Indemnity 101 CLE 9-30-14 - Mozley, Finlayson & Loggins LLP

Indemnity 101:
Tips from Lessons Learned
Rick Alimonti
Arthur J. Park
Alimonti Law Offices, PC
Mozley Finlayson &
Loggins LLP
200 Mamaroneck Ave.
Suite 304
White Plains, NY 10601
5605 Glenridge Drive,
Suite 900
Atlanta, GA 30342
So What is Indemnity?
What isn’t it?
It is not a liability-shifting mechanism.
It cannot bind a non party to whom you are liable
Vis-à-vis such a non party, you remain liable, and from
their perspective, the indemnity may well be invisible.
It is not insurance and, in fact, law is underdeveloped
What is it?
A risk management tool whereby one party (indemnitor)
is answerable for the damage (and perhaps defense) of
another (indemnitee).
When Will Indemnity
When a claim arises under
circumstances in which another party
is primarily responsible and/or
contractually responsible to indemnify
Contractual Indemnity
Contract risk-management provision
Often “imposed” by party with greater
bargaining power over more dependant party.
Imposed by Port Authority on airlines and contractors
 Imposed by airlines on service providers
Goal: insulate one party for damages and
defense costs “arising from” contractual
relationship with another.
Contractual Indemnity
Is there an agreement?
 In Effect – not expired
 Between correct parties
 Superseded by another agreement
 Notice provision
 Voided: release, bankruptcy, etc.
Types of Indemnity Agreements
Narrow form: only covers the indemnitor’s
Intermediate form: covers indemnitee’s passive
negligence and indemnitor’s negligence
Broad form: covers indemnitor’s negligence and even
the indemnitee’s own negligence
 Majority view: cannot cover gross negligence or
intentional misconduct
And Common Exceptions
The foregoing indemnity shall not apply in the
event of injuries or damage to property caused
by the reckless or wilful misconduct of the
Airline or its agents and employees
The foregoing indemnity shall not apply in the
event of injuries or damage to property caused
by the sole negligence of the Airline or its agents
and employees
Example 1 - FBO
“FBO shall indemnify, defend, and save harmless
owner, and owner’s officers, agents, employees,
directors, successors and assigns, from and against
any and all loss, claims, demands, costs, expenses
of every nature, including reasonable attorney’s fees
(including fees to enforce this clause) arising directly
or indirectly from or in connection with the use and
operation of the aircraft by FBO, except when any
such claims arise from the sole negligence of
Example 2 - what not to do
“BOB hereby agrees to indemnify, defend and hold harmless
ADAM from and against (i) all claims, costs, expenses or damages
of any nature whatsoever (including reasonable attorney fees and
court costs) asserted against or incurred by ADAM resulting from
the use of or in any way related to any work done under authority
of the STC by any entity other than ADAM (or any other party
licensed or authorized by it) after the completion of the transfer of
the STC to BOB pursuant to these terms; and (ii) any claims, costs,
expenses or damages asserted by any person or agent, or employee
of BOB in performance of this Agreement, but excluding…any
claims, costs, expenses or damages which are caused by or result
from the negligence or the fraudulent or willful misconduct of
Obstacles to Indemnity
Questions of Fact?
Issue of party’s sole negligence or
reckless/wilful misconduct may form basis for
argument that tender is “premature”.
This will be particularly so if language is not
clear on duty to defend and what triggers this
Legal Principles Governing
Indemnity Agreements
Choice of law:
lex loci contractus,
 most significant relationship, or
 choice of law clause in the contract
Contracts of indemnification are to be strictly
construed against the indemnitee
Duty to indemnify is a question of law
Example 3
Contractor shall indemnify, defend, and hold
harmless Airline for any and all claims, losses,
and damages (including attorneys’ fees and court
costs) arising out of or related to Contractor’s
performance of the Contract, including claims
brought by Contractor’s agents and employees.
Example 4 – service k with airline
Contractor shall release, indemnify, defend and hold harmless
Delta…from and against any and all claims…which in any way
arise out of or result from any act(s) or omission(s) by Contractor
(or anyone directly or indirectly employed by Contractor or anyone
for whose acts Contractor may be liable) in the performance or
nonperformance of Services or other obligation under this
Agreement…This Section shall apply regardless of whether or not
the damage, loss or injury complained of arises out of or relates to
the negligence (whether active, passive or otherwise) of, or was
caused in part by [Delta]. However, nothing contained in this
Section, shall be construed as a release or indemnity by Contractor
of [Delta] from or against any loss, liability or claim arising from the
sole negligence or willful misconduct of [Delta].
When does duty to indemnify attach?
Contractual Indemnity distinguished from
Insurance Policy
For Indemnity [unlike insurance], duty to defend
MAY NOT BE BROADER than duty to
Need broad indemnity language or you may be
footing defense bill until duty to indemnify is
Incident Occurs-Investigation
What are circumstances?
Who are involved parties?
Who has involvement in underlying incident or
area in which it occurred?
What does the applicable document say as to
1. Indemnity?
 2. Insurance?
Do you have documents to support additional
insured status?
Triggering Indemnity: What do
you do, and how do you know?
Notice of Claim – formal or informal
The sooner you advise the party from whom you
seek the indemnity of the underlying occurrence, the
 Put it in writing
 Insurer will likely assist or handle but stay involved
 At the end of the day it is you, not the insurer, that is
entitled to be indemnified
What can undermine indemnity?
Adhesion contract – contra preferentem
Public Policy – against “free ride”
Failure to include specific claims, e.g., including
claims by indemnitor’s employees – very
Punitive damages not subject to indemnity –
wrong party would be “punished”
The test for broad form indemnity
Majority view: not against public policy
But, indemnity agreement will not be construed
to cover the indemnitee’s own negligence unless
contract is clear and unequivocal
Initial presumption against broad form indemnity
Language must show a “clear intent” to
indemnify the other party’s own negligence, but
there are no “magic words”
Example 5 – broad form?
“The Contractor [C.R.A.] agrees to indemnify, defend
and hold harmless Eastern [Air Lines],…directors,
officers, employees, agents and representatives from and
against all claims, liability, loss or expense, including
legal fees and court costs, arising out of or in connection
with this agreement including, but not limited to claims of
employees of Contractor, claims of employees of Eastern
and/or City, claims arising out of injury, death or property
damage, direct or consequential, to any person or
entity…The foregoing indemnification does not apply to
any claims arising out of the gross negligence or willful
misconduct of Eastern.”
Fact Pattern –
Additional Insurance and Multiple
Sally Slip, age 45, is employed by On-The-Spot
Cleaners, Inc., a contractor that cleans aircraft
interiors. On January 4, 2014, she had just
completed cleaning an aircraft when she fell at
the foot of the air stairs on a patch of black ice.
She suffered a broken arm (humerus) and a
concussion. She claims soft tissue damage,
herniated disc and inability to ever return to
work, i.e., permanent disability.
Fact Pattern (cont’d)
The aircraft she had just serviced was owned
and operated by Excelsior Airlines.
The accident took place on the Excelsior ramp
at Sunshine Municipal Airport in Sunshine, New
York. The town of Sunshine is the owner of the
airport and Excelsior’s landlord.
Excelsior is a small regional airline that contracts
with Shovel & Salt for snow removal on the
Excelsior ramp.
Some Critical Contract Language
Shovel & Salt Contract:
Shovel & Salt is to perform no snow or ice
removal within 50’ of an aircraft unless
specifically requested by airline.
If airline requests such services within 50’,
Airline must indemnify Shovel & Salt against
any damages to property related to the provision
of this service.
Contract Language
Salt and Shovel contract requires snow removal
on ramp upon 2” accumulation.
According to contract, salt and sand are only
applied “on demand” from Excelsior
There is no patrol obligation in contract, but
Shovel & Salt nonetheless patrols for snow and
ice and applies melting agents and salt as it
deems appropriate.
Contract Language
Excelsior Airline Indemnity to Sunshine
Excelsior Airline agrees to indemnify and defend
township for all injury and property damage
arising out of Airline’s use of the leasehold
unless caused by the sole negligence of Sunshine
or Sunshine’s agents or employees.
Contract Language
On-the-Spot Contract with Airline
On-the-Spot is required to indemnify and
defend Airline for all claims for damages and
personal injury arising out of On-the-Spot’s
provision of services to Airline. However, the
indemnity provision in the contract does not
specifically extend to claims brought by On-theSpot’s own employees. The contract is silent on
this issue.
Contract Language
Shovel & Salt License with Sunshine Township:
In order to provide services to airport tenants,
Shovel & Salt has also entered into a license with
Sunshine Township requiring Shovel & Salt to
indemnify and defend Sunshine for all claims for
damages and personal injury arising out of
Shovel & Salt’s provision of services on any
airport premises.
On-the-Spot License with Township
Hurray! You’re Indemnified!
Now What?
You are still being sued
You are still in the caption
And you may be giving away the control of your
Do you care?
 Why? Company Reputation; Adverse Press; Res
Judicata; Jurisdictional Implications; Sanctions; Bad
After the Indemnity is Accepted:
Maintain active role
You remain a client
You may not want law firm to be doubling on
defendants (waiver of privilege?)
You will want role in defense and settlement
You may want counsel of your choosing, not
indemnifying party’s
What About a Reservation of
Party from whom you seek indemnity reserves
rights to withdraw defense and/or decline
In vast majority of cases reservation is not
effectuated and defense is not withdrawn
Nonetheless, you are on notice!
Counsel cannot defend you while looking to
escape indemnity – grounds for conflict
Should you demand independent counsel?
MGLA 186 § 15. Non-liability of landlord; provisions
in lease or rental agreement
Any provision of a lease [in which] by the use of any words
whatsoever, the effect of which is to indemnify the lessor or
landlord or hold the lessor or landlord harmless . . . from
any or all liability to the lessee or tenant, or to any other
person, for any injury, loss, damage or liability arising from
any omission, fault, negligence or other misconduct of the
lessor or landlord . . . shall be deemed to be against public
policy and void.
Compare: N.Y. Gen. Oblig. L § 5-322.1, which is more limited
in scope and applies to construction, renovation, maintenance,
demolition etc. of property
Limit in the construction context
“A covenant…in connection with…a contract or
agreement relative to the construction, alteration,
repair, or maintenance of a building…purporting to
require that one party to such contract or agreement
shall indemnify…the other party to the
contract…against liability…caused by or resulting
from the sole negligence of the indemnitee…is against
public policy and void and unenforceable.”
O.C.G.A. § 13-8-2(b)
Indemnity’s Cousin: Additional
Insured Status
Separate and distinct from indemnity provision
Should Implement Indemnity
Should be policed at renewal
 Insurance Certificates
Make clear that insured status is bargained-for
provision and part of consideration
Additional Insured cont.
Also known as the duty to procure insurance
Does the insurance meet the contractual
 Policy Period:
 Are there exclusions that essentially eviscerate the
coverage required under the contract?
Exemplar Additional Insured
In furtherance of the preceding indemnity
obligation, contractor shall procure a
comprehensive general liability policy having
limits in the amount of $10X and $5X per
occurrence with no deductible or self-insured
retention. Said insurance shall be primary and
shall displace any other insurance held by the
Airline except to the extent the above limits are
insufficient, in which case the Airline’s coverage
shall be deemed excess.
Why the concern about
Actual Case
Personal injury action – passenger injured when
aircraft door shut on foot by Caterer
 Caterer had [we believe] US$1 Million SIR.
 Caterer accepted tender and then later rejected it as
when value revealed.
 Why?
It was their own money!
Large SIR made insurance requirement somewhat
So You’re an Additional Insured;
Now What?
Potential to be covered to the same extent as the
named insured
 Additional-Insured status may be less restrictive than
indemnity vis-à-vis public policy
Likely to be bound by policy terms
 Duty to cooperate
 Duty of notice, etc.
International Flights
Montreal Convention
Does NOT create a cause of action for
indemnification or contribution among carriers, but
also DOES NOT preclude such actions under local
See Chubb Ins. Co. v. Menlo Worldwide Forwarding, Inc., 634
F.3d 1023, 1026 (9 Cir. 2011) citing In re Air Crash at
Lexington, Ky., No. 5:07–CV–316, 2007 WL 2915187
(E.D.Ky. Oct. 5, 2007) (holding that the Warsaw
Convention does not preempt a local law cause of action
for apportionment among joint tortfeasors)
International Flights cont.
Warsaw Convention
Same as Montreal Convention re indem/contrib
See Sompo Japan Ins., Inc. v. Nippon Cargo Airlines Co., Ltd.,
522 F.3d 776, 785-87 (7th Cir. 2008) (holding that the
Warsaw Convention does not preempt the Illinois Joint
Tortfeasors Contribution Act).
SOL: The plain language of the Montreal
Convention makes clear that actions for
indemnification and contribution are not subject
to Article 35’s two-year statute of limitations.
In reviewing or drafting contracts, make sure
indemnity is broad, includes indemnity and
Include injuries by agents and employees of
Aim for indemnity to be triggered by allegations,
not facts, but know local law
When your request for indemnity is denied:
Continue to defend the underlying action
Decision to settle underlying claim must be reasonable
Track all expenses following denial, including those
incurred during enforcement
Don’t be afraid to request a reconsideration
Options to consider
Sharing agreement on verdict or settlement
Tolling agreement to pursue indemnity claims
Pay and fight: cross-claim, third-party complaint, or
subsequent lawsuit for breach of contract
Know the Chosen Law – Make sure it is
clear in contract
 Be
aware that contract may be subject to
different law in different areas of operation
 Best to include:
Choice of Law
 Forum for Disputes
 Possible ADR
Additional insurance provision should be co-extensive
with indemnity (unless you are looking for more
Maintain organized and up-to-date files including
Latest executed contract
Applicable insurance policies and certificates
Tender and acceptance histories – possible “precedents” for
later use
Watch for “upstream” exposure
Circumvent the workers comp exclusion in policy
Table of Georgia Authorities
Delta Air Lines, Inc. v. Swissport United States, Inc., No. 11 Civ. 1544, 2012 U.S. Dist. LEXIS
183622 (S.D. N.Y. Dec. 27, 2012) (pre-tender expenses and interest available in Georgia)
JNJ Found. Specialists, Inc. v. D.R. Horton, Inc., 311 Ga. App. 269, 279 (2011) (indemnification
agreement enforceable when definite and unambiguous)
Lanier at McEver, LP v. Planners & Eng’rs Collaborative, Inc., 284 Ga. App. 204 (2007) (allowing
recovery of enforcement expenses)
SRG Consulting, Inc. v. Eagle Hospital Physicians, LLC, 282 Ga. App. 842 (2006) (question of law)
Serv. Merch. Co. v. Hunter Fan Co., 274 Ga. App. 290 (2005) (“contract of indemnification must be
construed strictly against the indemnitee”)
Park Pride v. City of Atlanta, 246 Ga. App. 689, 689 (2000) (broad form must be stated “expressly,
plainly, clearly and unequivocally”)
Myers v. Texaco Ref. & Mktg., 205 Ga. App. 292, 298 (1992) (court will “scrutinize the contract
closely [regarding] an intent to indemnify the indemnitee against his own negligence”)
Kemira, Inc. v. A-C Compressor Corp., 755 F. Supp. 1059 (S.D. Ga. 1991) (strict construction)
Eastern Air Lines, Inc. v. C.R.A. Transportation Co., Inc., 167 Ga. App. 16 (1983) (example of plain
and unambiguous broad form agreement)
Delta Air Lines, Inc. v. McDonnell Douglas Corp, 350 F. Supp. 738 (N.D. Ga. 1972) aff’d 503 F.2d 239
(5th Cir. 1974) (liability disclaimers not against public policy)
Andrews Motors Co. v. Clement, 127 Ga. App. 745 (1972) (liability disclaimers not against public
Batson-Cook Co. v. Georgia Marble Setting Co., 112 Ga. App. 226 (1965) (clear intent for broad form)
Shifting gears to…Apportionment
Tackling the tug-of-war between pilot error,
maintenance, and mechanical defects
Apportionment cont.
Negligence: Depends on the state
Pure Joint & Several Liability – 8 States
 Pure Several Liability – 8 States
 Variable Liability – 28 States
 Hybrid and Variable Liability – 6 States
Ensure that the “deep pocket dilemma” doesn’t
harm your client
A closer look at Georgia
2005 Tort Reform Act replaced joint and several
liability with apportionment of damages by
percentage of liability
“in assessing percentages of fault, the trier of
fact shall consider the fault of all persons or
entities who contributed to the alleged injury or
damages, regardless of whether the person or
entity was, or could have been, named as a party
to the suit.” O.C.G.A. § 51-12-33(c).
Georgia cont.
If damages are actually apportioned by the jury,
there is no right of contribution. O.C.G.A. § 5112-33(b).
BUT most cases settle before reaching a jury…
And “the right of indemnity, express or implied,
…shall continue unabated and shall not be lost
or prejudiced by compromise and settlement of
a claim.” O.C.G.A. § 51-12-32(b).