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  For design professionals, the thrill of securing an exciting new project often gives way to a stark reality: your sophisticated new client has retained experienced construction lawyers to negotiate a contract that transfers as much risk as possible back to you. This reality often strikes at an inopportune time, when the buzz of an exciting or lucrative new engagement may cause the design professional to ignore its prudent business practices in order to secure a new project. The frequent result is that the design professional is placed in harm’s way by agreeing to unfavorable contract terms.  
  Compounding matters, it is common to be lulled into a false sense of security during the project. Executed contracts are usually shoved into a filing cabinet while the project is underway, only to re-emerge when conflict or litigation arise. It is then that the design professional or their lawyers realize the grim reality of a one-sided negotiation process.  
  Owners and developers typically look for ways to minimize their risk. Municipal owners and large developers in particular are notorious for exploiting their leverage by requiring their consultants not only to indemnify them for any and all wrongdoing on a project, but also to provide insurance coverage naming them as an additional insured. Since contractual indemnification and additional insured requirements are among the most common instruments owners and developers employ to minimize their risk, they will be addressed in turn in this article so the design professional has a better understanding of what these contractual obligations mean if they are discovered in a contract.  
  Indemnification clauses are common in construction contracts, but they can be drafted either broadly or narrowly. Whereas a narrow indemnification requirement imposes responsibility only for the errors or omissions of the design professional or its sub-consultants, a broad indemnification clause may impose responsibility well beyond the scope of the design professional’s engagement.  
  A narrow indemnification clause is triggered where the design professional’s errors or omissions cause a problem on the project. These narrow indemnification clauses generally state that indemnification is warranted “arising out of” the design professional’s performance, so the duty to indemnify is limited only to the consultant’s contractual performance. Although a narrow indemnification clause will not necessarily prevent litigation, experienced defense attorneys will try to mitigate exposure by establishing that a lawsuit does not “arise out of” the consultant’s performance.  
  Broad indemnification clauses should be avoided whenever possible because they create unwarranted risk by requiring the design professional to indemnify the owner universally. In other words, the design professional is on the defensive from the very time the claim is made, essentially being forced to argue why it should not be obligated to indemnify, rather than forcing the owner to prove that the claim arises out of the consultant’s performance. To be sure, experienced defense counsel have ways of defending against such claims, particularly where a claim arises out of the owner’s own negligence, but even the most proficient attorneys will face an uphill battle convincing a court or an arbitrator to disregard the plain terms of an executed contract. Even worse, these clauses often include a duty to defend and incur legal expenses that are generally not covered by professional liability insurance, thus creating a duty to pay directly.  
  Indemnification agreements may be impossible to avoid. Design professionals are nevertheless encouraged to narrow their risk as much as possible by limiting their indemnification obligations only to situations “arising out of” their performance.  
  Additional Insured  
  An even more perilous obligation may result from the duty to name the owner as an additional insured. Under these circumstances, while owners may procure their own coverage, they often seek to be included on the design professional’s insurance policy as the first line of defense and compensation for claims by others. Like broad indemnification agreements, additional insured obligations may be required regardless of fault. In this way, the design professional’s carrier may be obligated to provide a defense and indemnity for claims having nothing at all to do with the design professional’s contractual operations.  
  Design professionals must be cautious of these provisions. The design professional initially must ensure that insurance is available and that the contractually-required coverage amounts have been secured. All too often, coverage is not available, exposing the consultant not only to a direct claim for defense and indemnification, but also to a breach of contract action resulting from the failure to procure coverage.  
  But even if the consultant successfully defends these claims, a separate pitfall may result in the form of increased insurance premiums that result from the owner’s claim. This expense, together with the associated risk, must be factored into the overall value of the project to determine whether or not a project is profitable. Being placed in a position to insure another party may place a whole different light on the manner in which a claim will be defended. A consultant may be entirely without fault, but still obligated to pay due to an agreement to provide insurance.  
  What may seem like insignificant contractual terms may ultimately be the lynch pin between a profitable project and an economic nightmare. The risk benefit analysis of undertaking a project must include careful consideration of contractual responsibilities and availability of coverage for untenable contract terms. It is only human nature to be excited about a potentially lucrative engagement, but by keeping your eyes open, and consulting with counsel, broker, or carrier, design professionals will be better equipped to make responsible decisions about which provisions are acceptable and which will force you to walk away.  
  About the Authors  
  David B. Kosakoff, Esq., LEED, A.P. is the General Counsel to the Westchester + Hudson Valley Chapter of the AIA. He is a partner with the law firm of Sinnreich Kosakoff & Messina, LLP and devotes his practice primarily to the representation of architects, engineers, and surveyors in all aspects of their work. He also serves as a mediator and an arbitrator with the American Arbitration Association.  
  Michael Stanton, Esq. is a senior associate with the law firm of Sinnreich Kosakoff & Messina, LLP. He has successfully obtained summary dismissals and other favorable outcomes on behalf of architects, engineers, and surveyors in both the trial-level and appellate courts.  
  This article provides general information, and should not be construed as specific legal, HR, financial, insurance, tax or accounting advice. As with all matters of a legal nature, you should consult with your own legal counsel. The Hartford shall not be liable for any direct, indirect, special, consequential, incidental, punitive or exemplary damages in connection with the use by you or anyone of the information provided herein.  
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