Risk Allocation for Utility Contractors: Some Twists and Turns

By Carol L. O’Riordan

Taimur Rabbani and Anthony J. Marchese, associates at the firm, just published an article in Utility Contractor magazine’s October 2015 issue on risk allocation provisions in contracts entered into by utility contractors. The risk allocation provisions that Taimur and Anthony discuss take two forms: indemnification provisions and “additional insured” provisions that place the other party on the contractor’s business insurance policy as an additional insured party.

The article goes into detail about three types of indemnification provisions – limited form, intermediate form, and broad form – and discusses the possible impact of state law on all three of these provisions. A large majority of states, for example, restrict broad form indemnification provisions, in which the utility contractor agrees to indemnify the other party for, and thus to accept risk for, losses that are either partially or entirely the fault of the other party.

The authors caution utility contractors to be aware, in all cases, of exactly what they are agreeing to do in an indemnification provision.

“It is not uncommon for a utility contractor to fail to properly understand either the complete scope of an indemnification provision or the extent of the financial risk it is allocating to itself via an indemnity provision,” they write.

Concerning “additional insured” provisions, Taimur and Anthony write that these provisions can serve “as a possible workaround for a party that would like coverage for its liabilities but cannot get the indemnity it seeks because of state law. By doing so, the other party is again — though not through an indemnity provision — shifting the financial responsibilities for claims against them onto the contractor.”

Again, Taimur and Anthony note that state law  must be looked at to see whether it has any impact on the validity of “additional insured” provisions.

In conclusion, the authors note that a prudent utility contractor “should be sure to understand a contract’s risk allocation mechanisms, analyze and value the allocation of these risks and factor these valuations into its business decisions.”

The article in Utility Contractor can be found here. Utility Contractor is a publication of the National Utility Contractors Association.




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