Presented by: David S. Bland

LeBlanc Bland, P.L.L.C.1717 St. James Pl., Suite 360

Houston, Texas 77056(713)627-7100

MANAGING RISKS THROUGH CONTRACTUAL MECHANISMS

Presentation to the Royal Norwegian Consulate General

MARCH 7, 2011

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