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Inside This Issue:

  • Contractor did not Owe Indemnity for Economic Loss Incurred by Third Party Resulting from Contractor’s Excavation Work;.
  • Why it Pays to Rely on Outside Counsel and Consultants When Requesting an Equitable Adjustment ;
  • Limitation of Liability Clause Enforced in North Carolina Case While Similar Clause Rejected in a Georgia Decision ;
  • Indemnity Clause in Contract between GC and Subcontractor Enforced to Require Sub’s Insurance Carrier to Defend and Indemnify GC in Wrongful Death Suit Caused in part by Alleged Negligence of GC

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Article 1
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Contractor did not Owe Indemnity for Economic Loss Incurred by Third Party Resulting from Contractor’s Excavation Work.

Applying the language from an American Institute of Architects (AIA) contract form A201/CM (1980 ed.), an appellate court held that an excavator had no responsibility to indemnify its client for economic  losses claimed by a neighboring property owner resulting from a break in an underground electric cable from excavation activities on the client’s property.  When the excavator struck and damaged the cable while digging a sewer line, he provided the labor and material to repair it.  Electric service to the neighbor’s property was disrupted on two occasions by damage to the cable resulting from performance of the excavating.  The neighbor claimed against the project owner and that claim was settled with a financial payment.  The Owner then sought indemnification or reimbursement of its settlement costs from the excavator.

In reviewing whether the excavator was required to indemnify the owner, the final appellate court affirmed the trial court holding that indemnification was not required.  This is because Article 4.18.1 of the contract only mandated indemnification for the negligent acts of the excavator.  There was no evidence of negligence.   A second article of the contract (Sections 10.2.1.3 and 10.2.5) also came into play, however, and the intermediate appellate court and final appellate court disagreed with each other over the application of this clause.

Subparagraph 10.2.1.3 required the contractor to take all reasonable precautions to prevent damage, injury or loss, including to utilities.  Subparagraph 10.2.5 required the contractor to remedy all damage or loss “to any property referred to in Clause ….10.2.1.3 caused in whole or in part by the Contractor….”  This clause was interpreted by the court to apply only to property damage on the property itself.  The only property damage here was to the electric cable on the client’s property.  There was no evidence of any property damage to the neighbor’s property.  The neighbor claimed only purely economic losses.  The court held these were not covered by this contract clause.  Watral & Sons v. OC Riverbend (NY ap.)

Comment: This case is instructive in explaining the differences between the negligence based indemnity provisions of article 4 and the absolute duty under article 10 for the contractor to remedy damage that it caused “in whole or in part.”   There is no requirement in article 10 that there be negligence on the part of the contractor in order for it to be found responsible for the damages.  As the court correctly states, however, this responsibility only applies to actual property damages directly caused by the contractor and not to economic losses incurred by someone on some other property.  If a different indemnity obligation is desired, the parties to a contract should carefully tailor the clauses to allocate the risks more narrowly or broadly.

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Article 2

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Why it Pays to Rely on Outside Counsel and Consultants When Requesting an Equitable Adjustment

By:  Brian P. Waagner

Over the last several years, government contract lawyers have been sounding the false claims alarm bell with great fervor.  The warnings may be justified.  The Justice Department has created a Procurement Fraud Task Force, which is actively encouraging federal agencies to identify and prosecute contractors that engage in fraudulent activity.  New regulations that would actually require contractors to disclose potential fraud and false claims are under consideration.  The Court of Federal Claims has issued several remarkable decisions penalizing contractors for the submission of false claims.  There have been a significant number of criminal fraud investigations relating to contracts for services and supplies in Iraq .

Contractors are well-advised to avoid even being accused of submitting a false claim or a false statement.  In addition to the monetary penalties and other damages imposed by statute, a false claim could mean suspension or debarment.  In extreme cases, it could mean jail time for those involved.  Given the high stakes, even an unproven false claims allegation is a major disadvantage.  Many contractors would rather give up a legitimate claim than run the risk of losing a false claims act case.

Government contractors are certainly revisiting their compliance programs and improving their policies and management protocols in order to prevent the submission of a false claim.  From day to day, managers will all need to increase their awareness of false claims issues.

One area that will require special attention is the process if submitting requests for equitable adjustment and claims for additional compensation or extensions of time as a result of changes in contract requirements.  Because claims are such a significant source of false claims issues, contractors will need to be more vigilant than ever in vetting their requests for additional compensation.  Questions of entitlement and cost will need to be carefully reviewed before a claim is submitted.

Now more than ever, contractors should consider involving outside counsel and technical or cost consultants in the preparation of a request for equitable adjustment.  Involving counsel and consultants early in the disputes process would not only bolster a contractor’s position on entitlement, cost, or schedule impact, but it would minimize the risk of a false claims allegation.  If a false claims issue arises, the early involvement of counsel and consultants could enhance the contractor’s defense and facilitate the negotiation of a more favorable settlement of both the false claims issue and the underling contract modification.

While there is a cost associated with using outside counsel and consultants, the FAR cost principles offer some solace.  FAR 31.205-33 provides that costs of outside counsel and consultants are allowable costs of contract administration.  This means that a contractor may recover attorney’s fees and consulting costs incurred in connection with the administration of the contract as part of a request for equitable adjustment.  Although the total amount of fees paid must be “reasonable” and “allocable,” attorney’s fees and consulting costs reimbursed as costs of contract administration are not subject to the limits imposed by the Equal Access to Justice Act.  Large business and small business alike can recover counsel and consulting fees in excess of $125 per hour under this FAR cost principle.

Federal contractors regularly seek and obtain reimbursement of attorney fees and consulting costs incurred on routine matters of contract administration—subcontract negotiations, schedule adjustments, etc.  But the FAR provision that makes them allowable applies equally to fees and costs incurred in connection with responding to a DCAA audit, a contracting officer’s request for information, preparing a request for equitable adjustment, or negotiating a significant contract modification.  In light of the potential false claims issues that sometimes appear in response to an improperly supported request for equitable adjustment, it may be smart to involve counsel and consultants on these tasks.  Since their fees and costs can be recovered from the government, involving them is almost a necessity.

FAR 31.205-33 is not a blank check that allows contractors to recover all counsel and consulting fees incurred in support of a government contract.  Perhaps the most significant restriction on their allowability appears in FAR 31.205-47(f)(1).  This FAR provision prohibits recovery of professional or consulting costs incurred in connection with prosecuting or defending claims asserted by or against the federal government.  FAR 31.205-47(f)(1).

The government often cites this FAR provision in seeking to avoid liability for contractor attorney’s fees and consulting costs.  Certainly, attorney’s fees or consulting costs incurred in connection with drafting a certified claim letter or litigating a case at the Court of Federal Claims or a Board of Contract Appeals are not allowable costs of contract administration.  (There are other ways to recover attorney’s fees in litigation, but that question is for another day.)

Fortunately, there are a number of decisions that help define whether counsel and consultant fees will be treated as allowable costs of contract administration or unallowable claim prosecution costs.  The Federal Circuit’s decision in Bill Strong Enterprises, Inc. v. Shannon, 49 F.3d 1541, 1550 (Fed. Cir. 1995), calls for an examination of the contractor’s “objective reason” for incurring the cost:  “If a contractor incurred the cost for the genuine purpose of materially furthering the negotiation process, such cost should normally be a contract administration cost allowable under FAR 31.205-33, even if negotiation eventually fails and a CDA claim is later submitted. . . .  On the other hand, if a contractor’s underlying purpose for incurring a cost is to promote the prosecution of a CDA claim against the Government, then such cost is unallowable under FAR 31.205-33.”

Significantly, the decision in Bill Strong recognizes the distinction between an informal request for equitable adjustment and a formal Contract Disputes Act “claim.”  Costs incurred in connection with a claim are unallowable.  But costs incurred in connection with the preparation and negotiation of a request for equitable adjustment and before the claim is certified are “presumptively allowable.”  While the government may be able to prove that the real purpose for the fees was really to support a later claim, a contractor can properly take the position that it can recover outside counsel and consulting fees incurred before a CDA claim is certified.  See, e.g., SAB Construction v. United States, 66 Fed. Cl. 77, 91 (2005) (consultant costs incurred in preparing REA and negotiating with Government were allowable); Fru-Con Constr. Corp., ASBCA Nos. 53544, 53794, 2005-1 BCA ¶ 32,936 (allowing recovery of legal and consulting costs incurred to prepare and negotiate REA); Lamb Engineering & Constr. Co., EBCA No. C-9304172, 97-2 BCA ¶ 29,207 (allowing REA preparation costs because “[n]egotiations based upon the REA were conducted and some issues settled over an eight-month period”); Federal Insurance Co., IBCA No. 3236 et al., 96-2 BCA ¶ 28,414 (“costs incurred by a contractor for a price adjustment due to a Government-caused delay are allowable if they are reasonable and directed primarily toward settlement negotiations”); Herman B. Taylor Constr. Co., GSBCA No. 12,915, 96-2 BCA ¶ 28,547 (“if the contractor incurred the costs for materially furthering the negotiation process, such costs should normally be contract administration costs allowable under FAR 31.205-33 even when, as here, the negotiation fails and litigation eventually follows.”)

The allowability of counsel and consulting fees after a claim is certified is more questionable, even if the fees were genuinely incurred in support of negotiations.  In Plano Builders Corp. v. United States , 40 Fed. Cl. 635 (1998), the Court of Federal Claims rejected a demand for professional fees incurred to assist with settlement negotiations after the claim had been certified. The court concluded that concluded that settlement negotiations in this context are an expected part of the CDA claims process and not an ordinary part of contract administration.

The decision in Plano Builders, however, has not been universally followed.  In the Armed Services Board of Contract Appeals, at least two decisions have allowed contractors to recover post-claim attorney’s fees incurred in connection with negotiating settlements with the government. See Propellex Corp., ASBCA No. 50203, 02-1 BCA ¶ 31,721; Grumman Aerospace Corp., ASBCA No. 50090, 00-1 BCA ¶ 31,316.

There is no requirement that a contractor submit a request for equitable adjustment or attempt to negotiate a settlement before submitting a certified claim.  It may be wise in some cases to omit the REA altogether and move forward with the disputes process as quickly as possible.  At a minimum, the submission of a certified claim begins the period during which the contractor is entitled to recover interest on a claim.

However, there is a downside to proceeding immediately with the formal disputes process without first presenting an REA.  Because counsel and consulting fees incurred in connection with the prosecution of a CDA claim cannot be recouped from the government, contractors in this situation will be motivated to prepare and present their CDA claims without the assistance of counsel and consultants.  While this is sometimes feasible, even careful contractors going this route are vulnerable to false claims allegations.  In such a case, a simple error in the cost calculations or a faulty analysis of a scheduling issue could undermine an otherwise legitimate claim.

Seeking the assistance of counsel and consultants to prepare a request for equitable adjustment and to assist in negotiations with the government has several advantages.  The contractor will have the benefit of the lawyer’s legal analysis or a consultant’s technical support early in the process.  This early involvement can assist the contractor in making decisions about notifying the government of a differing site condition or mitigating damages that might result from a defective specification.  Early involvement of counsel can be valuable in responding to a DCAA audit, a stop work order, or a decision to terminate a contract for default or convenience.  It can assist the contractor in identifying and quantifying damages or compiling sufficient evidence to support a request for additional compensation or an extension of time.  At a minimum, early involvement of counsel and consultants can help contractors avoid the submission of false claims or defend false claims allegations when they do appear.

Given the value counsel and consultants add to the resolution of contract modifications and the potential downside of going it alone, it would be smart to use counsel and consultants even if their fees could not be recouped from the government.  But with the FAR cost principles and the cases supporting the recovery of attorney’s fees and consulting costs incurred to assist a contractor in preparing an REA and negotiating a settlement, the decision about whether to use counsel and consultants is that much easier.

About the Author: Brian Waagner is a shareholder in the Tysons Corner office of Akerman Senterfitt Wickwire Gavin, where his practice focuses on the resolution of claims and contract disputes on public and private projects. Mr. Waagner regularly advises contractors and subcontractors on the preparation of requests for equitable adjustment and Contract Disputes Act claims. In addition to representing clients in litigation before the Boards of Contract Appeals, Mr. Waagner is active in alternative forms of dispute resolution, including arbitration and mediation.  Contact information:  Akerman Senterfitt Wickwire Gavin; 8100 Boone Blvd, Suite 700 ; Vienna , VA 22182 ; 703-790-8750; brian.waagner@akermnan.com.

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Article 3

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Limitation of Liability Clause Enforced in North Carolina Case While Similar Clause Rejected in a Georgia Decision

By:  J. Kent Holland

A limitation of liability (LoL) clause limiting a land surveyor’s liability to $50,000 was enforced in North Carolina .  A similar clause was held unenforceable in an important Georgia case.  The only apparent difference in the clauses two is that the contract in North Carolina applied the LoL only to damages arising out of claims asserted by the client.  The contract in the Georgia suggested that the LoL applied to all possible claims – including those by third parties.  This third party claim language, according to the Georgia court, turned the clause into a type of indemnity agreement rather than just a limitation of liability agreement.

In Blaylock Grading Company v. Neal Everett Smith, (N.C. Ct. of Appeals, 06 CVS 70, April 2008), the clause was entitled “Risk Allocation.”  It provided the following: “[Defendants’ liability to plaintiff] for any and all injuries, claims, losses, expenses, damages or claim expenses arising out of this agreement, from any cause or causes, shall not exceed the total amount of $50,000, the amount of [defendants’] fee (whichever is greater) or other amount agreed upon when added under Special Conditions.  Such causes include, but are not limited to, [defendants’] negligence, errors, omissions, strict liability, breach of contract or breach of warranty.”

In performing land surveying for the plaintiff, the defendants apparently mistakenly set benchmarks higher than specified in the design plan, and this required plaintiff to incur the expenses of importing fill to raise the elevation of the site.  The Plaintiff filed suit and defendants moved for partial summary judgment to enforce the $50,000 liability limitation.  The trial court denied the motion and the matter went to trial with a jury finding in favor of the plaintiff in the amount of $574,714.

In response to the defendants’ motion for judgment notwithstanding the verdict, the trial court held that the Risk Allocation provision was void as against public policy and entered judgment on the jury verdict.

On appeal, the defendants argued that the trial court erred in finding the clause void and unenforceable.  They argued that their partial summary judgment motion should have been granted.  The appellate court agreed, and held that (1) North Carolina law allows a professional engineer/land surveyor to limit its liability and that (2) the Risk Allocation limitation of liability clause did not violate the state anti-indemnity statute.  The court cited several North Carolina Supreme Court decisions previously holding that limitation of liability clauses are not contrary to public policy.  One such case precedent decision was quoted as follows:

“People should be entitled to contract on their own terms without the indulgence of paternalism by courts in the alleviation of one side or another from the effects of a bad bargain.  Also, they should be permitted to enter into contracts that actually may be unreasonable or which may lead to hardship on one side.  It is only where it turns out that one side or the other is to be penalized by the enforcement of the terms of a contract so unconscionable that no decent, fair-minded person would view the ensuing result without being possessed of a profound sense of injustice, that equity will deny the use of its good offices in the enforcement of such unconscionability.”

The court stated that (1) there were no irregularities in formation of the contract, and (2) the plaintiff and defendants were “sophisticated, professional parties that conducted business at arms’ length.”

The appellate court also reversed the trial court’s conclusion that land surveying services fall within the “public service exception” that bars enforcing LoL clauses because the services are “extensively regulated” industries.  The appellate court held that merely because engineers and surveyors are regulated and licensed does not convert their profession into a public service.  Moreover, the court stated that because the claim involved only economic loss, the health and safety of the public are not implicated.

Finally, the court rejected the plaintiff’s argument that the state’s anti-indemnity statute made the LoL clause void and unenforceable. That statute provides that a clause “purporting to indemnify or hold harmless the promisee … or indemnitees against liability for damages arising out of bodily injury to person or damage to property proximately caused by or resulting from the negligence, in whole or in part, of the promise … is against public policy and is void and unenforceable.”  Because the contract at issue in the case only involved a clause limiting a party’s liability for damages to its client and did not purport to provide any indemnity relating to bodily injury or property damages to third parties, the court held the anti-indemnity statute to be inapplicable.  For these reasons, the trial court’s decision was reversed and the case remanded for entry of judgment consistent with the limitation of liability clause.

In the Georgia decision of Lanier v. PEC ( Georgia Supreme Ct. , S07G1424), the Georgia court considered a similar clause to the one discussed above but reached the opposite conclusion.  Because the limitation of liability clause in the contract stated that it would be applied to “any and all claims” not just from the client but also by “third parties”, the court held that this was contrary to the Georgia anti-indemnity statute that, similar to that of North Carolina, prohibits a person from being indemnified for its own negligence to third parties.

Comment: The appellate court in North Carolina got it right on each and every point of its well reasoned decision.  It is enough to restore one’s faith in the judicial system when we see a court enforce the law as established through the common law decisions or by the statutes of the state.  It is unfortunate that the find a trial court judge so willing to ignore both the common law (including state Supreme Court decisions) as well as the state statutes.  Such disregard for precedent and legislative intent makes litigation frustrating and unpredictable – and ultimately quite expensive as multiple appeals must be filed to get to a correct decision.

The Georgia decision was wrongly decided initially and it stayed wrong even after appeal.  The Court seemed to find a problem in the limitation of liability clause of its own making and imagination.  Perhaps if the damages at issue had something to do with bodily injury or property damage claims by third parties, there might have been some logic to the decision.  But this was just a simple dispute between parties to a contract.  There was no third party claim at issue.  The legal reasoning of the North Carolina court is directly applicable to the situation.  Unfortunately the Georgia court decided to the contrary.   This does not mean, however, that LoL clauses are no longer enforceable in Georgia .  As best I can tell, it simply means that when drafting these clauses, it will be important to strictly limit them to claims by the client.

I just completed a case defending a professional consulting firm that was sued for $2.4 million, but as a result of a $50,000 limitation of liability clause in the contract (plus good facts and state law on our side) we case ultimately settled for far, far less than the LoL amount.  In a different case I defended last year involving an $8 million claim, a court enforced a $50,000 LoL on our motion for summary judgment.  The plaintiff eventually opted to settle with us paying one thousand dollars ($1,000), rather than going through an expensive trial where their potential recovery had been so severely limited by the applicability of the LoL clause.

My consistent message to professional consultants in this increasingly litigious environment is that they get an appropriate, well written limitation of liability clause in their contract.  Keep that clause separate and apart from any indemnity clause.  Make the clause apply to claims only by the client for damages incurred by the client.  Avoid putting any language in the LoL clause that might suggest it applies to third party claims.  Make the amount of the limitation significant enough that the court will deem it reasonable.  I like the language quoted from the North Carolina case where the limitation amount was $50,000 or the fee WHICHEVER IS GREATER.  I prefer this use of the “greater” instead of the “lesser” of the fee and the dollar amount as I have noted in some contracts.  If the fee was very small, it is possible that a court might be less inclined to enforce the provision. As seen in courts (but not all courts) around the country, LoL clauses enjoy wide support and serve a legitimate need and purpose.  The fact that contract negotiated at arms length between sophisticated parties contains an obvious and well worded LoL clause goes a long way in discouraging law suits from being filed, and that certainly help tremendously to narrow down the case through successful filing of motions.

About the author: J. Kent Holland is a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 10, No. 4 (September 2008).

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Article 4

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Indemnity Clause in Contract between GC and Subcontractor Enforced to Require Sub’s Insurance Carrier to Defend and Indemnify GC in Wrongful Death Suit Caused in part by Alleged Negligence of GC

By: J. Kent Holland, Esq.

Where XL Specialty Insurance Company insured a subcontractor that had contractually agreed to indemnify the general contractor (Kiewit Offshore Services, LTD or “GC”) for all suits or liabilities on account of acts or omissions of the subcontractor whether or not caused in part by the negligence of the GC, the trail court granted declaratory judgment ruling that XL Specialty had a duty to defend and indemnify the GC in an underlying wrongful death suit.  The primary issue on appeal was whether the indemnity clause clearly and unambiguously stated the intent that the Subcontractor must indemnify the GC for all liability caused by GCs own negligence.  The appellate court agreed with the trial court that the clause satisfied the Texas law requiring that where express negligence of another party is to be indemnified, it must be unambiguously stated.

In XL Specialty Insurance Company v. Kiewit Offshore Services, Ltd. and  RBT Welders ( U.S. 5th Cir., No. 06-41785, January 2008), the basic facts were as follows:  Kiewit Offshore Services (Kiewit) was a GC on the Skyway Bridge San Francisco Bay Project.  Kiewit entered into a subcontract with RBT Welders (RBT), for RBT to provide welders to Kiewit to work at Kiewit’s facility in Ingleside , Texas for materials to be used on the bay project.    While welding in a confined space, an employee of RBT was killed as a result of an explosion.  The explosion also killed an employee of Kiewit who had been standing on the roof above space where the welding occurred.   The families of both individuals filed a suit against Kiewit and RBT in Texas state court alleging negligence by both companies.  Kiewit demanded that XL, the excess liability insurance carrier of RBT, defend and indemnify Kiewit as an additional insured.  XLSpecialty refused.

RBT and Kiewit both settled the wrongful death suit.  XL Specialty filed a declaratory judgment action in federal district court, seeking a judgment that it had no duty to defend or indemnify Kiewit for Kiewit’s settlement because Kiewit was not an additional insured under the XL Specialty policy.  Kiewit filed a third party claim against RBT and a cross-claim against XL Specialty, asserting that RBT had a duty to defend and indemnify Kiewit under the indemnification provision in the contract, and that the XL policy provided coverage for RBT’s liability under the indemnification provision.

The district court granted summary judgment for Kiewit, holding that (1) the indemnity clause of the subcontract required RBT to indemnity Kiewit of all claims and damages, (2) expressly including those resulting from Kiewit’s own negligence, and (3) that the XL Specialty policy provided coverage for RBT’s contractual duty to indemnify Kiewit.

This summary judgment decision was affirmed on appeal, with the U.S. Fifth Circuit Court finding that the indemnity clause was unambiguous and satisfied the express negligence rule of Texas .  The clause in question (entirely in capital letters) provided as follows:

“(b)  To defend and indemnify them against and save them harmless from any and all claims, suits or liability for damages to property, including death, and from any other claims, suits or liability on account of acts or omissions of subcontractor, or any of its subcontractors, suppliers, officers, agents, employees or servants, whether or not caused in part by the active or passive negligence or other fault of a contractor indemnified party; provided however subcontractor’s duty hereunder shall not arise if such claims, suits or liability, injuries or death or other claims or suits are caused by the sole negligence of contractor, unless otherwise provided in the prime contract.  Subcontractor’s obligation hereunder shall not be limited by the provisions of any worker’s compensation act or similar statute.”

XL Specialty and the subcontractor argued that this clause was unlike those that had been previously found to unambiguously apply to the indemnitee’s own negligence in that the phrase “liability on account of acts” was used instead of “liability arising out of acts”.   The court concluded that this was a distinction without a difference.  The two phrases are have the identical legal meaning according to the court.

Next, the court held that the “inclusionary language” providing for indemnity “whether or not caused in part by the active or passive negligence or other fault of a contractor” was sufficient to demonstrate the parties’ intent that the subcontractor will indemnify the contractor regardless of whether the contractor is partially responsible.

Comment: The outcome of this decision requiring the insurance carrier to cover the liability of the subcontractor arising out of the indemnity provision of the subcontract demonstrates how important it is that both the language of the subcontract as well as the language of the insurance policy be carefully reviewed and understood.  A different result might have occurred if the indemnity provision in the contract had restricted the indemnity to apply only “to the extent” of damages caused by the performance of the subcontractor.  Indemnity obligations may be even further restricted to apply only to the extent of damages caused by the negligence of the subcontractor.   The insurance policy, itself, can be crafted to avoid contractual liability coverage for damages that are not directly caused by the insured entity.  Even more restrictive policy language limiting the contractual liability coverage to only those damages caused by the Insured’s own negligence may also be used.

It should be noted in this case that Kiewit argued it was an additional insured under the XL Specialty policy.  That did not seem to be the case.  The court did not make its decision on whether or not Kiewit was an additional insured.  It was the contractual liability coverage that subjected XL Specialty to liability.  The same points above concerning the possible different terms that may be used in the contractual liability coverage or exclusions apply to additional insured endorsements.  Not all additional insured provisions or endorsements are alike.  If a carrier desires to do so, it may provide language in the additional insured endorsement limiting insurance coverage to the additional insured so that only liability arising out of the Named Insured’s acts are covered, instead of also picking up liability for the additional insured’s acts – and even negligence.

Another issue that arises in some of these cases is that the subcontract may contain a specific provision requiring the subcontractor to obtain insurance to cover the indemnity and other contractual obligations of the contract.  The subcontractor and its insurance professionals should be aware of such clauses so the subcontractor does not over commit to what it can reasonably obtain from its insurance carrier.  Just because the subcontractor signs a contract stating that its insurance will cover the contractual liability provisions does not make it so.  The carrier is only required to cover what is expressly stated in its own contract (insurance policy) with the subcontractor.  Be careful not to assume that all contractual liability and additional insured provisions are the same or equal.

About the author: J. Kent Holland is a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 10, No. 4 (September 2008).

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ABOUT THIS NEWSLETTER & A DISCLAIMER

This newsletter Report is published and edited by J. Kent Holland, Jr., J.D. The Report is independent of any insurance company, law firm, or other entity, and is distributed with the understanding that ConstructionRisk.com, LLC, and the editor and writers, are not hereby engaged in rendering legal services or the practice of law.  Further, the content and comments in this newsletter are provided for educational purposes and for general distribution only, and cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this newsletter relates, we urge you to consult your own legal counsel. ConstructionRisk.com, LLC, and its writers and editors, expressly disclaim any responsibility for damages arising from the use, application, or reliance upon the information contained herein.

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