WILLIAM GALLAGHER ASSOCIATES It's Not Just the Insurance Clause Unintended Consequences of Onerous Contract Terms April 5, 2006
TODAY S S PANEL Moderator: Edward J. Flanagan, CPCU William Gallagher Associates Panelists: Maron A. Fenico, Esq. Chubb Ins. Group Scott H. Casher, Esq. Edwards Angell Palmer & Dodge LLP Ann Mizner McKay, Esq. William Gallagher Associates 2
AGENDA Terms Defined Practical Application of Terms Q&A 3
IT S S NOT JUST THE INSURANCE CLAUSE TERMS DEFINED 4
TERMS DEFINED WAIVER OF SUBROGATION Subrogation The substitution of one person in the place of another with reference to a lawful claim, demand, or right, so that he who is substituted succeeds to the rights of another in relation to the debt or claim, and its rights, remedies or securities. -Black's Law Dictionary 8th Edition Subrogation Clause A provision found in an insurance policy contract that expressly provides that the insured s rights as against others who may be responsible for a loss are transferred to the insurer. 5
TERMS DEFINED ADDITIONAL INSURED Additional Insured An individual or entity that is not automatically included as an insured under the policy of another, but for whom the named insured's policy provides a certain degree of protection. An endorsement is typically required to effect additional insured status. The named insured's impetus for providing additional insured status to others may arise from a contractual agreement requiring the named insured to do so (e.g., customers, business partners, or owners of property leased by the named insured). 6
TERMS DEFINED PRIMARY NON CONTRIBUTORY Primary Non-Contributory Policy contract wording that expressly states that Named Insured s policy will be the primary source of recovery without contribution to defense or indemnification from the Additional Insured s insurance policy(ies). The Additional Insured does not want their liability policy to pay unless and until the Named Insured s policy limit is exhausted. 7
IT S S NOT JUST THE INSURANCE CLAUSE PRACTICAL APPLICATIONS 8
SAMPLE INSURANCE CLAUSE Insurance*. ABC Company shall deliver to XYZ COMPANY, and maintain throughout the Term, certificates of insurance issued by insurers acceptable to XYZ COMPANY evidencing coverage for: (a) comprehensive general liability, including contractual liability, including liability assumed under Section 14, with a combined single limit of no less than $1,000,000 per occurrence for bodily injury, including personal injury and property damage; (b) comprehensive automobile liability for all owned, non-owned and hired vehicles with bodily injury limits of no less than $1,000,000 per person, $1,000,000 per accident, and property damage limits of no less than $1,000,000 per accident and (c) statutory workers compensation coverage meeting all state and local requirements, including coverage for employer s liability with limits of no less than $500,000. The insurance certificates required by subparagraphs (a) and (b) must name XYZ COMPANY, XYZ Affiliates, representatives, employees and assigns as additional insureds and must state that XYZ COMPANY will be provided at least thirty (30) days advance, written notice of any cancellation or modification of the insurance. The insurance required must include a Waiver of Subrogation and must be primary coverage without right of contribution from any other XYZ COMPANY insurance. Insurance maintained by XYZ COMPANY is for the exclusive benefit of XYZ COMPANY and will not inure to the benefit of ABC Company. *This wording is for presentation purposes only and does not represent an actual contract. 9
INSURANCE CLAUSE Listing of Insurance Policies Required General Liability Auto Liability Workers Compensation / Employers Liability 10
SAMPLE INSURANCE CLAUSE Insurance. ABC Company shall deliver to XYZ COMPANY, and maintain throughout the Term, certificates of insurance issued by insurers acceptable to XYZ COMPANY evidencing coverage for: (a) comprehensive general liability, including contractual liability, including liability assumed under Section 14, Key Issue Section 14 Refers to liabilities assumed in the Indemnification Clause 11
INDEMNIFICATION CLAUSE Uninsured Liabilities Products/Professional Liability For Clinical Trials Errors & Omissions Liability IP Infringement Indemnification and Infringement*. ABC Company shall defend, indemnify and hold harmless XYZ Company, the PM Affiliates, and their respective directors, officers, agents, attorneys and personnel from and against all claims, liabilities, suits, losses, damages, injuries and expenses, including all costs and reasonable attorney s fees ( Claims ), which are attributable to any act or omission of ABC Company or ABC Company Personnel, or which arise out of, relate to or result from this Master Agreement or the performance of the Services, including: (i) any actual or alleged infringement of any patent, copyright, trade secret, or other proprietary right by the use of any Work Product, or any part thereof; (ii) any acts and omissions of any ABC Company Personnel or the presence of any ABC Company Personnel at any facility where ABC Company Personnel perform Services or traveling to or from any such facility (except Claims resulting solely from the gross negligence or willful misconduct of XYZ Company), including Claims resulting from injuries to or the death of any patient in a clinical trial or to any ABC Company Personnel or Claims resulting from injuries, death, property damage, or loss of data caused by any ABC Company Personnel; (iii) failure by ABC Company or any ABC Company Personnel to comply with all Laws applicable to the provision of Services or Work Product; (iv) ABC Company s failure to obtain all licenses, permits and approvals necessary for it to provide any Services or Work Product, or any part thereof; (v) breach by ABC Company or any ABC Company Personnel of its confidentiality obligations under this Master Agreement or any Transaction Document; (vi) ABC Company s breach of its representations and warranties as set forth in this Master Agreement or any Transaction Document hereunder; or (vii) any ABC Company employment or other relationship or potential relationship with any ABC Company Personnel or potential ABC Company Personnel, including any Claims for wages or benefits under any XYZ Company benefit plan, any Claims by a taxing authority for withholding, unemployment or other taxes, or interest or penalties for any alleged failure to withhold such taxes or make such payments, or any Claims arising from the background investigations required under Exhibit C or any personnel decisions influenced by such investigations or actions. *This wording is for presentation purposes only and does not represent an actual contract. 12
SAMPLE INSURANCE CLAUSE Insurance. policy must state that XYZ COMPANY will be provided at least thirty (30) days advance, written notice of any cancellation or modification of the insurance. The insurance required must include a Waiver of Subrogation Key Questions 1) Do your policies allow you to waive the insurer s subrogation rights? 2) What are the pros and cons of requiring or providing this waiver? 13
TERMS DEFINED WAIVER OF SUBROGATION Example Subrogation Provision Subrogation. In the event of any payment under this policy, the company shall be subrogated to all the insured's rights of recovery therefor against any person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The Insured shall do nothing after loss to prejudice such rights. [Emphasis added.] Source: Comprehensive General Liability Policy Jacket, Insurance Services Office, Inc., 1973 Translation: Insured cannot, after a loss, waive insurer s right to subrogate *This wording is for presentation purposes only and does not represent an actual contract. 14
Practical Applications Waiver of Subrogation Do all Insurance Contracts allow for Waiver of Subrogation? General Liability Including Products Liability Worker s Compensation Automobile Liability Errors & Omissions Liability 15
SAMPLE INSURANCE CLAUSE Insurance. The insurance certificates required by subparagraphs (a) and (b) must name XYZ COMPANY, XYZ Affiliates, representatives, employees and assigns as additional insureds and Key Questions 1) Will the insurer allow you to name another as Additional Insured? 2) What is the impact on you of naming someone as Additional Insured? 3) Are there ways to narrow the scope within which one is named an Additional Insured? 16
Practical Applications Additional Insured Do all Insurance Contracts allow you to name another as Additional Insured? General Liability Including Products Liability Worker s Compensation Automobile Liability Errors & Omissions Liability 17
Granting Additional Insured Status Impact on You Sharing of Limits Separation of Insureds Other Insurance 18
Separation of Insureds This insurance applies:...separately to each insured against whom claim is made or suit is brought. 19
Sharing of Policy Limits The Limits of Insurance shown in the Declarations and the rules below fix the most we will pay, regardless of the number of: insureds; claims made or suits brought; or persons or organizations making claims or bringing suits. 20
Primary Non-Contributory The additional insured is an insured on 2 general liability policies. Which policy is primary? Look to the "Other Insurance" clause of each policy to determine the priority of coverage issue. 21
TAKE AWAYS Involve your broker/insurer/attorney early in the contract review process. Cross check the Insurance Clause in your contract with the Indemnification Clause. Understand that the Insurance Clause may require you to change your insurance policy contracts in order be in compliance. 22
Q&A Questions Scott H. Casher, Esq. Edwards Angell Palmer & Dodge LLP Three Stamford Plaza 301 Tresser Boulevard Stamford, CT 06901 USA t: 203.353.6827 f: 203.975.7180 scasher@eapdlaw.com Ann Mizner McKay, Esq. William Gallagher Associates 470 Atlantic Avenue Boston, MA 02210 t: 617 646 0238 f: 617 646 0438 amiznermckay@wgains.com Maron A. Fenico, Esq. Chubb Insurance Group One Financial Center Boston, MA 02210 t: 617.261.6127 f: 617.261.0456 mfenico@chubb.com Edward J Flanagan, CPCU William Gallagher Associates 470 Atlantic Avenue Boston, MA 02210 t: 617 646 0275 f: 617 646 0475 eflanagan@wgains.com 23