MANAGING RISKS THROUGH
CONTRACTUAL MECHANISMS
Presentation to the Royal Norwegian
Consulate General
MARCH 7, 2011
Presented by:
David S. Bland
LeBlanc Bland, P.L.L.C.
1717 St. James Pl., Suite 360
Houston, Texas 77056
(713)627-7100
Managing Risk Through Contractual
Mechanisms
• Contracts can and should be tailored to suit
the particular risks inherent in a particular
business transaction
• Not all risks are insurable – common contract
clauses can avoid, reduce, shift or allocate
risks
Insurance
• Require other party to contract to maintain
various policies
• Support indemnity obligations
• Name as additional assured
• Waiver of subrogation
• Primary coverage
Indemnity
• Definition – a promise by one party to protect another
party from a risk or unfavorable events that may occur
in the future
• Narrow (“at law”/negligence based) or Broad
(regardless of fault)
• “Knock for knock” is prevalent in many industries;
typically covers personal injuries and property damage
• Eliminates costly effort to determine and apportion
fault
• Should be coordinated with Insurance requirements
Indemnity (cont’d)
• Enforceability Issues:
– Express Negligence/Fair Notice requirements
– Anti-Indemnity Statutes applicable to some industries
• LA and TX – applicable to contracts that “pertain to” oilwell
• Enacted to protect parties with inferior bargaining power
from being forced to hold the party with superior bargaining
harmless from their own fault
• Note that even parties with equal bargaining power who
mutually agree that K/K would be of benefit will be
prohibited if Anti-Indemnity Statues are applicable
• Choice of law provisions may be able to avoid
• Other ways to avoid – Insurance; Marcel exception
Contractual Limitations of Liability
• Waivers of Consequential Damages
• Red Letter Clauses
• Liquidated Damages – sole and exclusive remedy for
delay or other breach
• Express Warranty exclusive of implied or legal
warranties; repair or replacement as sole and exclusive
remedy for breach of warranty
• Force Majeure – no damages for delay
• Borrowed Servant/Statutory Employer clause
• Express exclusion of “at law” or “in equity” rights and
remedies
Other Contractual Clauses that Can
Reduce Risk
• Choice of Law
• Choice of Forum or ADR
• Clearly defined scope of work
– Design responsibility
• Changes in writing
• Intellectual Property rights and indemnity from
third party infringement claims
• Title and Risk of Loss
• Bonding requirements