TBH&E is pleased to announce that Partner Justin W. Esworthy has been admitted to the Bar of the Commonwealth of Pennsylvania. Justin is also licensed to practice law in Maryland and Virginia and focuses his practice on civil and business litigation and criminal and traffic defense. He joins Mike Hinkle in the Firm’s Pennsylvania practice. To contact Justin about a matter, call (410) 649-4440 (MD) or (717) 698-1428 (PA).
If You are Swimming with Sharks…
– How To Avoid Lawsuits
– Best Practices to Save Your Case and Your Assets
DATE: Friday, May 30th
8:00 am to 8:30 am Networking & Breakfast
8:30 am to 10:00 am Presentation
11311 McCormick Road
Hunt Valley, Md
James M. Timmerman, Partner
Timmerman, Beaulieu, Hinkle & Esworthy, LLC.
This is an opportunity to get practical and hands on advice from a well known and experienced business and trial lawyer. Jim has promised us that this discussion will be down to earth, lively, and most importantly–save your business from possible financial ruin.
Guests may attend one HVBF Roundtable before joining the HVBF.
For more information and online registration to attend for free click here: If You are Swimming with Sharks…
TBH&E partners Jim Timmerman and Jason Beaulieu recently offered tips to business owners about preventing lawsuits, reducing liability, and protecting assets on CBS Radio’s “Small Business Secret Weapon Hour.” For anyone who missed the broadcast and wants to hear this valuable information you can listen to the segment below.
The Basics of Risk Allocation
Understanding Contractual Indemnity and Insurance Provisions
Shifting risk of loss from one party to another in a contract is recognized in many industries as a vital and necessary risk management tool. Usually, the transfer of risk is carried out via an indemnity or hold harmless provision in the contract. For example, the Indemnitor (Party B) agrees to “indemnify or hold harmless” the Indemnitee (Party A) against certain liabilities arising out of the activity that is the subject of the contract.
Such provisions are typical in construction and service contracts in which Party A requires Party B to indemnify it for liability to a third party arising from Party B’s scope of work. For example, a general contractor (Party B) might agree to indemnify the owner of a project (Party A) for liability to an injured third party arising from the owner’s or general contractor’s negligence. Should the injured third party file suit against the owner, the owner can point to the indemnity provision in the contract and assert that the general contractor must indemnify it. Typically, if the general contractor’s general liability insurance carrier determines that there is coverage, it will pay to defend the suit against the owner and any awarded damages, subject to the general contractor’s insurance policy limits
There are generally three types of Indemnity provisions:
- Broad Form – provides that the Indemnitor (Party B) must indemnify the Indemnitee (Party A) for all liability and risk irrespective of which party was actually at fault.
- Intermediate Form – provides that the Indemnitor (Party B) must indemnify the Indemnitee (Party A) for all liability and risk except where the injury or damage is caused by the Indemnitee’s (Party A) sole negligence.
- Limited Form – provides that the Indemnitor (Party B) must indemnify the Indemnitee (Party A) for all liability and risk only to the extent of the Indemnitor’s (Party B) fault.
Limitations of Indemnity Provisions in Construction Contracts
It is important to understand that many states have imposed restrictions on the types of risk that can be transferred to another party in construction contracts. For example, many states prohibit the transfer of one party’s own negligence to another party as a matter of public policy while others prohibit only the transfer of one party party’s sole negligence.
Anti-Indemnity Statutes in TBH&E’s Practice Jurisdictions
|Maryland||By statute, prohibits contractual indemnification of one party’s sole negligence. Md. Code. Ann., Cits & Jud. Proc. 5-401.|
|Pennsylvania||No statute prohibiting contractual indemnification if the intent of the parties to do so is clearly and unequivocally stated in the contract. Otherwise, PA Courts have deemed broad form indemnity provisions unenforceable. See Perry v. Payne, 217 Pa. 252, 66 A. 553 (Pa. 1907); Ruzzi v. Butler Petroleum Co., 527 Pa. 1, 588 A.2d 1 (Pa. 1991).|
|New Jersey||By statute, prohibits contractual indemnification of one party’s sole negligence. N.J. Stat. Ann. § 2A:40A-1.|
|Virginia||By statute, prohibits contractual indemnification of one party’s sole negligence. Va. Code Ann. § 11-4.1.|
When a contractual indemnity provision is deemed unenforceable by statute or by the Courts, the legal obligation of Party B to indemnify Party A is not triggered. Thus, Party A will be responsible for its defense costs and any award against it despite the fact that the contract may have stated otherwise. To protect against this possibility, Indemnitees (Party A) will frequently require that it be named as an additional insured under the Indemnitor’s (Party B) insurance policy.
Generally speaking, an Indemnitee (Party A), pursuant to a contractual indemnity provision, is not considered an insured under the Indemnitor’s (Party B) insurance policy. As such, an Indemnitee (Party A) does not enjoy the same rights and protections that the Indemnitor (Party B) does under Party B’s policy. However, if Party A is named as an additional insured under Party B’s policy, it would have a direct right to defense coverage and/or indemnification for insured claims under Party B’s policy, independent of the enforceability of the indemnity provision in the contract. It, therefore, is preferable for Party A to not only incorporate an indemnity provision into the contract but to also require in the contract that Party B name it as an additional insured under Party B’s policy.
Strategies for Allocating Risk as the Indemnitee (Party A)
- Do not ignore your state’s Anti-Indemnity laws, if applicable, and make sure that your contract’s indemnity provision is clear and unequivocal.
- Remember that any ambiguity of contractual terms will be construed by courts against the drafter of the contract. Accordingly, if you are using your contract, make sure that the terms incorporated therein are clear and unambiguous.
- If your state prohibits contractual indemnification of your sole negligence, require that the other party name your company as an additional insured under its general liability insurance policy.
- Require that the other party maintain adequate insurance coverage.
- Verify compliance with your insurance requirements by requiring the other party to provide a Certificate of Insurance, confirming coverage limits and your status as an additional insured.
- Be advised that a Certificate of Insurance provides only limited information regarding the other party’s insurance policy. It does not bind coverage. Therefore, you should confirm to the best of your ability that the other party’s policy of insurance does, in fact, name your company as an additional insured. Moreover, follow up with the insurance carrier monthly to be sure the policy is still in effect. Occasionally, dubious subcontractors will provide the COI during the bidding process then, after getting the job, will not pay the premium in an effort to increase profit.
- Require that the other party immediately notify you, in writing, of any changes in insurance including the existence of other claims made against the applicable policy that would reduce the amount of coverage available to you.
Strategies for Accepting Risk as the Indemnitor (Party B)
- Read the entire contract. Before signing any agreement, it is paramount that you understand what you are signing.
- Understand that if you execute a contract that contains a broad form indemnity provision, you are agreeing to indemnify the other party even if it is 100% at fault for causing the injury or damage.
- Negotiate indemnity and insurance provisions. Often times, you will be handed a “standard” contract that has not been modified to reflect the specific nature of your company’s scope of work. Rather than simply accepting the contract as is, you should take an active role in negotiating reasonable terms.
- If you are required by the contract to name the other party as an additional insured under your policy, make sure that you do so. Upon executing the contract, contact your insurance agent/broker and confirm that the other party has, in fact, been named as an additional insured under your policy. Failure to do so may constitute a breach of contract and leave your company personally liable for the other party’s defense and/or indemnification.
- Be advised that a Certificate of Insurance provides only limited information regarding your insurance policy. It does not bind coverage. Therefore, you should obtain a copy of your insurance policy and confirm that the other party is, in fact, a named additional insured under the policy.
- If your company routinely enters into contracts requiring it to name others as additional insureds under your policy, consider adding a Blanket Additional Insured Endorsement to your policy. A typical blanket endorsement will automatically provide additional insured status to any party that your company agrees to name as such in an executed contract or agreement.
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About the Author
Mike Hinkle is a founding partner of Timmerman, Beaulieu, Hinkle & Esworthy, LLC. Mike’s practice focuses on complex business and insurance defense litigation in the federal and state courts of Maryland, New Jersey and Pennsylvania. He can be contacted at (410) 649-4440 in Maryland, (717) 698-1428 in Pennsylvania or via email at email@example.com.
© 2014 TBH&E, LLC All Rights Reserved
One of the toughest lessons an attorney learns is that the practice of law has very little to do with the practice of justice. In civil litigation this is especially true when you see cases with little to no merit settle for a dollar figure that is more about the economic realities of taking a case through trial than a defendant’s liability or a plaintiff’s genuine damages.
Inevitably, the question arises, “how much will it cost to try the case?” If the answer is, say, $30,000, and the plaintiff will take $20,000, some companies view that as a $10,000 win. I’ve even seen people try to squeeze pre-discovery settlement money out of non-liable defendants by calling it a “peace dividend.” Now that’s chutzpah.
Perhaps the most frustrating reality in civil litigation, however, is the reluctance of some judges to grant motions for summary judgment. For those unfamiliar with the term, summary judgment is when the undisputed facts allow a lawsuit, or a portion thereof, to be decided by the judge shy of trial. The usual context is on a motion by the defendant which basically says, “even if you believe the facts as alleged by the plaintiff, he can’t win when the law is applied, so dismiss it now and save us all the hassle.”
The value of summary judgment is obvious: cases that need not go further are disposed of expeditiously, freeing up dockets and saving litigants (and taxpayers) time, effort, and money. A side benefit occurs when the defeated plaintiff’s attorney thinks twice about clogging the court system again with a similarly flawed claim.
But, how reluctant are some judges to grant summary judgment?
This is a true story. I once had a case where we filed a motion for summary judgment because the Plaintiff’s deposition testimony mirrored the Defendant’s as to how the incident occurred. This means there was no dispute of fact for a jury to consider, and the court’s job was to make a decision. Our motion said as much and highlighted the applicable statute. The Plaintiff’s opposition agreed that there was no dispute of fact and that the case hinged on interpretation of a statute. Result? Denied, without explanation.
Next, we did what litigators rarely do: we filed a Motion for Reconsideration, which essentially asks a judge to admit he was wrong. As you might expect, most judges don’t take too kindly to that suggestion. Result? Denied, without explanation.
Eventually, the case went to trial before a different judge where the same undisputed facts were established during Plaintiff’s case. After Plaintiff rested, we made a motion for judgment on the same exact basis cited in our prior pleadings. Result? Defense judgment. Who knows the amount of lost time and resources, but it was in the thousands of dollars for the parties and the taxpayers.
So what’s the answer? Here are three quick suggestions:
Cases should be assigned to one judge for the duration of the litigation. Logically, that judge will become more familiar with the facts and issues of the case and, when warranted, more inclined to grant summary judgment. It works well in the federal courts and in the few state jurisdictions that try it. It also promotes the interests of judicial economy and efficiency.
Judges need help to wade through all the motions that get filed, summary judgment and otherwise. No one is more important in that role than law clerks. Judges with complex civil litigation tracks, for example, should have at least two law clerks to help deal with the filings. If even a small number of cases get kicked, the resulting savings in judicial resources would justify the additional salaries.
It’s not easy granting summary judgments. It takes guts. It takes telling a plaintiff that, despite how sad or compelling the undisputed facts, the law does not permit him to recover damages. It takes telling a plaintiff that sometimes her “day in court” is the motions hearing at which the judge is required to rule that the case cannot proceed. It’s also realizing that a defendant’s right to have the case end at the appropriate stage is as important as a plaintiff’s right to take her case through trial. Ultimately, it also takes not being afraid that an appellate court may disagree.
Over the years, I’ve been fortunate enough to have had several serious cases dismissed via summary judgment by judges who had the time and inclination to do so. And, by and large, Maryland is blessed with a solid judiciary.
Current economic realities, however, mean all governmental entities, including the courts, need to do more with less. In other words, multiple law clerks aren’t coming anytime soon and one-judge tracking systems may be slow to develop. Despite these hurdles, the underlying goal of our legal system remains the same: Justice. In that regard, summary judgment is an essential tool to enhance the efficiency and fairness of the process by which we pursue that goal.
About the Author
Jason Beaulieu is a founding partner of Timmerman Beaulieu Hinkle & Esworthy, LLC. Jason’s practice focuses on complex civil litigation in Maryland and the District of Columbia, with a focus on insurance defense, school liability, construction litigation, and the retail/hospitality industry. He also advises individuals and businesses of all sizes on general business and risk management issues. He can be contacted by phone at (410) 649-4440 or by e-mail at firstname.lastname@example.org.
Unfortunately, we live in a litigious society. What that says about society is for someone else to decide. But the fact of the matter is that any business can be sued at any time by an employee, customer, vendor, or just about anyone that it comes into contact with over the course of the day. The number of fact patterns that lead to lawsuits is endless, and the sad reality is there is nothing you can do to guarantee that you will never be sued. To add insult to injury, defending a lawsuit can be expensive, time consuming, and emotionally draining.
Are you ready for some good news? Many lawsuits can be prevented altogether, and those that can’t be prevented may be neutered by employing some simple best practices.
Do a good job and be professional. You are a business owner so you have specialized skills and experience. When you make a commitment to a client or customer, honor that commitment and make customer satisfaction a priority. The reality is that most people recognize that mistakes happen. When things go wrong for whatever reason, people are less likely to get adversarial if they have enjoyed working with, or doing business with, you.
Communicate. It should come as no surprise that many lawsuits arise from a simple misunderstanding. One of the best preventive measures to avoid litigation can be a non-accusatory discussion in which any disagreement or misunderstanding is explored. A simple telephone call or honest discussion can save much time and money. Note – such discussions must end immediately if a lawsuit is imminent or has been filed. At that point, discussions should be conducted by counsel.
Document everything. The best way to avoid a misunderstanding in the first instance is to document all applicable policies and terms. A well-drafted contract, employment manual, or other writing that records critical terms of an agreement or event can prevent a misunderstanding from devolving into a lawsuit. The cost of engaging an attorney to review documents such as contracts and purchase orders is nominal when compared to the expense associated with defending a single claim. Have an attorney write you a solid contract that properly limits your liability and exposure. Also, review and understand all contract terms before you sign. If you don’t understand something, ask for clarification. Similarly, when possible, discuss the decision and process of terminating an employee before doing so. You will be better prepared and can prevent pitfalls that you may not have considered.
Understand the applicable laws. One sure fire way to avoid a lawsuit is to be compliant with the law. This includes knowing what to file, when to file and where to file. Spend the time to understand the local, state, and federal laws that apply to your business. This is not as daunting a task as it might sound. There are numerous laws and regulations that apply to any business. However, today’s technology allows for efficient and convenient research. Moreover, there are many business resources available to you through your state and local governments. Your business should also have a regular legal “check up.” The law is constantly changing. The cost of a meeting or two with a trusted attorney or business advisor will pale in comparison to the costs of defending even a single lawsuit. Keep your documents and policies up to date.
Maintain your property. Injuries equal lawsuits. So … prevent accidents from happening in the first place by maintaining your property and keeping a safe and secure workplace. Remember your “premises” can extend beyond your front door and include sidewalks, parking lots, company vehicles, bathrooms, hallways, staircases. Inspect your business property regularly and repair any defective conditions. Also, enforce workplace safety rules. Unfortunately, no matter how diligent you are, accidents happen. Thus, you should consult with an insurance professional and maintain adequate levels of insurance.
Utilize your employee handbook. “Utilize” means if you have one, follow it. Have you read your own policies lately? One way of avoiding misunderstandings, claims of unfairness, disputes regarding termination, leave issues, vacation disputes, harassment claims, etc. is to have a comprehensive and up to date employment manual. If you are not utilizing an employment manual talk to your attorney about the benefit of implementing a manual that is properly tailored to your business operations.
Terminate with care. No one likes to be fired. At the moment of termination emotions can run high. Thus, you must approach the situation with professionalism. Generally, when an employee is terminated it should not come as a surprise. Good employment practices include documenting performance issues and discussing them with your employees. Before terminating an employee make sure you are following your own policies and procedures. Also, consider offering a severance amount that may diffuse the emotion of the moment.
Don’t ignore the problem. It is inevitable that you will run into a difficult client, unreasonable customer, or employee. Do not ignore the situation. Resign yourself to completing the contract or project. Keep your ego in check and remain calm. Address the situation as best you can and learn from the experience so you can avoid similar customers or clients in the future.
All potential clients are not good clients. Life is too short. The reality is that there are times when you know from the beginning that a particular person or client is going to be a problem. In such circumstances you may well be better served in the long run by declining the work.
Remember, every action has a reaction. If you are unable to amicably resolve a dispute and you conclude that you must bring a lawsuit – so be it. But, understand that after you file your lawsuit you are likely to face a counterclaim. Don’t expect that your dispute will be limited to the issue of your choice. Your opposition will try to find leverage wherever they can and that usually means that the scope of your dispute will be expanded. Thus, recognize that you and/or your business practices will be exposed to the public’s eye. As a result, you should have your house in order before voluntarily getting involved in any litigation.
Understand your risk tolerance and properly insure yourself. Insurance can provide you with a competitive edge. Litigation can be time-consuming, expensive, and frustrating. The litigation process can also impact your personal and business schedule. Insurance will not prevent you from getting sued, but it can give you peace of mind and some financial security. In many cases, insurance will cover the cost of an attorney and damages that are awarded. Talk to an insurance professional about the levels and types of insurance that are right for your business.
About the Author
Jim Timmerman is a founding partner of Timmerman, Beaulieu, Hinkle & Esworthy, LLC. Jim’s practice focuses on complex business and insurance litigation in Maryland’s federal and state courts. He also advises individuals and businesses of all sizes on general business and risk management issues. He can be contacted by phone at (410) 649-4440 or by email at email@example.com.