Contract DraftingClass 20Thurs. Mar. 29

University of Houston Law Center

D. C. Toedt III

Z&B Chapter 5DLegal opinions

Legal opinions – takeaways:

1. Third parties might rely on it sue the lawyer if things go wrong

2. Limitations and disclaimers

3. Opinion committee checks it

4. Partner signs it

Legal opinions – limitations

Who is entitled to rely on it What assumptions were made What if any files or docs were reviewed What if any other investigation was made

(or “without investigation”) Whose knowledge – the janitor’s?

Legal opinions – things to avoid

Try not to opine about things that: … are outside the scope of lawyers’

professional competence … are outside your competence … the client could certify … the other side could readily verify

(e.g., contents of docs, SEC filings, etc.)

Legal opinions – negotiating it

Read the ABA guidelines at http://goo.gl/tI02A(but don’t take them as gospel)

Don’t be afraid to push backGolden Rule – “would you give an opinion like that?”

Try to attach the form of opinion as K exhibit

“We always get this opinion from the other side’s lawyers”

Indemnification

Definition: “Indemnify”

Reimburse for demonstrated harm suffered

Broadly defined – see Common Draft § 101.16

Not the same as “hold harmless”(H/H is essentially an advance release)

Types of indemnity

General – any harm suffered Narrower – third-party claims only

Monetary awardsDefense costs

(if indemnitor doesn’t provide a defense)

Defense obligation (CD § 802.2)

Spell out separately California law: Implied with indemnity

Defense obligation (CD § 802.2)

QUESTION: Which is better for indemnitor: provide a defense (you hire and pay for

the defense counsel), or reimburse the other side for its legal fees?

Defense obligation: Ground rules (Common Draft §§ 802.06 et seq.) Timely notification of claim Indemnitor controls the defense No (non-factual) admissions No waiver of defenses Settlement restrictions Protected person pays for own

monitoring counsel

Indemnity: Express negligence rule (CD § 802.24) Texas will enforce obligation to indemnify

for own negligence BUT, the obligation must be:

Expressly stated“Conspicuous”

CAUTION: Indemnifying party is now an insurance carrier for the protected party

Indemnity: Limitation of liability (CD § 802.25)

Try to negotiate limits

Other side will often push back

Response: “We’re selling [X], not insurance – we can buy a policy for you and bill you for the cost plus a markup.”

Indemnity: Warning

Check with client’s insurance carrier to be sure insurance policy doesn’t exclude contractual indemnities

Insurance

Insurance – more info

See blog postings listed at http://goo.gl/VRujv

Insurance – common types (Common Draft § 407)

Commercial general liability (“CGL”) – bodily injury, property damage liability, contractual liability for indemnity obligations

Errors & omissions (“E&O”) a.k.a. professional liability

Auto Employer liability

Insurance – policy basis(Common Draft § 407.02)

Claims made Occurrence “Tail” policies

Insurance – policy limits(Common Draft § 407.03)

Combined single occurrence Check w/ business people,

insurance agent

Insurance – additional insureds

See http://goo.gl/OykOs for more details Whose insurance is “primary”? Subrogation waiver

Insurance – subrogation waiver"A waiver of subrogation clause is placed in the … contract to minimize lawsuits and claims among the parties. The result is that the risk of loss is agreed among the parties to lie with the insurers, and the cost of the insurance coverage is contractually allocated among the parties as they may agree. The risk, once assigned to the insurers by the parties, is determined to stop there, without allowing the insurer to seek redress from the party ‘at fault.’" Kenneth A. Slavens, What is Subrogation . . . and Why Is My Contract Waiving It? (2000; accessed Aug. 22, 2007) (emphasis added); see also the Wikipedia article on Subrogation.

Insurance – certificates

See http://goo.gl/ZnofQ for more details Copy of vendor’s own certificate Customer’s certificate direct from carrier Endorsement – notice of changes Hang on to those certificates!

Limitation of liability (revisited)

Bulletproof a limitation of liability

Abacus Fed. Svgs. Bk. v. ADT Security Serv., Inc., summarized in this blog posting

Diebold’s magic formula:Limitation of liabilityCustomer must buy insuranceCustomer waives subrogation

Subrogation

Party A must buy insurance Party B is an “additional named insured” Party A waives subrogation Waiver is binding on insurance carrier So even if Party B is at fault, insurance

carrier can’t sue Party B to recoup payout (See this blog posting for cites)

Himalaya clause (CD § 801)

Other side agrees not to sue your client’s employees, etc.

Handy for multi-jurisdictional matters

End of class