies
COI’s – Function and Meaning
COI’s – Problems
Contractual Risk Transfer
Owner
GC
Sub
Sub
Risk Transfer
• Hold Harmless and Indemnity Clauses
Hold Harmless: One party assumes an
obligation to protect and defend another
Indemnification: One party agrees to pay for
losses or damages incurred by another as a
result of contract.
Forms of Hold Harmless and
Indemnity Clauses
(1) Limited Form. Assume responsibility only for
your own negligence.
i.e., “(A) shall indemnify and hold harmless (B)
against all claims, damages and losses, arising
out of or resulting from (A)’s work under this
Agreement, but only to the extent caused by
(A)’s negligence.”
Forms of Hold Harmless and
Indemnity Clauses
(1) Intermediate Form. Assume responsibility for your sole
negligence as well as negligence partly caused by your
party.
i.e., “(A) shall indemnify and hold harmless (B) against all
claims, damages and losses, arising out of or resulting
from (A)’s work under this Agreement, that are caused
in whole or in part by (A)’s negligence, regardless of
whether or not such loss is caused in part by a party
indemnified hereunder.”
Forms of Hold Harmless and
Indemnity Clauses
(1) Broad Form. Assume responsibility for negligence,
whether or not it is the fault of your party.
i.e., “(A) shall indemnify and hold harmless (B) against all
claims, damages and losses, arising out of or in any way
related to (A)’s work under this Agreement, even if such
claims, damages or losses are caused by (B)’s negligent
act or omission.”
Hold Harmless Provisions
• They are not the devil, but make sure you
negotiate language you are comfortable
with.
• Benefits:
– Spells out who is responsible for injury or
damages arising out of the work performed.
– Provides a means for recovery if the
contractor’s insurance does not cover the loss.
Political Subdivisions Have Limited
Ability To Assume Risk Under The Law
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Schools and ESCs are political subdivisions
Amounts obligated under an indemnification or hold harmless clause must be
appropriated and certified when the contract is made as required by R.C.
5705.41(D)(1) in order to avoid the creation of debt in violation of Ohio
Const. art. XII, Section 11
Hence, an school district or ESC cannot enter into a contract unless there is
assurance that there will be adequate funds to meet the school district or
ESC’s obligations. A school district or ESC cannot satisfy this requirement if
an indemnification or hold harmless clause included in the contract would
permit a liability of an undefined and unlimited amount. In order to comply
with R.C. 5705.41(D)(1), a contract containing an indemnification or hold
harmless clause must specify a maximum dollar amount for which the school
district or ESC is obligated, and that amount must be appropriated and
certified as available for payment prior to the contract's execution.
See Ohio Attorney General Opinion 99-049
“Additional Insured” Status
• “Additional insureds” are entities that are
added as insureds to the commercial
general liability or automobile liability
policy by way of an endorsement or
modifier.
• Naming an additional insured allows the
additional insured to share the limits of
insurance paid out for claims by the named
insured
“Additional Insured” Status
• Why Should Your School Be An Additional
Insured?
• This reinforces the risk transfer accomplished
through hold harmless agreements.
• Do this when you feel that someone else’s
insurance should be expected to offer you
protection for a liability arising out of their work
or their products and services.
• Examples: construction companies, suppliers
who may produce a faulty batch or a bad product
by faulty design or manufacture.
Risk Management
Recommendations
• Require contracting party to furnish an original
COI before work commences
• Require your school to be named as an Additional
Insured
• Require a Hold Harmless Agreement in favor of
the school
• Require insurance be placed with insurers with a
current A.M. Best rating of no less than A: VII
Waiver of Subrogation
-One party, or both, may waive
the right to sue the other.
Waiver of Subrogation
• The law allows parties negotiating a
contract to apportion risk as they choose.
• Subrogation is the legal method for an
insurer, after paying a covered claim, to
pursue another party wholly or partially
responsible for the loss.
• If the insured gives up those rights, the
insurer is left without recourse.
Subrogation – Example
• Subrogation is the right to pursue someone else’s
claim, to “stand in the place” of another person.
• Example: A SORSA member’s building burns down
due to a third party’s negligence. Normally, the
school would sue the negligent third party for
causing the fire. If SORSA pays the claim and
rebuilds the building, SORSA is then subrogated to
the school’s claim against the negligent third party.
The school’s claim against the negligent third party
is assigned to SORSA and SORSA may pursue the
third party and their insurance company to recover
the amount paid rebuilding the building.
Why The Contractor Should
Sign A Waiver of Subrogation
• This is a way for your school to make sure
there is a back-up in the event that the other
party neglected to name you as an
additional insured.
Contractual Risk Transfer
Strategies
• Have competent and knowledgeable legal counsel develop
indemnity clauses that conform to the applicable statutes
and common law requirements.
• Back up indemnity/hold harmless provisions with
insurance requirements:
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Liability Insurance
Limits of Insurance
Contractual Liability
Additional Insured/Waiver of Subrogation\
• Keep the requirements reasonable
Certificates of Insurance
(COI’s)
• What is it? A standard form issued as evidence of
a policy holders’ coverage and limits of liability.
• COI’s are used to show parties in a transaction
what type of insurance is carried.
• Most COI’s are issued on forms that have been
standardized by ACORD (Agency – Company
Organization for Research & Development)
Example of an ACORD COI
Certificates of Insurance
• COI’s should be requested from:
– Suppliers (Manpower, etc.)
– Contractors
• COI requests should be included in:
– Purchase orders
– Temporary employment contracts
– Construction contracts
Certificates of Insurance
• What to review in a COI
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Coverage Requested
Limits requested
Name and address
Additional Insured
Waiver of Subrogation
At least 30 days notice of cancellation
COI’s : Problems
• A certificate is not an insurance policy
– Evidence of insurance only
• Represents the coverage and limits at the time of
issuance
– At the time the Contract is executed
– Limits may be reduced by paid claims
• A COI holder is not entitled to information
regarding policy changes.
– Only entitled to notice of cancellation
COI’s: Beware of Enforceable
Disclaimer Language
• The controlling factor (whether coverage exists)
for most courts is whether the COI contains
disclaimer language
• “This Certificate is issued as a matter of
information only and confers no rights upon the
certificate does not amend, extend or alter the
coverage afforded by the policies below.”
Contractual Liability
Exclusions
• A Common Exclusion to look out for:
– “This insurance does not apply to…
• Contractual Liability…for which the insured is
obligated to pay damages by reason of the
assumption of liability in a contract
Contractual Risk Transfer
Example Language
Minimum Insurance Requirements
• General Liability Coverage.
– “Contractor shall maintain commercial general liability
insurance with a limit of not less than $1,000,000 each
occurrence.”
– “The school district or ESC, its elected officials and
employees, shall be named as additional insureds with
respect to all activities under this Agreement.”
Contractual Risk Transfer
Example Language
Minimum Insurance Requirements
• Workers’ Compensation.
– “Contractor shall maintain workers’ compensation
coverage as required by Ohio law.”
– Never agree to provide workers’ comp coverage
for independent contractors.
Contractual Risk Transfer
Example Language
Minimum Insurance Requirements
• Proof of Insurance.
– “Prior to the commencement of any work under this Agreement,
Contractor shall furnish the school district or ESC with properly
executed certificates of insurance for all insurance required by the
Agreement. Certificates of insurance shall provide that such insurance
shall not be canceled without 30 days prior written notice to the school
district or ESC. Contractor will replace certificates of insurance
expiring prior to completion of work under this Agreement.”
Indemnification/Hold Harmless
Example Contract Language
• “The contractor shall indemnify and hold harmless the school
district or ESC, its agents and employees from any and all
losses, claims, damages, lawsuits, costs, judgments, expenses
or any other liabilities which they may incur as a result of
bodily injury, sickness, disease or death, or injury to or
destruction of tangible property including the loss of use
resulting therefrom, caused in whole or part by the negligent
act or omission of the contractor, any subcontractor, any
person directly or indirectly employed by any of them or any
person for whose acts any of them may be liable.”
Managing Contractual Risk
Transfer, Cont.
• Bid Specification Requirements
– Written safety program in place/distributed
– Evidence of Safety Training
– Complies with all local, state, and/or federal
statutes and regulations including, but not
limited to OSHA, ORC, EPA, etc.
Questions?
Jessica K. Walls, Esq.
Isaac, Brant, Ledman & Teetor LLP
250 E. Broad Street, Suite 900
Columbus, OH 43215
(614) 221-2121

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