When negotiating a construction contract with a general contractor, the owner/developer should be aware of, and address, a number of issues to attempt to mitigate or limit the risk of construction defect litigation for a residential project, including multi-family and for-rent residential apartment and senior housing projects, advises Rebecca W. Dow in Holland & Hart’s Construction Law Blog.

She explains that tandard forms of construction contract — such as the American Institute of Architects (AIA) or ConsensusDocs — are more beneficial to the contractor than the owner in many respects.

A construction contract will need to be reviewed thoroughly and revised to better protect the owner, and in the case of residential construction, should in particular, address 10 key issues.

She discusses those issues, which include: scope of work, change orders, indemnification, warranties, subcontracts, insurance, dispute resolution, compliance with laws/environmental matters, construction lender, damages/attorneys’ fees.

Read the article.

Join Our LinkedIn Group

“Class arbitration” — the utilization of a class action mechanism in an arbitration proceeding — is considered by some to be the unicorn of ADR; desirable but elusive, writes Gilbert Samberg on Mintz Levin’s blog, ADR: Advice from the Trenches.

“Another view is that it is the Frankenstein’s monster of ADR – an anomalous hybrid of disparate parts that comprise a disconcerting and ultimately nonviable creation,” he writes. “And so let us ask, is ‘class arbitration’ an oxymoron? Should it be viable given the essential nature of arbitration?  And whither the emperor’s jurisprudential clothes?”

The Mintz Levin post is one in a series of posts concerning the concept, its theoretical roots, the current state of the law, implementation of the mechanism, the significance and effects of a class arbitration award, etc.

Read the article.

Join Our LinkedIn Group

Employees often seek to use an employer’s handbook, code of conduct, or policies as the basis for a breach of contract claim, writes John J. Buckley in a blog on the site of Norris McLaughlin & Marcus.

He describes a recent case in which a company was sued after an employee discovered he had been the victim of identify theft. It was suspected that the compromise came after another employee gave away some of the de-commissioned company computers.

The plaintiff claimed that the company breached its contract to secure the personal information that he submitted in his job application. But the federal district court. The court found that no contractual promise was made in the company’s policies because those policies “existed for the purpose of protecting the company from harm,” not to benefit employees.

Read the article.

Join Our LinkedIn Group

By Stephen F. Pinson
Scott & Scott LLP

Image by Pictures of Money

One of the most overlooked sections in a technology-related contract is the insurance section. Whether that contract involves IT services, development, Software as a Service or Cloud Services, the insurance section is just as important as the other risk-allocating provisions contained in the contract. Yet, in most of the contracts in the industry, the original contract is silent on insurance and there is no insurance provision drafted. This leaves a business customer vulnerable to risks that are not covered by insurance. This discussion will help identify what provisions are actually needed in a contract to properly allocate the risks.

The following is a brief list of insurance provisions that parties should include in technology contracts for the different types of claims scenarios between contracting parties. This list describes how each provision works within the contract and what should be negotiated (this is not an exhaustive list). Parties should negotiate individual and aggregate limits for the types of risks involved.

1. Commercial General Liability – This type of insurance, commonly known as GL, is the most basic form of business liability insurance. This type of insurance protects a business against claims due to injuries, accidents, and negligence. It can protect a business from costs related to bodily injury, property damage, medical expenses, legal costs, judgments, and personal injury claims such as libel and slander. GL is a staple requirement for both the service provider and the business customer, but it will not protect against all risks or threats. To protect a service provider or business customer from more specific types of emerging threats, each party may need to purchase additional liability policies.

2. Professional Liability Insurance, Errors and Omissions – This is also known as E&O insurance and will cover a service provider if it fails to perform according to the requirements in the contract. This coverage will help offset the costs associated with customer claims when the provider’s mistake causes a customer loss. Customers may want to insist on E&O coverage to help bridge the gap between coverage offered by GL or other policies.

3. Automobile Liability – If a service provider will use an automobile in any phase of the work performed for the business, the business should require evidence of automobile insurance. In some cases, the service provider will own no automobiles and therefore may not purchase automobile liability coverage; however, the business customer should require evidence of coverage for exposure related to non-owned and hired automobiles. This coverage protects the service provider and business customer in claims arising from the use of personal or rented vehicles by the service provider’s employees or principals. If dealing with a sole proprietor, proof of personal auto coverage should be required.

4. Workers’ Compensation – If an employee experiences a job-related illness or injury, this policy can help pay for medical expenses and lost income. If a service provider plans to do work onsite at the business customer’s location, the business customer should require evidence of worker’s compensation insurance. In some states, worker’s compensations can be waived by following certain statutory protocols. The agreement should contain a provision that ensures the business customer will have no liability for the service provider’s employees or independent contractors, even if the service provider opted out of workers’ compensation. Additionally, if a service provider has no employees, then Workers’ Compensation is not generally required by the State.

5. Employer’s Liability Insurance – Employer’s liability coverage, known as EPLI, is designed to cover claims like harassment, wrongful termination, and other claims that that are not covered by workers compensation or by a GL insurance policy. The primary goal for requiring this type of insurance is that a business customer will want likely claims the services provider may incur to be covered by insurance. Having uncovered risks may make the service provider less able to continuously provide services in the event of a claim by an employee.

6. Cyber Liability – Cyber liability includes numerous subsets of insurance coverage, and customers should carefully examine the particular coverage because it varies greatly among providers. Cyber Liability coverage should include both first-party liability coverage and third-party liability coverage.

• First-party liability coverage applies to direct costs for responding to a claim incident, such as: (1) notifying clients that their information was compromised or exposed, (2) purchasing credit monitoring services for customers affected by the breach or hacking incident, (3) launching a public relations campaign to restore the reputation of the company affected by the breach, (4) compensating the business for income that it isn’t able to earn while it deals with the fallout of the data breach, and (5) paying a cyber-extortionist who holds data hostage or threatens an attack.
• Third-party liability insurance covers the people and service provider responsible for the systems that allowed a data breach to occur. It offers protection for the service provider and independent contractors who were responsible for the safe storage of the data. The following is a list of coverage types that should be included in some form or another as coverage for a service provider or business customer when they are seeking coverage for the different types of claims scenarios.

Regardless of whether the coverage is first-party or third-party, the contracting parties should examine whether they require the following categories of coverage:

• Network Security and Privacy Liability – This coverage protects the service provider against losses for the failure to protect a customer’s personally identifiable information (SSN, credit card numbers, medical information, passwords, etc.) via theft, unauthorized access, viruses, or denial of service attack.
• Media Communications Liability / Reputation or Brand Protection – This coverage protects against allegations of defamation/libel/slander, invasion or violation of privacy, plagiarism/piracy, copyright/trademark infringement, and other wrongful media communication acts that can hurt a service provider or business customer that is associated with media communications in electronic, print, digital, or broadcast form.
• Data Breach – Data breaches come in many shapes and sizes, but many kinds of cyber incidents, including: malware attacks, malfunctions, insider data breaches, data theft by employees, ransomware, or employee mistakes. Data Breach Insurance may cover these breaches as well as when a hacker targets your service provider or a business customer.
• Data Loss / Interruption of Computer Operations – This type of insurance covers incidents where there is data loss or interruption of computer operations from an inadequate backup or an insured loss, e.g., a disaster that destroys the computer system or virus. This type of coverage can also reimburse losses related to lost income that a service provider or business customer incurs ancillary to a data loss.
• Regulatory Response – Regulatory response insurance protects against fines and defense costs arising from proceedings brought by any regulatory body against either the service provider or those individuals performing regulatory functions within the business customer’s firm when an incident occurs.
• Regulator Defense/Penalties – This insurance covers defense expenses and regulatory fines and penalties imposed by a regulatory agency in connection with a data breach.
• Systems Damage – This insurance covers computer systems that are damaged in retrieving, restoring or replacing any computer programs or other data media.
• Threats or Extortion – This insurance covers incidents where threats or extortion from a hacking attack or virus on a computer system.

7. Umbrella Liability Insurance – Umbrella coverage provides extra liability protection to help protect a service provider or business customer in the event that a loss exceeds the limits of the other policies. There are three basic reasons to maintain an umbrella policy: (1) professional liability insurance can be quickly exhausted by legal defense fees, (2) there are significant business assets to protect, and (3) there are risks of legal claims due to the nature of the products or services provided. This type of insurance is used in situations where “excess liability” kicks in after your commercial general liability coverage has been exhausted. Without this policy in place, a service provider or business customer would be responsible for the additional out of pocket amounts (which can reach into the millions of dollars). Unless that money has been stashed away for such an incident, a lawsuit would have major financial repercussions, without the extra protection of a business umbrella policy.

8. Self-Insured – Some service providers are so well established that they elect to provide self-insurance against many of the risks identified above and to the extent they have third-party insurance, they do not make the third-party coverage available to the customers. In a situation where a service provider will not include insurance language because it is self-insured, the business customer should include language adjusting the limitations of liability sections and indemnification provisions to adequately provide protection in the event of a loss.

Parties to a technology contract should include a provision requiring the other party to provide evidence of the insurance contained in the contract.

Given the regulatory and privacy risks, it is increasingly important to seek advice from experienced counsel when negotiating a technology contract to make sure the risks are adequately assessed and each party’s interests are protected.

Sometimes a temporary restraining order, or TRO, can provide immediate relief from the court system when a party can show irreparable harm will be caused if someone is allowed to remain in control of assets that belong to the company, according to an article posted on the website of Mehendru P.C.

“It may be that a competitor has interfered with a business contract, an employee has stolen your trade secrets or breached a non-compete agreement, or a business partner has stolen from your company.  You have to go to court to protect the company though you’d rather not,” the post reads.

A judge can grant a TRO to stop an individual’s actions even without that person or his lawyer being in court. And a TRO provides immediate relief from the court system when a party can show irreparable harm will be caused if someone is allowed to remain in control of assets that belong to the company.

Read the article.

Join Our LinkedIn Group

Jared Butcher, writing in the Steptoe Blockchain Blog, says it is no secret that smart contracts have vulnerabilities, but he suggests a mix of best practices to limit potential liabilities that may arise when vulnerabilities interfere with smart contract performance.

“There is potential for manipulation by insiders, which is of particular concern for smart contracts that operate based on ‘proof of stake’ protocols, given the ongoing concerns that those protocols will not be effective in ensuring that the parties play by the rules,” Butcher writes. “Even without intentional interference by hackers or insiders, smart contracts may have software bugs that disrupt performance, and there is the possibility of unintended outcomes if the smart contract’s code fails to anticipate an unusual situation.”

In the post, he offers six best practices to consider when implementing a smart contract.

Read the article.

Join Our LinkedIn Group

Employers have been using restrictive covenant agreements – contracts that contain non-compete, customer non-solicitation, employee non-solicitation, or non-disclosure of confidential information – with increasing frequency in recent times, writes Michael Elkon with Fisher Phillips.

“Increased media attention on the practice of forcing lower-level employees to sign non-compete covenants, combined with the widely publicized report on non-compete restrictions issued by the Obama White House in its waning days, has led to an increase in the number of reported cases. Further, several states are passing new laws or considering changes to existing laws on the subject,” he explains.

He describes three basic steps a company can take to reduce the chances of a lawsuit from a competitor, or at least put the company in a favorable position if litigation is threatened.

These include “Ask questions on the front end,” “Structure the job on the front end to ensure compliance,” and “Emphasize the importance of purging all former employer materials.”

Read the article.

Join Our LinkedIn Group

The purpose of a settlement and release agreement is to fully and finally dispose of a disputed matter, explains Stacy L. La Scala, a neutral writing for JAMS.

“However, more and more often, a dispute cannot be fully resolved where non­parties to the dispute have contributed defense and indemnity amounts on behalf of one or more of the parties and have reserved the right to seek recovery of those amounts in subsequent litigation,” he cautions.

In the article, published on JDSupra.com, he writes:

In particular, where insurance carriers have actually provided a defense and/or indemnity in an action, those carriers in a number of jurisdictions have potential rights against their insureds, pursuant to reservation of rights for uncovered claims; potential rights against those entities who are principally responsible for the loss; and potential rights against contractually obligated indemnitors of their insureds. The carriers are typically not part of the action and are not signatories to the settlement agreement.

Read the article.

Join Our LinkedIn Group

By Stephen F. Pinson
Scott & Scott LLP

Image by Yoel Ben-Avraham

Software as a Service and Cloud Service offerings have become ubiquitous digital platforms for many enterprises and small businesses in their quests to provide a single unified platform to their employees and customers. Providers offering Software as a Service and Cloud Services allow end users to access software and infrastructure remotely from any location and storing data with a provider. Because of the risks associated with storing data in the cloud and the need for uninterrupted access to the data, businesses want to be sure that they understand their requirements when entering into a cloud service agreement with a provider. The following is a list of suggested requirements when negotiating Software as a Service or Cloud Service agreement (these are not in any particular order):

1. Demarcation

A demarcation point is typically defined to establish the point at which the service provider’s obligations under the contract end and the customer’s responsibilities begin. Demarcation points are often used in warranties and service level agreements to assure customers that services will be provided up to the point of demarcation. This creates a clear delineation of responsibility to calculate service level credits, and anything that occurred on the customer’s side of the demarcation point, will not be a breach of warranty or entitle the customer to service level credits.

2. Service availability

Service availability relates to the ability of a business to access the software and/or the data at all times. Businesses want to ensure that they have access to the provider’s services and the ability to retrieve and use the data stored on the provider’s systems. Service interruptions generally occur when: a server is down, the internet connection fails, provider withholding service because of a fee dispute, natural disaster at the data center, or the provider closing its doors because of bankruptcy. In any event, business should insist that provisions covering service availability and service levels are outlined in the agreement.

3. Service levels & Service Level Credits

There are two general approaches to service levels or service guarantees. One is the time it will take the service provider to respond to an incident, the other is the guaranteed availability of the systems (i.e., uptime). Service levels are typically outlined in a service level agreement (an SLA). The contract should outline what the provider will guarantee in terms of uptime or response times. If the provider fails to meet the guarantees, the contract should outline whether the end user can request a service level credit. Additionally, business should consider including a right to terminate if the provider consistently fails to meet the service guarantees.

4. Data – Ownership rights, security, backups, and conversion

Business customers must be mindful that their data is among the most important information they own, and ensuring the cloud service provider treats that data appropriately should be one of the paramount issues when negotiating a cloud service agreement. Business must ensure that they own the data, understand how the service provider can use, aggregate, or manipulate the data, and identify its requirements for the provider to protect the security and confidentiality of the data. The business should make sure that the cloud service provider agrees to a specific schedule for performing and testing backups.

5. Insurance

Good cloud contracts should always address what insurance the parties must carry. Cloud service providers should maintain insurance for instances of data loss that cause business interruptions. End users should consider first-party insurance that will cover expenses related to data loss or breach.

6. Indemnification

Indemnification requires one party to pay for defense costs and any damages awarded when a third party makes a claim against the other party. It is critical for the parties to understand when they will be required to indemnify the other party and whether the limitations of liability will apply to an indemnification claim. It is important to ensure the contract provides indemnification for data and security breaches as well as intellectual property infringement.

7. Limitation of liability

One of the most important provisions in a cloud or software agreement is the limitation of liability that applies to either party in the event of a claim or dispute between the parties. A good limitation of liability provision will balance between the potential financial losses the customer can incur and the financial risk the provider is willing to take given the revenue the project will generate. In many instances, the parties will negotiate a relatively low limitation of liability, e.g., one year of services and then carve out some claims that are less likely but can be significantly more costly. These carve-outs include: indemnification obligations, confidentiality obligations, claims covered by insurance, and infringement claims (this is not an exclusive list).

8. Warranties

Generally, cloud service contracts contain many of the following warranties: (1) that the service will materially conform to the documentation, (2) the services will be performed in a workmanlike and professional manner, (3) the provider will provide the necessary training for the customer to use the services, (4) the services will comply with federal and state law(s), (5) the provider has sufficient authority to enter into this agreement, and (6) the parties have the authority to enter into the agreement.

9. Intellectual property

The parties can often overlook intellectual property rights when negotiating a cloud service agreement, but this oversight can be costly. In instances where the provider will develop products or implement services, the parties should clearly identify who will own any intellectual property that results from the development or implementation.

10. Implementation

When the provider will perform implementation services, the parties may choose to identify those services in a Statement of Services or Statement of Work. A good statement of work will include all the services that the provider will perform and should also include any services that will be excluded.

11. Term, Termination, & Transition Services

The term of a cloud service agreement varies but can be based on a yearly subscription. Some agreements have automatic renewal provisions. Parties should clearly identify when and if the parties can terminate for convenience, whether there are cancellation penalties, whether the provider can increase service fees on a periodic basis, and whether the provider will transfer the business’ data at the end of the relationship. If there is a transfer provision, the parties should also specify the acceptable formats for data delivery.

12. Fees

When the provider calculates service fees based on the number of users or devices, the end user should have the ability to adjust the users on a periodic basis to reflect the actual number of users or devices.

Conclusion

Whether you are a service provider or an end user, cloud agreements can help you understand your rights and your obligations. While there are many new issues when a third-party is holding sensitive data in its environment, a good services agreement can minimize misunderstandings and protect each party.

In his Petes’ Take blog for  Porzio, Bromberg & Newman,  Peter J. Gallagher describes a New Jersey case in which a court ruled that a clear arbitration provision, negotiated by a sophisticated party while represented by counsel, is enforceable.

In Columbus Circle NJ LLC v. Island Construction Co., LLC, the appellate court held that the arbitration provision in the AIA contract used in this case satisfied the requirements to explain to the signer the possible consequences of giving up the right to adjudication in a court of law, Gallagher explains.

“By its terms, the provision required plaintiff to choose between arbitration and ‘litigation in a court of competent jurisdiction,’ therefore, when plaintiff chose ‘arbitration,’ it did so ‘with full knowledge that arbitration [was] a substitute for the right to have [its] claim adjudicated in court.’ Moreover, the Appellate Division noted that neither the LLC nor its sole member was ‘an average member of the public,'” according to Gallagher.

Read the article.

Join Our LinkedIn Group

For the past two years, there’s been a new player in the world of employee whistleblower enforcement, writes Evan Gibbs for Above the Law.

In 2015, the Securities and Exchange Commission issued its first administrative order finding that a company violated SEC rules based on language in an employment agreement.

“In the first and only case of 2017, the SEC fined another company $340,000 because its standard severance agreement previously contained a provision in which employees waived recovery of incentive payments from the SEC,” Gibbs writes. “The company received the six-figure fine despite having removed the offending provision on its own in March 2016 as part of the company’s regular review process prior to being contacted by the SEC.third parties unless compelled to do so by law and after notice to the company.”

Read the article.

Join Our LinkedIn Group

A post by Liskow & Lewis on the website of JD Supra discusses a breach of contract case involving the overlay of intellectual property and contract law.

In the case, Luv n’ care, Ltd, a global leader in the design and sale of baby products, filed suit against its former distributor, Groupo Rimar, a.k.a. Suavinex, S.A., for breach of Suavinex’s contractual obligation not to copy any of Luv n’ care’s product designs.

“In defense, Suavinex asserted that the pertinent contract provisions were unenforceable illegal restraints of trade, that patent law precluded Luv n’ care from obtaining patent-like protections over unpatented products offered for public sale, and that the parties’ contract protected only confidential, proprietary designs in which Luv n’ care had a ‘protectable interest,'” according to the post.

The Fifth Circuit rejected Suavinex’s argument that patent law precluded Luv n’ care from protecting unpatented designs available in the public domain.

Read the article.

Join Our LinkedIn Group

Many construction lawyers who specialize in transactional work acknowledge that they do not spend much time considering or negotiating the arbitration clauses in construction contracts, points out
Patricia H. Thompson in a post on the website of JAMS.

She addresses the question: Should an arbitration clause be just a boilerplate provision, taken “off the shelf,” or should it be specifically negotiated and crafted for the particular construction project and to accommodate the parties’ requirements?

The post lists some of the major questions to consider, such as: Should arbitration be mandatory or permissive? Should there be one or three arbitrators, should they all be neutral, and should they have particular qualifications or professional expertise? Should the arbitrator’s power be broader or more limited than otherwise provided by relevant statutes or rules?

Read the article.

Join Our LinkedIn Group

A recent decision of the Arizona Court of Appeals provides guidance for evaluation of the enforceability of arbitration agreements in the health care field, reports Snell & Wilmer in its Health Law Checkup blog.

Andrew Sniegowski explains that Gullett v. Kindred Nursing Centers West, LLC arose out of the plaintiff’s claims that a rehabilitation center had abused and neglected his father, who lived there for the last month of his life. The plaintiff argued that the arbitration agreement was substantively and procedurally unconscionable.

The court determined that the agreement was substantively valid, but it remanded the case for further proceedings in the trial court limited to the issue of procedural unconscionability.

Read the article.

Join Our LinkedIn Group

A company that has always sold widgets can be expected to rely on time-tested terms of sale/purchase in its contracts. But, according to a post in the Tech & Sourcing @ Morgan Lewis blog, a company that now uses an online portal or provides other electronic access to counterparties should update those trusty standard terms.

“Have you been utilizing e-commerce to significantly improve convenience and efficiency? If an online platform were your product, rather than just a logistical tool, you would carefully craft end user terms that protect your rights and limit your liabilities associated with the platform,” write Barbara Murphy Melby and A. Benjamin Klaber.

The authors discuss the steps to take to make sure standard contract terms will more closely reflect the hybrid physical/digital nature of transactions and commercial relationships.

Read the article.

Join Our LinkedIn Group

Conga has posted a complimentary webinar discussing the need of an organization to gain a clear understanding of contract data to attain maximum efficiency.

“You need to access to reports and analytics to truly understand the contracts within your company and to better understand how to increase efficiencies and manage relationships,” Conga says on its website. “Analytics provides superb insight into workflow, facilitating project management and allowing you to identify which steps or contract types are creating slowdowns.”

The webinar can help users to:

• ​Target contract pain points in your organization
• Gain deep insight into contract lifecycle data
• Learn about our powerful Analytics functionality

Watch the on-demand webinar.

In his Commonsense Construction Law blog, Stan Martin asks the question “How do additional insured obligations work with subcontract flow-down clauses.” And he answers it with one word: “They don’t.”

“Unless the subcontract is carefully drafted, that is. So where the prime contract required the owner to be named as an additional insured, and the subcontract flow-down clause passed along the GC’s obligations to the owner, as the sub’s obligations to the GC, this did not by itself result in a requirement that the sub name the owner as an additional insured. That is one lesson from a New York court decision,” Martin explains.

He discusses Navigators Ins. Co. v Merchants Mut. Ins. Co. at length and concludes with two lessons to be learned.

Read the article.

Join Our LinkedIn Group

Charles Sartain of Gray Reed & McGraw asks the question: Should the sufficiency of reworking operations under the cessation-of-production clause of an oil and gas lease be limited to the producing well?

In his post in the firm’s Energy & the Law blog, Sartain discusses Crystal River Oil and Gas, LLC et al v. Patton, a suit to terminate an oil and gas lease due to cessation of production.

In the case, a saltwater disposal well servicing a producing became inoperable for a a period in 2011. The appellate court found that the trial court’s prohibition from considering operations on the salt water disposal well was reversible error.

Read the article.

Join Our LinkedIn Group

A blog posting by Sheppard, Mullin, Richter & Hampton discusses the varying state laws regarding sufficient consideration for non-compete agreements signed at both the outset and during employment as well as other recent attacks on non-competes and restrictive covenants generally.

“Like other contracts, non-compete and restrictive covenant agreements must be supported by adequate and sufficient consideration at the time of execution. However, what constitutes adequate consideration for a restrictive covenant, especially a non-compete provision, varies from state to state,” write Mikela Sutrina and Kevin Cloutier.

Although some states will consider continued employment at the outset of the employment relationship sufficient consideration for an at-will non-compete, some states — for example, North Carolina, Montana, South Carolina, Oregon, Texas, Washington, and Wyoming — have expressly held that continued employment is insufficient consideration to support a non-compete entered into midstream of employment, the authors explain.

Read the article.

Stephen Ravenscroft and Sarah Taylor of White & Case cite recent case law  to discuss the importance of using clear wording when drawing up a settlement agreement.

“Settlement agreements are a very useful tool for an employer,” they explain. “They normally draw a line under the employment relationship and provide certainty that an employee will not bring any employment- related claims. Such an agreement is often used to reach a full and final settlement of any claims which the employee has or may have arising out of the employment and its termination, subject to certain exceptions such as claims for personal injury or accrued pension rights.”

They warn, however, that employers must be aware that there is no “standard” settlement agreement.

Read the article.