Third Party Liability Contract Clauses of Concern

There have been many instances of sweeping contractors signing the ‘standard’ contracts supplied by third party vendors (aka national service providers) and then finding out — too late — that certain clauses have them incurring significant liability they didn’t recognize prior to signing. One WSA Member provided the scenario that is the basis for this article. S/he supplied us with a copy of a contract for third party vendor, US Maintenance. In Clause B, Defense and Indemnification, the contract says, that the contractor will defend both USM and the property owner “from and against all allegations (even if such allegations may be later proven false, fraudulent or groundless) asserted in any and all claims reasonably related to Services you provided or failed to provide under this Agreement, regardless of whether your indemnity obligations, specified below, ultimately apply and regardless of whether the allegations are directed solely against one or more of the Indemnified Parties.” There is more difficult-to-understand legalese strongly stating the contractor’s liability both before and after this particular contract clause. Inserted in the contract language is also the following wording: “Pursuant to the indemnification obligation specified in this paragraph 7.B., you agree to indemnify and hold harmless the Indemnified Parties regardless of whether the Losses were caused in whole or in part by the Indemnified Parties’ violation of any law or negligence (excluding gross negligence or willful misconduct), including but not limited to business invitee premises liability. For the avoidance of doubt, you are obligated to indemnify us under this paragraph 7.B. even if we are negligent in causing the Losses.” (bold emphasis added) Now, let’s suppose you signed this agreement and then swept a drugstore chain on certain, but not all, days through the third party vendor with whom you had signed that contract. A customer then claims they fell on trash in the parking lot on a day when you WERE NOT contracted to sweep the night before. Even though the customer sues only the third party vendor and the drugstore, we are told that the above clauses would put your company on the hook AHEAD OF all other parties, since the lawsuit could be said to be (see first quoted paragraph, above) “reasonably related to Services you provided or failed to provide.” Although you will want to check with an attorney licensed to practice law in your state to confirm any and all information contained in this article, it would appear that you could be making an expensive mistake by signing a contract with these types of clauses. We were also provided with portions of a contract purported to be that used by third party vendor, Ferrandino and Sons. We found the contract clauses to be quite similar to those of USM. In the Ferrandino contract there are strict provisions related to the amount of insurance coverage required (CGL and umbrella), as well as specifications as to naming Ferrandino and the Owner as additional insureds.  Furthermore, these sections require that the contractor’s insurance be primary to the insurance carried by Ferrandino or the property owner. Here’s what the contract we were supplied with says, in part: Ferrandino Clause 3: “Ferrandino, Owner and all other parties who Subcontractor is required to name as additional insured’s by any contract, shall be included as insureds on the… (listing of specific types of insurance) …or an endorsement providing equivalent or broader coverage to the additional insureds. This insurance for the additional insureds shall be as broad as the coverage provided for the named insured subcontractor. It shall apply as Primary and Non-Contributory Insurance before any other insurance or self-insurance, including any deductible, maintained by, or provided to, the additional insured.” (bold emphasis added) The contract also contains very similar indemnification language to the USM contract above. What it appears is being stated in the bolded section, above, is that the contractor’s insurance is the primary insurance, to be used AHEAD OF the insurance of Ferrandino or the actual client. Again, consult a qualified business attorney in your state if you have any questions about these or any other clauses in a contract prior to signing it. However, we are told that this type of ‘primacy clause’ is, in effect, a way to get the contractor in the position of providing a ‘liability umbrella’ on the property for anything that might be remotely related to a debris-related accident, no matter what the actual frequency of sweeping that’s taking place. Before signing contracts like these, we encourage all WSA Members to submit the contract language for a qualified legal review, to their attorney and/or their insurance carrier.