CONTRACT REVIEWS THE GOOD, THE BAD AND THE UGLY

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1 4th Annual Willis Real Estate, Hotel and Gaming Symposium CONTRACT REVIEWS THE GOOD, THE BAD AND THE UGLY September 16, 2015

2 Contractual Risk Management 101 Control the assumption of liabilities under contract preferably through a clear and consistent process with pre-determined levels of authority regarding who can do what, for how much, etc. All contracts, regardless of size, should be reviewed by legal and risk management (including insurance brokers). Develop a set of standardized agreements which can be easily tailored for any contracting situations Avoid outdated wording and policy / endorsement forms 4 th Annual Real Estate, Hotel and Gaming Symposium 1

3 Definitions of Upstream / Downstream As used in this presentation: Upstream lenders, owners, developers, landlords, purchasers, etc. Downstream subcontractors, tenants, service providers, vendors, suppliers, consultants, etc. Both construction or project managers, general contractors and contractors 4 th Annual Real Estate, Hotel and Gaming Symposium 2

4 Panelists Upstream (Owner / Developer): Libby Stevenson, Vice President, Risk Management, Bentall Kennedy (U.S.) Limited Partnership Downstream (General Contractor / Subcontractor): Jeremiah Welch, Partner, Saxe Doernberger & Vita, P.C. Both (Broker): Emily O Dell, Client Executive, Willis Moderator: Abe Freeland, SVP, Client Advocate, Willis 4 th Annual Real Estate, Hotel and Gaming Symposium 3

5 Typical Contractual Risk Transfer Model Contractual Indemnity Claim Downstream Party Upstream Party Downstream Party s Insurance Additional Insured Coverage 4 th Annual Real Estate, Hotel and Gaming Symposium 4

6 Indemnification Provision Good, Bad or Ugly? Contractor shall indemnify, defend and hold harmless Owner from any and all claims, suits, damages and liabilities arising out of or in connection with this Agreement, including Owner s sole or contributory negligence. Such indemnification obligation shall apply whether or not supported by Contractor s insurance coverage. 4 th Annual Real Estate, Hotel and Gaming Symposium 5

7 Should Insurability Influence Scope of Indemnity? Not Covered Covered Indemnity Liability 4 th Annual Real Estate, Hotel and Gaming Symposium 6

8 Anti-Indemnity Statutes: What Liability Can be Passed Downstream? All Liability All But Sole Negligence Only What s Not Your Fault Only What s Their Fault Dependent on State Law 4 th Annual Real Estate, Hotel and Gaming Symposium 7

9 Contractual Indemnity: The Good & The Bad Bad: Poorly Written Vague Mixes Indemnity with Basic Contract Obligation Concepts Exceeds State Restrictions But What About: Exceeds What Downstream Party Can Insure Not Fair or One-Sided Applies Regardless of Fault Not Limited to the Contract Value 4 th Annual Real Estate, Hotel and Gaming Symposium 8

10 Additional Insured Status Good, Bad or Ugly? Owner shall be included as an additional insured under Contractor s Commercial General Liability policy as respects liability arising from work, operations or completed operations performed by or on behalf of Contractor under this Agreement. The additional insured endorsement shall be on Insurance Services Office 11/85 edition or its equivalent. 4 th Annual Real Estate, Hotel and Gaming Symposium 9

11 CG th Annual Real Estate, Hotel and Gaming Symposium 10

12 Additional Insured Endorsements Conformity with Law 4 th Annual Real Estate, Hotel and Gaming Symposium 11

13 CG th Annual Real Estate, Hotel and Gaming Symposium 12

14 Additional Insured Scope of Coverage Upstream for any projects with completed operations exposure, upstream party should require status as an additional insured for ongoing operations under CG 2010 and completed operations under CG ISO additional insured forms changed in 2004 to distinguish between ongoing ops (CG 2010) and completed ops (CG 2037) Further, the additional insured s liability must arise in whole or in part from work or operations performed by or on behalf of the named insured, or the use or occupancy of premises by the named insured Downstream insist on using current ISO additional insured endorsements which limit the scope of the additional insured s coverage to liability caused in whole or in part by the named insured 4 th Annual Real Estate, Hotel and Gaming Symposium 13

15 CG th Annual Real Estate, Hotel and Gaming Symposium 14

16 Problems and Perspectives Policy Limits Contract Requirements PROBLEM! $10 Million $10 Million $1 Million GAP $1 Million $2 Million 4 th Annual Real Estate, Hotel and Gaming Symposium 15

17 Insurance Limits: The Good and The Bad New ISO: Bad: Good: Those limits required by contract, or those limits stated on the Declarations page, whichever is less. Primary limits of $1 Million per occurrence. Primary limits of $1 Million per occurrence or the full per occurrence limits of the policy, whichever is greater. 4 th Annual Real Estate, Hotel and Gaming Symposium 16

18 CG th Annual Real Estate, Hotel and Gaming Symposium 17

19 Scope of Coverage: The Good and The Bad New ISO: Bad: Good: The insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide for such additional insured. Broad form property damage, contractual liability, for the indemnity obligation, etc. The Parties agree that nothing in this contract is designed to limit the breadth of coverage 4 th Annual Real Estate, Hotel and Gaming Symposium 18

20 Vertical or Horizontal Exhaustion: Good, Bad or Ugly? The limits of insurance required of Contractor herein shall be primary and exhaust vertically through Contractor s Primary and Umbrella / Excess Liability coverages and any Primary or Umbrella / Excess Liability coverage maintained by Owner shall not be called upon to contribute to any loss arising out of this Agreement until Contractor s insurance and indemnification obligations have been fully satisfied. 4 th Annual Real Estate, Hotel and Gaming Symposium 19

21 Horizontal Exhaustion Owner Excess Policy $5 MM Contractor Excess Policy $5 MM Owner Primary Policy $2 MM Contractor Primary Policy $1 MM 4 th Annual Real Estate, Hotel and Gaming Symposium 20

22 Contract Solution Each policy (including umbrella/excess) shall state that the insurance provided to the additional insureds is primary and non-contributory to any other insurance (including primary, excess, self-insurance, or on any other basis) available to the additional insureds. 4 th Annual Real Estate, Hotel and Gaming Symposium 21

23 Policy Solution 4 th Annual Real Estate, Hotel and Gaming Symposium 22

24 General Insurance Requirements: Good vs Bad Good: Primary and noncontributory for ALL policies No limit on scope Address each line of coverage specifically Consider commercial availability Include savings clause (AI) Improvements and betterments (in leases) Bad: No AI form specified Loose limits requirements Old, outdated terms Silent on deductibles/sirs 4 th Annual Real Estate, Hotel and Gaming Symposium 23

25 Contract Must Address SOLUTIONS Acceptable/Unacceptable Forms AI/Priority Horizontal Exhaustion New ISO AI Changes (Limits/Breadth) Eliminate: Outdated/Unnecessary Language 4 th Annual Real Estate, Hotel and Gaming Symposium 24

26 How Do You Verify Compliance? What About Certificates of Insurance? Should I Collect Endorsements? Policies? What About Small Contracts/POs? Are There Any Exceptions? How Do I Get Senior Management Buy-In? TIP: DO NOT RELY ON A CERTIFICATE! 4 th Annual Real Estate, Hotel and Gaming Symposium 25

27 An Arcane World: Claim Waivers, Subrogation Waivers and Liability Caps CAPS and WAIVERS 4 th Annual Real Estate, Hotel and Gaming Symposium 26

28 Thank You Libby Stevenson Vice President, Risk Management Bentall Kennedy (U.S.) Limited Partnership (206) Jeremiah M. Welch Partner Saxe Doernberger & Vita, P.C. (203) Emily A. O Dell Client Executive Willis Group Emily.odell@willis.com (972) Abe Freeland SVP, Client Advocate Willis Group Abe.freeland@willis.com (615) th Annual Real Estate, Hotel and Gaming Symposium 27

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