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Contractual Risk Transfer in Construction Contracts

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Contractual Risk Transfer in Construction Contracts CONTRACTUAL RISK TRANSFER IN CONSTRUCTION CONTRACTS Tarron L. Gartner Katie McClelland Cooper & Scully, P.C. 900 Jackson Street, Suite 100 Dallas, TX 75202 214/712-9500 214/712-9540 (Fax) © 2008 TABLE OF CONTENTS PAGE I. CONTRACTUAL RISK TRANSFER IN CONSTRUCTION CONTRACTS............................... 1 A. “Insured Contract” – The Essence of Contractual Liability Coverage ............................................ 1 1. Contractual Liability Exclusion and Exception .................................................................. 1 B. Mechanics of Determining Contractual Liability Coverage ............................................................ 2 1. Determine the Validity of the Indemnity Agreement ......................................................... 2 2. Determine Whether Covered Injuries are Alleged Against Indemnitee ............................. 3 3. Determine Whether Indemnity Agreement was Executed Prior to Covered Injury ........... 3 4. Determine Whether to Assume Defense of Indemnitee...................................................... 3 C. Sole Negligence Variation on “Insured Contract”........................................................................... 4 D. Insured Contract Exception to Employer’s Liability Exclusion ...................................................... 4 II. VALIDITY OF INDEMNITY AGREEMENT UNDER FAIR NOTICE RULES ......................... 5 A. Express Negligence Test.................................................................................................................. 5 1. General Rule ....................................................................................................................... 6 a. Cases Holding Agreement Valid: .......................................................................... 6 b. Cases Holding Agreement Not Valid: ................................................................... 9 2. Sole Negligence .................................................................................................................. 9 3. Vicarious Liability ............................................................................................................ 11 4. Kind, Character or Degree of Negligence......................................................................... 12 B. Conspicuous Requirement ............................................................................................................. 12 C. Fair Notice Requirements Only Apply to Future Occurrences...................................................... 14 D. Scope of Indemnity Agreement ..................................................................................................... 14 E. Duration of Indemnity Agreement................................................................................................. 16 III. ANTI-INDEMNITY STATUTES RELAT-ING TO CONSTRUCTION CONTRACTS............ 16 A. Chapter 130 TCPRC: ..................................................................................................................... 16 i B. Texas Government Code: .............................................................................................................. 17 C. TOAIA :.......................................................................................................................................... 17 IV. DIFFERENCE BETWEEN INSURANCE AND INDEMNITY REQUIREMENTS OF CONTRACT.................................................................................................................................. 17 A. Texas Courts Interpret Additional Insured Coverage According to Scope of Indemnity Agreement Only When Requirement to Procure Insurance Supports Indemnity Obligation........ 17 B. Other Jurisdictions Vary In Considering Indemnity Agreement When Determin-ing Scope of Additional Insured Coverage .......................................................................................... 20 V. AVENUES FOR ADDITIONAL INSURED COVERAGE ......................................................... 22 A. Minority View: Additional Insured Coverage Limited to Vicarious Liability for Named Insured’s Acts ................................................................................................................................ 23 B. Majority View: Additional Insured Coverage Extends to Negligence of Additional Insured ........................................................................................................................................... 23 C. Texas View .................................................................................................................................... 24 D. Recent Versions of Additional Insured Endorsement Solve the Interpretation Problems By Limiting Coverage for Additional Insured to Sole Negligence of Named Insured or Excluding Sole Negligence of Additional Insured ........................................................................ 27 E. “As Required By Written Contract” Requirement......................................................................... 29 F. Manuscript Additional Insured Endorsements More Likely to Limit Coverage ........................... 30 G. Duties To and From the Additional Insured .................................................................................. 31 VI. OTHER INSURANCE CLAUSES AND CONTRACTUAL RISK TRANSFERS...................... 32 VII. CERTIFICATES OF INSURANCE.............................................................................................. 32 ii TABLE OF AUTHORITIES CASES PAGE AABB Kraftwerke Aktiengesellschaft v. Brownsville Barge & Crane, Inc. , 115 S.W.3d 287 (Tex. App.-Corpus Christi 2003, pet. denied)....................................................... 7 ATOFINA Petrochemicals, Inc. v. Evanston Insurance Company , 2006 WL 1195330 (Tex. 2006) ..................................................................................................... 26 Acceptance Ins. Co. v. Syufy Enters. , 81 Cal.Rptr.2d 557 (1999) ............................................................................................................. 23 Adams v. Spring Valley Constr. Co. , 728 S.W.2d 412 (Tex. App. –Dallas 1987, writ ref'd n.r.e.)............................................................ 9 Admiral Ins. Co. v. Trident NGL, Inc. , 988 S.W.2d 451 (Tex. App.--Houston [1st Dist.] 1999, pet. denied) ...................................... 25, 26 Allianz Ins. Co. v. Goldcoast Partners, Inc. , 684 So.2d 336 (Fla. App. 1996)..................................................................................................... 20 American Cas. Co. v. General Star Indemnity , 24 Cal. Rptr. 3d 34 (Cal. Ct. App. 2005) ....................................................................................... 20 American Home Shield Corp. v. Lahorgue , 201 S.W.3d 181 (Tex. App.—Dallas 2006, pet. requested October 2, 2006)...........................12-13 American Indemn. Lloyds v. Travelers Property & Cas. Ins. Co. , 335 F.3d 429 (5th Cir. 2003) ......................................................................................................... 32 American States Ins. Co. v. Bailey , 133 F.3d 363 (5th Cir.1998) .......................................................................................................... 26 Amoco Oil Co. v. Romanco, Inc. , 810 S.W.2d 228 (Tex. App.--Houston [14th Dist.] 1989, no pet.) ................................................ 12 Amtech Elevator Services Co. v. CSFB 1998-p1 Buffalo Speedway Office Ltd., et al , 2007 Tex. App. LEXIS 9804 ......................................................................................................... 13 Andrew L. Youngquist, Inc. v. Cincinnati Ins. Co. , 625 N.W.2d 178 (Minn. Ct. App. 2001)........................................................................................ 23 Atlantic Richfield Co. v. Petroleum Pers., Inc. , 768 S.W.2d 724 (Tex.1989)....................................................................................................... 6, 10 Atofina Petrochemicals, Inc. v. Continental Cas. Co. , 185 S.W.3d 440 (Tex. 2005).............................................................................................. 30, 31, 33 B-F-W Const. Co., Inc. v. Garza , iii 748 S.W.2d 611 (Tex.App.-Fort Worth,1988, no writ) ................................................................... 6 Banner Sign & Barricade, Inc. v. Price Const., Inc. , 94 S.W.3d 692 (Tex.App.-San Antonio 2002, pet. denied)............................................................. 7 Barnes v. Lone Star Steel Co. , 642 F.2d 993 (5th Cir. 1981) ......................................................................................................... 11 Bosio v. Branigar Org., Inc. , 506 N.E.2d 996 (Ill. Ct. App. 1987) .............................................................................................. 21 Boyd v. Travelers Ins. Co. , 421 S.W.2d 929 (Tex.Civ.App.-Houston [14th Dist.] 1967, writ ref'd n.r.e.) ............................... 33 Brown & Root, Inc. v. Service Painting Co. of Beaumont , 437 S.W.2d 630 (Tex. Civ. App. - 1969)....................................................................................... 14 CIGNA Ins. Co. of Texas v. Jones , 850 S.W.2d 687 (Tex.App.-Corpus Christi 1993, no writ)............................................................ 33 C & W Well Service, Inc. v. Sebasta , 1994 WL 95680 (Tex.App.-Houston [14th Dist.] 1994) ............................................................... 33 Cabo Construction, Inc. v. R.S.Clark Construction, Inc.
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