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

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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