Who s Responsible? Negotiating Indemnity Agreements with Design Professionals Spring City Attorney Conference May 2, 2012 Hollywood, CA

Transcription

1 Who s Responsible? Negotiating Indemnity Agreements with Design Professionals Spring City Attorney Conference May 2, 2012 Hollywood, CA Presented by: Michael N. Conneran Hanson Bridgett LLP mconneran@hansonbridgett.com

2 Are You an Indemnity Nerd? One realizes that he has reached the zenith of attorney-nerdness when he is enthralled with the Supreme Court s publication of [an indemnity] case D. l. Jacobson, Contracting Clarity S.F. Daily Journal, 4/16/2009

3

4 Golden Gate Bridge 50 th Anniversary Bridge Walk

5 What is indemnity? Indemnity is a "contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or of some other person." (Civil Code Section 2772)

6 What is indemnity? Indemnity is a tool for allocating risk

7 Indemnity Basics Who indemnifies whom? Indemnitor He/she who pays Indemnitee He/she who is paid for

8 Indemnity Basics What is active negligence? An affirmative act that creates or causes a situation that results in injury or the knowledge of such a situation and a failure to act to remedy it.

9 Indemnity Basics What is passive negligence? Non-feasance: --Didn t discover trench lacked shoring (MacDonald) --Didn t discover defective condition caused by another party (Markley) --Failed to inspect work and specify changes (Muth)

10 Express Indemnity In drafting contracts, how can you best protect your client? Depends on: -Bargaining power -Legal constraints -Skill of the attorney(s) --Knowledge of the law

11 Statutory Limitations All Construction Contracts 2782(a): provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction contract and that purport to indemnify the promisee against liability for damages for death or bodily injury to persons, injury to property, or any other loss, damage or expense arising from the sole negligence or willful misconduct of the promisee or the promisee's agents, servants, or independent contractors who are directly responsible to the promisee, or for defects in design furnished by those persons, are against public policy and are void and unenforceable.

12 Statutory Limitations Public Construction Contracts 2782(b): provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction contract with a public agency that purport to impose on the contractor, or relieve the public agency from, liability for the active negligence of the public agency are void and unenforceable.

13 Title of Report to Assembly Committee on Judiciary, August 17, 2006: SHOULD PUBLIC AGENCIES BE ALLOWED TO IMPOSE CONTRACT PROVISIONS ON DESIGN PROFESSIONALS MAKING THEM RESPONSIBLE FOR THE WRONGFUL ACTS OF THE PUBLIC AGENCY ITSELF OR OTHER PERSONS, SUCH AS SUBCONTRACTORS CHOSEN BY THE PUBLIC AGENCY, OVER WHOM THE DESIGN PROFESSIONAL HAS NO CONTROL AND IS NOT OTHERWISE LEGALLY RESPONSIBLE?"

14 Statutory Limitations Design Professionals : For all contracts, and amendments thereto, entered into on or after January 1, 2007, with a public agency for design professional services, all provisions, clauses, covenants, and agreements contained in, collateral to, or affecting any such contract, and amendments thereto, that purport to indemnify, including the cost to defend, the public agency by a design professional against liability for claims against the public agency, are unenforceable, except for claims that arise out of, pertain to, or relate to the negligence, recklessness, or willful misconduct of the design professional. (AB 573, Ch. 455, Stats. 2006)

15 Crawford v. Weather Shield Did a contract under which a subcontractor agreed to defend any suit or action against a developer founded upon any claim growing out of the execution of the work require the subcontractor to provide a defense... even if the subcontractor was not negligent? Crawford v. Weather Shield Mfg. 44 Cal.4th 541 (2008)

16 The Two Duties: Duty to Indemnify Duty to Defend

17 Statutory Provisions Duty to Defend Civil Code 2778(3): An indemnity against claims, or demands, or liability, expressly, or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith, and in the exercise of a reasonable discretion.

18 Statutory Provisions Duty to Defend Civil Code 2778(4): The person indemnifying is bound, on request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defenses, if he chooses to do so.

19 Justice Mosk on duty to defend: "To defend meaningfully, the insurer must defend immediately. [Citation] To defend immediately, it must defend entirely." (Buss v. Superior Court ((1997)16 Cal.4th 35, 49.)

20 Crawford applied to designers: UDC-Universal Development v. CH2M Hill (2010) 181 Cal.App.4th 10 Engineering firm, found to have not been negligent, nevertheless required to provide defense to developer client.

21 ACEC to the rescue (sort of): SB 972 (Wolk) Revised to tie obligation to defend to extent of duty to indemnify (i.e. the existence of negligence): The duty to indemnify, including the duty and the cost to defend, is limited as provided in this section. BUT, the new statute is silent as to the timing of the defense obligation!

22 The Insurance Problem: Typical Errors and Omissions Policy held by design professionals excludes coverage for contractual liability (i.e. indemnity obligations). E & O carriers advise clients to avoid any obligation to defend.

23 What s a City Attorney to do? Require acceptance of indemnity language in response to RFP Dealing with smaller consultants/contracts? Do you trust them with an uninsurable risk? Allow designer to avoid up-front defense obligation? Require defense, provide mechanism for reimbursement? How/when determine designer s negligence?

24 Questions?