Legal Issues with Obtaining Insurance for Large Transit Projects (2014)

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8 issues its own debt that is held by bondholders. In order to discharge its fiduciary obligations to bondholders, the agency may have to insure the assets that are being constructed as part of its capital program. Another potential type of project where external financiers play a role is a P3, where lenders may be financing the construction costs of the project.12 Here, it may be less an owner agency issue and more a concessionaire issue, but the transit lawyer should nonetheless be aware of these relationships and inquire whether any inter-concession team insurance re- quirements impact the agency-driven insurance requirements. Acceptability of Insurance Choices by Designers and Constructors. Although transit agencies, in theory, can impose insurance requirements on their designers and contractors as a matter of bid- ding requirements and contract terms, transit lawyers must be aware that unthinking imposi- tion of insurance requirements on the parties de- livering the project may have a collateral adverse effect on the project. For example, imposing broad indemnification requirements on designers out- side of their professional liability policies exposes them to direct commercial risk that they may not be equipped to handle. If a transit lawyer is going to impose such requirements on designers, then the lawyer must also investigate the creditwor- thiness of the design firms because, in effect, the balance sheet of the designer is the risk financing that the transit agency has to back up the con- tractual indemnity. Another example is the use of an OCIP (discussed in detail in Section V.B) when a contractor normally uses its own insurance poli- cies or has a CCIP. In this circumstance, there may be an unintended consequence that the con- tractor’s bid price will be somewhat higher since it does not have the opportunity to realize the sav- ings that could result from a safe CCIP project. None of this is to say that a transit agency can- not dictate the insurance that it feels is required to protect its own interests. Rather, it is simply to recognize that the impact to designers’ and con- structors’ commercial interests needs to be taken into account in the risk management assessment and the calculus of what type of insurance pro- gram the transit agency wants to implement and what its true overall cost will be (as reflected in bid or negotiated prices for design and construc- tion services and deliverables). Other Third-Party Requirements and Expecta- tions that Impact Insurance. The transit lawyer 12 See U.S. DOT REPORT TO CONGRESS, supra note 1. should also be aware of third-party requirements and expectations that may impact risk allocation and corresponding insurance requirements. The most obvious of these are funding and regulatory agencies that play a role in the project. One ex- ample is the legislature and the public, who as- sume that if there is a loss on the project, the transit agency will not have to pay for it. Particu- larly in bodily injury or property damage situa- tions, the first question the legislature and the public will ask is: “Is there insurance in place to pay for this loss?” Transit agencies need to be able to be in a position to say in response: “Yes, we un- derstood that there was a risk of this type of event, but we have risk financing and insurance in place to cover it.” III. RISK MANAGEMENT APPROACHES FOR LARGE TRANSIT PROJECTS A. Enterprise Risk Management The authors acknowledge that the focus of this digest is obtaining insurance on large transit capi- tal projects. Having said that, we believe it is in- structive for the transit lawyer to approach the issue of insurable risk from an enterprise-wide or project perspective, considering the risk potential and consequences for all the participants in the project in the risk allocation, contracting, and in- surance procurement processes. The most efficient purchase of insurance results from an enterprise risk management (ERM)13 perspective. In other words, transit lawyers need to consider taking a holistic approach to risk identification, risk as- sessment, and risk financing. Risk assessment and risk allocation decisions should precede the decision about what insurance should be required or purchased. Understanding the expo- sures should drive the insurance purpose, rather than the availability of insurance products in the marketplace. 1. Types of FTA-Funded Projects The nation’s 6,000 transit agencies are engaged in numerous construction projects, which include: 13 Enterprise Risk Management (ERM) as an evolv- ing discipline and an accepted governance practice has a broader application in both the financial institution and operating agency environment and includes consid- eration and treatment of a broad range of risks, includ- ing uninsurable ones. In particular, see the Committee of the Sponsoring Organizations of the Treadway Com- mission Web site (www.coso.org) for basics, an adopted framework, and ERM Thought Papers.

9 • Construction of new transportation/ intermodal centers, stations, and rail systems. • Maintenance facility, track, and signal improvements. • New and expanded fixed guideway systems. • Rolling stock acquisitions. FTA makes available more than $1 billion in federal funds for new and expanded fixed guide- way New Starts Transit projects.14 The FTA New Starts program is the method by which the FTA provides the funding of major capital improve- ments. The New Starts program involves fixed guideway systems, which include rapid rail, light rail, commuter rail, automated guideway transit, people movers, and exclusive facilities for buses and for high occupancy vehicles.15 Basic require- ments of the program include the following proc- ess: the project must emerge from a regional, mul- timodal planning process and then proceed through the project development phase, prelimi- nary engineering, and final design, followed by a recommendation for funding by the FTA in its Annual Report of New Starts. If approved by FTA, the process culminates in the execution of the Full Funding Grant Agreement. Projects are evaluated and rated, giving comparable weight to the nu- merous criteria, which include mobility improve- ments, environmental benefits, cost effectiveness, operating efficiencies, transit-supportive land use and future patterns, economic development ef- fects, reliability of forecasts, local financial com- mitment, environmental benefits, and cost effec- tiveness.16 The New Starts program does not require any special insurance requirements. Fed- eral regulatory constraints are discussed in this digest in Section III.D. 2. Delivery Methods a. Design–Bid–Build.—The traditional delivery method, still commonly used by many transit agencies, is design–bid–build. This delivery ap- proach is characterized by one contract between the owner and designer, under which the designer produces a “100 percent” designed set of specifica- tions, plans, and drawings. Another contract is awarded to the lowest eligible and responsible bidder, which is required to build the project as 14 See Legal Research Digest No. 30, supra note 6, at 1, for up-to-date FTA grants; see also http://www.dot. gov/grants/15105.html (last accessed Apr. 2014). 15 Id. at 8. 16 Id. at 8–11. specified in the time frame and at the fixed price that the contractor bid. At a general level, the al- location of design risk rests with the owner (and its designer), and the allocation of construction risk (means and methods) rests with the contrac- tor. Typically, the design is quite prescriptive, so that the contractor has no discretion but to build the project as directed by the owner, using the designer-produced construction documents. Many claims that arise under design–bid–build con- tracts revolve around whether the owner has the risk if the project, as designed, does not work (the so-called Spearin Doctrine17), or whether and to 17 The seminal case establishing the basic allocation of risk between owners and contractors for the ade- quacy of design on which construction responsibility rests is United States v. Spearin, 248 U.S. 132, 39 S. Ct. 59, 63 L. Ed. 166 (1918). In Spearin, the contract called for the contractor to build a dry dock. Part of the scope of work included relocating a 6-ft sewer. After the sewer was relocated, a heavy rainstorm backed water up into the sewer, breaking it and flooding the dry dock. It turned out that there was an existing dam not shown on the contract plans that contributed to the flooding and failure. Ultimately, the work was not completed, but the contractor sought damages for the value of the work it did perform. In finding for the contractor, the court established the fundamental liability differences between owners and contractors for constructability risk: Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to addi- tional compensation, because unforeseen difficulties are encoun- tered. Day v. United States, 245 U.S. 159, 38 S. Ct. 57, 62 L. Ed. 219 (1917); Phoenix Bridge Co. v. United States, 211 U.S. 188, 29 S. Ct. 81, 53 L. Ed. 141 (1908). But if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the conse- quences of defects in the plans and specifications. MacKnight Flintic Stone Co. v. Mayor of New York, 160 N.Y. 72, 54 N.E. 661 (1899); Filbert v. Philadelphia, 181 Pa. St. 530, 37 A. 545 (1897); Bentley v. State, 73 Wis. 416, 41 N.W. 338 (1889). See Sundstrom v. New York, 213 N.Y. 68, 106 N.E. 924 (1914). This responsibility of the owner is not overcome by the usual clauses requiring builders to visit the site, to check the plans, and to in- form themselves of the requirements of the work, as is shown by Christie v. United States, 237 U.S. 234, 35 S. Ct. 565, 59 L. Ed. 933 (1915); Hollerbach v. United States, 233 U.S. 165, 34 S. Ct. 553, 58 L. Ed. 898 (1914), and United States v. Utah, Nevada, and California Stage Co., 199 U.S. 414, 424, 26 S. Ct. 69, 73, 50 L. Ed. 251, 255–256 (1905), where it was held that the contrac- tor should be relieved, if he was misled by erroneous statements in the specifications. For a complete analysis of legal issues associated with performance specifications, see MICHAEL C. LOULAKIS, LEGAL ASPECTS OF PERFORMANCE-BASED SPECIFICATIONS FOR HIGHWAY CONSTRUCTION AND MAINTENANCE CONTRACTS (Transit Cooperative Re- search Program, Legal Research Digest No. 61, 2013) (hereinafter referred to as Legal Research Digest No. 61).

10 what extent the contractor assumed the risk as part of its means and methods. These claims, however, often revolve around commercial alloca- tion of risk, as contrasted with insurance alloca- tion of risk. Most often the latter types of claims involve some sort of property damage or bodily injury, since that is the type of occurrence or loss that insurance more typically covers (as con- trasted with commercial risk). b. CM/GC.18—CM/GC19 is a method that ex- pands the conventional role of the constructor into acting as both construction manager and con- structor. The owner still enters into a separate contract with a designer to produce “100 percent” designed construction specifications, plans, and drawings. In the first phase of the CM/GC proc- ess, the construction manager (CM) is generally selected on the basis of qualifications, past ex- perience, and other “best-value” considerations, using a combination of qualifications and experi- ence evaluation factors. During the design phase, the CM works closely with the designer and pro- vides input regarding design options, scheduling, pricing, means and methods, and other factors that help the designer design a more constructible and cost-effective project. In the second phase of the process, at approximately 60 percent to 90 percent of design completion, the owner and CM negotiate a guaranteed maximum price (GMP) or lump sum price (LSP) for construction and deliv- ery of the project based on the now-defined de- sign, scope, and schedule. If this price is accept- able to both parties, the CM changes into the general contractor (GC), and the owner and GC execute a contract for construction services. By allowing an owner to engage a CM during the design process, the contractor is able to work closely with the designer and provide construc- tability and value engineering input, leading to a better defined design and scope of work. This also allows the now project-knowledgeable contractor to provide an equally better defined and more re- liable GMP for the scope, duration, and cost of the 18 See Legal Research Digest No. 30, supra note 8, at 24, for a description of Construction Manager at Risk under the FTA New Starts Program. 19 The construction manager/general contractor (CM/GC) delivery method is also called the Construc- tion Manager at Risk (CMAR) method by state law in some states. A complete discussion of CM/GC can be found in DOUGLAS G. GRANSBERG & JENNIFER S. SHANE, CONSTRUCTION MANAGER-AT-RISK FOR HIGHWAY PROGRAMS (National Cooperative Highway Research Program Synthesis No. 402, 2010) (hereinafter referred to as Synthesis No. 402). project based on a final design on which it pro- vided input. In theory, there should also be a cor- responding decrease in risk of unknowns, since the CM/GC contract creates a single source of re- sponsibility for construction cost and schedule risk through the GMP. However, even under the CM/GC approach, final design responsibility, if prescriptive design methods are used, will still rest with the owner (and its designer).20 c. Design–Build.21—DB is a method of project delivery in which a contract is executed with a single entity (the DB contractor) to provide both design and engineering and construction delivery services for a fixed price. The DB contractor is generally selected on a best value basis (qualifica- tions, price, and other factors). The contract in this approach typically progresses through two phases: 1) completion of a higher level of design (60 percent or more), prior to 2) fixing the price and then finalizing the design and completing construction. However, a DB contractor can also be procured initially on a competitive-bid basis of an LSP, where the level of design could be as little as 10 percent (conceptual) or as much as 30 per- cent (preliminary engineering). Owners benefit in DB from reductions in the cost and time to complete projects because design and construction can be fast tracked and se- quenced in parallel so that materials and equip- ment procurement and construction work begin sooner. The owner also benefits from reducing the procurement cycles that are typically required in selecting a designer and then preparing fully de- signed bidding packages. Furthermore, it has been demonstrated that contractors and design- ers, working as an integrated team, can produce less expensive and better designed structures and facilities. This also expands opportunities to use innovative construction technology, accelerated scheduling, and improved means and methods that are incorporated into the final design. More- over, because the DB contractor is solely respon- sible for the completed project, the DB contractor also is motivated to advance a quality project throughout the design and construction process. The DB process results in a fundamental shift of risk to the DB contractor, which now has re- 20 See Legal Research Digest No. 61, supra note 17, for a full exploration of the allocation of risks and li- abilities as between prescriptive and performance speci- fications. 21 See Legal Research Digest No. 30, supra note 8, at 23, for a description of DB under the FTA New Starts Program.

11 sponsibility for both design and construction. This has corresponding impact on the risks that the owner will need to risk finance, either through commercial terms (relying on the balance sheet of the DB contractor, which is usually the lead con- tractor, and its designer), or through insurance that generally the DB contractor will need to maintain. d. Public–Private Partnerships.22—A typical P3 includes a master agreement, referred to here as the comprehensive or concession agreement (CA), between the public partner (owner) and the pri- vate partner (concessionaire or developer). Within the CA there may one or more requirements for the concessionaire to perform: project develop- ment, project financing, DB delivery, operations and maintenance (O&M), and capital asset re- placement.23 To work best, P3s are structured to share risk and reward between the public partner and the private partners. A project structure should be established that integrates all the nec- essary elements of the project into one endeavor: planning, environmental permitting and compli- ance, financing, procurement, design, construc- tion, user fee setting, operations, maintenance and capital asset replacement, and “hand back” requirements. The owner is best served working through a single, accountable “at risk” entity (the conces- sionaire) representing the interests of the entire project and delivering it with the optimum bal- ance of planning, design development, construc- tion costs, delivery schedule, operations, and life- cycle costs. Underneath the concessionaire there are often major contracts and subcontracts with a DB contractor, prime subcontractors, an operator, and, possibly, a major equipment supplier. In ad- dition, there will be financial lenders that are backing the concessionaire—the financial lenders will have a direct interest in the costs and timing of delivery and operation of the facility since it provides the revenue stream for financing the pro- ject construction and operational costs that the lenders are underwriting.24 22 See Legal Research Digest No. 30, supra note 8, at 24–25, which describes design-build-finance and design- build-operate-and-maintain P3s. 23 It should be noted that this digest focuses on de- signing and building transit capital projects and does not address operations and maintenance and capital asset replacement issues. However, the transit lawyer should be aware that these additional phases have risks that will need to be allocated both by contract and with insurance. 24 See U.S. DOT REPORT TO CONGRESS, supra note 1. Although it may appear superficially that all risk can be transferred to the concessionaire, the design and construction risks inherent in any large capital project still exist, and the transit lawyer will need to consider how those risks are being allocated and financed, since all of that will be built into the pricing of the CA and will need to be managed during the course of the project. Al- though the direct liability of the owner may be reduced by contract, the interests of the owner in the appropriate identification, allocation, man- agement, and financing of those risks must still be a priority. e. Equipment Purchases.—Transit lawyers will recognize that the purchase of equipment, par- ticularly rolling stock acquisition, presents a separate set of insurance challenges. There are exposures to the equipment during the manufac- turing, fabrication, testing, and delivery phases, as well as exposures to the liability losses arising out of design, manufacturing, testing, and deliv- ery activities. Complicating the risk analysis in the case of rail cars is the infrequent, large-scale, and one-off nature of the procurement process for such a customized product. Further, rail cars and similar units are often repurposed and trans- ferred from one agency to another. The risk allocation and insurance requirement aspects of rail car acquisition are effectuated through the development of the RFP documents, including technical specifications, and the result- ing purchase agreements. The property, irrespec- tive of who has a legal interest at the time of loss, can be insured throughout the manufacturing, testing, and delivery phases. The transit lawyer will need to ensure that designers and manufac- turers carry appropriate professional and prod- ucts liability coverage, as well as general liability coverage. Typical coverages involved in equipment pur- chases, whether carried by the transit agency or the seller, include: • Property coverage for damage to the equip- ment during the manufacturing, fabrication, renovation, modification, testing, and delivery process. Coverage can be provided on a nonstan- dard installation floater or similar floater policy. Particular attention should be paid to any testing exclusions. Depending on the form of coverage used, extensions may be available to include con- sequential or resultant damage such as extra ex- pense or revenue loss from damage to the equip- ment and inability to deliver on time. Any uninsured or uninsurable exposures should be

12 allocated in the purchase and sale agreement or similar procurement document. • Liability coverage for injuries suffered by third parties (including the transit agency’s em- ployees) due to design or manufacturing errors or omissions. Coverage could be found in either 1) general liability or umbrella liability policies, in- cluding any products and completed operations extensions, or 2) in professional liability policies. Both of these approaches are described in more detail elsewhere in this digest. • Two additional, but related, exposures may be treated by risk financing approaches. One is the delay exposure, when the equipment cannot be put into revenue service for reasons other than damage to the equipment. The other is an efficacy exposure, when the equipment fails to meet per- formance specifications. In some rare cases, manufacturers have provided specialized efficacy insurance policies. In others, contract terms have been guaranteed under performance and payment bonds (which are beyond the scope of this digest). B. Risk Allocation Approaches25 1. General Principles for Risk Allocation The most common advice on effectively manag- ing risk is to apply the following guiding principle: “Risk should be allocated to the party that is best able to avoid the risk, manage the risk, mitigate the risk, or absorb the risk” (referred to herein as “Risk Allocation Principle”). The corollary to this principle is as follows: “If the Risk Allocation Principle is not followed, it is more likely that that risk will occur, that the occurrence will cause some adverse effect, and that the party that can- not handle that risk will seek to shift the risk to some other party on the project” (referred to herein as “Risk Allocation Corollary”). The result of the Risk Allocation Corollary is that when the risk event occurs and there is a bad result, there will be a claim made to shift the consequences of the risk occurrence—this triggers the project par- ties to start expending project resources battling over which party will ultimately bear the conse- quences of the risk. 2. Current Practices for Drafting Contract Provisions Unfortunately, project parties spend a lot of re- sources drafting contracts that identify a myriad of risks and then seek to shed or transfer those 25 See CONSTRUCTION INSURANCE, supra note 8, at 1–7. risks to other parties, in the perhaps mistaken assumption that the contractual transfer of risk in itself somehow avoids the risk (to the risk- shedding parties). This behavior is compounded by the advent of alternative project delivery methods, such as DB and P3, where there is a ten- dency by public owners to attempt to shed as much risk as possible by transferring blanket re- sponsibility to the DB team or the P3 concession- aire. In turn, the contractor on a DB team may seek to make a corresponding blanket risk trans- fer to its designer and subcontractors, and like- wise a P3 concessionaire may seek to do a blanket risk transfer to the DB team or operator. This “flow down” transfer of risk may look good on (contractual) paper, but in reality violates the Risk Allocation Principle and creates the Risk Al- location Corollary, with its attendant bad conse- quences. 3. Retained Risk If one follows the Risk Allocation Principle, it may make sense to retain risk—if the retaining party is in the best position to avoid, manage, mitigate, or absorb the retained risk. A good ex- ample of retained risk is the classic differing site condition provision, where the owner retains the risk for site conditions that are different than those shown on the contract plans and drawings.26 The theory behind this retained risk is that, if there are accurate plans and drawings, then there should be a reasonably small likelihood of the risk occurring. But if it does, the owner (presumably having some contingency funds for “known un- knowns”) will pay only for the actual cost of ad- dressing the differing site condition. If the owner had transferred this risk to the contractor, the contractor (assuming proper bidding practice) would have included some money in its bid for the potential cost of differing site conditions. By re- taining this risk, the owner is applying the Risk Allocation Principle: it is in the best position to avoid the risk by having its designer prepare ac- curate plans and drawings. If the risk does not happen, the owner pays nothing; if the risk does happens, the owner is paying only for actual costs, not paying up front to transfer that risk to the contractor through its bid price. Another strategy of introducing risk retention is through deductibles or self-insured retentions in various insurance policies. These are typically 26 23 C.F.R. § 635109, by way of example, requires the incorporation of differing site condition provisions in all federally aided highway low-bid contracts.

13 used to control the cost of insurance by not trans- ferring high frequency, low severity losses to the insurance company. These retentions are dealt with in greater detail in Section VI.B of this di- gest. 4. Contractually Transferred Risk Here we are addressing commercial allocation of risk. That is, risk is being contractually trans- ferred to another party that finances the risk out of the contract proceeds or its own balance sheet. Thus, the owner needs to assure itself that the party accepting the risk has the financial where- withal to backstop losses that might occur from that risk. Contractual transfer of risk is a smart choice if the owner uses the Risk Allocation Prin- ciple; that is, risk should be allocated to the party best able to avoid, mitigate, manage, or absorb the risk. However, if the owner contractually makes a blanket shedding of risk to another party, then it may raise the specter of the Risk Allocation Corol- lary, notwithstanding the apparent transfer of the risk by contract. A classic example of this is when the owner in- cludes geotechnical information in bidding docu- ments, then disclaims their accuracy and puts the burden on the contractor (in a constrained bidding period) to do a complete site investigation, and then gets into a claim situation when the contrac- tor encounters an unknown condition that was not in, or is different from, the geotechnical docu- ments. The contractor has to finance the addi- tional costs from its own resources, even if it makes a claim for reimbursement from the owner. Although in theory the owner has the better con- tractual argument, it is not iron clad if the con- tractor, in bidding the project, reasonably inter- preted the geotechnical documents, was unable to do its own site investigation due to bidding con- straints, or there is a differing site condition pro- vision that opens the door to the contractor’s claim, notwithstanding the owner’s blanket dis- claimer. However, even if the owner wins the con- tractual battle, it may be a pyrrhic victory if the contractor cannot finance the additional costs at- tendant to the contractual transfer of the risk and the project itself suffers the consequences (that is, potentially lesser quality or delay in delivery). C. General Legal Issues that Impact Insurance Programs 1. Standard Indemnification Provisions Transit agency lawyers should have a thorough understanding of the different forms of indemnifi- cation and the statutory restrictions placed on these types of provisions. This knowledge must be supplemented with the knowledge about the in- surability (or noninsurability) of indemnification risk through liability coverage and applicable statutory restrictions. One popular risk transfer mechanism is the use of indemnity clauses. Indemnity clauses transfer risks from one party (the “indemnitor”) to another party (the “indemnitee”). Indemnity obligations can vary in kind, scope, and amount, and their meaning and application depend on the applicable jurisdiction in which they will be enforced. In addition to indemnification, additional in- sured status offers another viable risk transfer mechanism discussed in Section V.A of this digest. While indemnity clauses transfer risk from one party to another for certain specified losses, addi- tional insured clauses transfer risk from one party to another party’s insurance company, giving that party status as an insured for certain losses.27 Some indemnity provisions are implied by law without an express written indemnity agreement, while others are expressed in contract provisions. In practice, indemnity provisions have several ranges depending on the scope of the indemnifica- tion and the degree of fault attributable to the indemnitor. Recognized indemnity provisions in- clude common law, limited form, intermediate form, and broad form. Common Law Indemnity. Common law indem- nity is implied by law without express written agreement. Common law indemnity covers in- demnification for losses only when the indemnitor is 100 percent at fault. Common law indemnity is an equitable doctrine that generally requires lack of fault on the party seeking the indemnity. Limited Form Indemnity. Limited form indem- nity provides coverage for losses “to the extent” of the indemnitor’s negligence. For example, the standard American Insurance Association (AIA) indemnity clause found within its general condi- tions is a typical example of this clause and has been widely adopted in the construction industry. Section 3.18 of the AIA standard indemnification clause provides: To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architects, Architects’ consultants and agents, and employees of any of them from and against any claims, damages, losses, and expenses including but not limited to attorney fees arising out of or resulting from the performance of the Work, provided such claim, damage or loss or expense is 27 See CONSTRUCTION INSURANCE, supra note 8, at 143.

14 attributable to bodily injury, sickness, disease or death, or to an injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by negligent acts or omissions of the Contractor, a Sub- contractor, anyone directly or indirectly employed by them or anyone for whose acts or expenses is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this section 3.18.28 The principle behind this clause is that the in- demnitor is required to indemnify the indemnitee for the indemnitee’s liability caused by the in- demnitor, but not for the liabilities caused by oth- ers. These principles are not easy to apply and often require intensive fact and fault analysis. In California, the indemnity provisions for the Crenshaw/Los Angeles International Airport (LAX) Transit Corridor are a representative ex- ample of an indemnity provision currently in use by transit agencies: 43.1 Indemnification for Non-Design Professional29 To the fullest extent permitted by law, the Contractor shall indemnify, defend, and hold harmless LACMTA, its subsidiaries, and any of their respective members, direc- tors, officers, employees and agents (“Indemnified Par- ties”), from and against any and all claims, actions, de- mands, costs, judgments, liens, penalties, liabilities, damages, losses, and expenses (including but not limited to any fees of accountants, attorneys or other profession- als), arising out of, in connection with, resulting from or related to any act, omission, fault or negligence of the Contractor or any of its officers, Authorized Representa- tive, employees, Subcontractors, Suppliers, or any person or organization directly or indirectly employed by any of them in connection with or relating to, or claimed to be in connection with or relating to, the Work, the Contract, or the Project including without limitation to any costs or li- ability arising out of, in connection with, resulting from or related to: 43.1.1 The personal injury to or death of any person (in- cluding employees of any Indemnified Parties) or for damage to or loss of use of property (including property of LACMTA); and 43.1.2 LACMTA’s reliance upon the use of data or other information furnished or delivered by the Contractor pur- suant to the Contract. The duties specified above shall apply even in the event of an act, omission, fault or negli- gence whether active or passive, of the Indemnified Par- ties and without requiring payment thereof by the In- demnified Parties first. However, Contractor shall not be responsible for indemnifying an Indemnified Party for li- ability resulting from said Indemnified Party’s sole negli- gence, willful misconduct, or for that portion of liability directly attributable to Indemnified Parties’ active negli- gence provided such active negligence is determined by 28 Id. at 179. 29 Request for proposals (RFP) for Crenshaw/LAX Transit Corridor at 126–27 (on file with authors). agreement between the Parties or by the findings of a court of competent jurisdiction. 43.1.3 Further, to the fullest extent permitted by law, the Contractor shall indemnify, defend, and hold harmless Indemnified Parties from and against any and all claims, actions, demands, costs, judgments, liens, penalties, li- abilities, damages, losses, and expenses (including but not limited to any fees of accountants, attorneys or other professionals) caused or alleged to have been caused by the passive negligence of the Indemnified Party, without requiring payment thereof by the Indemnified Parties first, in connection with or relating to, or claimed to be in connection with or relating to, the Work, the Contract, or the Project, including without limitation to any costs or liability arising out of, in connection with, resulting from or related to: A. The personal injury to or death of any person (includ- ing employees of any Indemnified Parties) or for damage to or loss of use of property (including property of LACMTA); and B. LACMTA’s reliance upon the use of data or informa- tion furnished or delivered by the Contractor pursuant to the Contract. Intermediate Form Indemnity. Intermediate in- demnity covers losses caused in whole or in part by the negligence of the indemnitor. Under this approach even if the indemnitor is almost, but not completely, at fault the indemnitor is still respon- sible. Some state anti-indemnity laws prohibiting broad form indemnity may permit the intermedi- ate form. This can result in an inequitable cir- cumstance where the intermediate indemnity lan- guage can be triggered when the indemnitor is only 3 percent negligent.30 Broad Form Indemnity. Broad form indemnity provides indemnification for all liabilities regard- less of whose negligence caused the liabilities. It provides coverage for all losses even when the in- demnitee is 100 percent negligent. Broad form requires the indemnitor to save and hold harm- less the indemnitee regardless of which party cre- ated the liability. Importance of Statutory Limitations. Thirty- nine states have enacted statutes barring or limit- ing indemnification provisions, while 17 prohibit indemnification provisions for the indemnitee’s sole negligence.31 Many states have enacted legis- lation that declares broad form indemnity void as it is against public policy. In addition some state anti-indemnity statutes apply to both broad form and intermediate form indemnity agreements. The rationale supporting the justification behind 30 See CONSTRUCTION INSURANCE, supra note 8, at 146. 31 Id. at 147.

15 the prohibition is that it may lessen the incentive to provide a safe construction site. A typical anti-indemnity statute in California provides: Provisions, clauses, covenant, or agreement contained in, collateral to, or affecting any construction contract and that purport to indemnify the promisee against any liabil- ity for damages for death or bodily injury to persons, in- jury to property, or other loss, damage or expense arising from the sole negligence or willful misconduct of the pro- misee or the promisee’s agents servants, or independent contractors who are directly responsible to the promisee or for defects in design furnished by those persons are against public and are void and unenforceable.32 (Empha- sis added.) It is important that drafters of indemnity pro- visions and insurance provisions have a clear un- derstanding of whether specific state statutes limit or prohibit the transfer of risk through in- demnity provisions, and whether that transferred risk is indeed covered by insurance. Transit lawyers also should be aware of statu- tory requirements33 that may limit tort liability to specific fixed amounts and place limitations on pain and suffering, as well as providing sovereign immunity protection to the public owner. There are several considerations. The first is whether such limitations apply to the transit agency. The second is whether the limitation applies to the activities involved.34 A third is whether the exis- tence of insurance defeats the limitation or im- munity. A fourth is whether the agency is exposed to derivative actions through required indemnifi- cation of employees or other parties.35 Subrogation and Indemnity Provisions. The standard commercial general liability (CGL) in- surance policy provides coverage for the indem- nity provision. The coverage is part of the stan- dard form but is provided in a circuitous manner 32 CAL. CIV. CODE § 2782.1. 33 See LARRY W. THOMAS, STATE LIMITATIONS ON TORT LIABILITY OF PUBLIC TRANSIT OPERATIONS (Transit Co- operative Research Program, Legal Research Digest No. 3, 1994), for examples of the date of publication, http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_lrd_03. pdf (publication has not been updated). 34 Certain states have discretionary function excep- tions to state liability. See National Conference of State Legislatures Web site (http://www.ncsl.org/research/ transportation/state-sovereign-immunity-and-tort- liability.aspx#Table). 35 In Massachusetts, for example, certain freestand- ing authorities, including specified transit agencies, have been included within the tort limitation under MASS. GEN. LAWS ch. 258. See MASS. GEN. LAWS ANN. ch. 258, §§ 1, et seq. as an exception to exclusion. The exclusion states that insurance does not apply for bodily injury or property damage by reason of assumption of li- ability in a contract or agreement. But this exclu- sion states that it does not apply to a contractual agreement. The definition of insured contract in- cludes the indemnification clause so the exclusion does not apply and the standard CGL provides the indemnification coverage. Another insurance principle that transit law- yers should be familiar with is subrogation. Gen- erally speaking, subrogation occurs when a party’s insurer pays for loss that was caused by or was the responsibility of another party. The in- surer that pays the loss is then subrogated to the rights of the insured and may pursue direct legal action against the responsible party. In construction contracts, subrogation claims often are waived in the contract provisions. Stan- dard form agreements have been developed to in- clude waiver of subrogation language to enable parties to look to their own insurance or specific insurance for certain claims without resorting to litigating fault or causation. General subrogation language specifies that project participants agree to waive all rights against the others to the extent covered by insurance. These waivers have been upheld and determined to be a valid risk transfer mechanism. It is important to transit risk manag- ers and lawyers that the applicable insurance policies include an affirmative waiver of subroga- tion provision that acknowledges these waivers and that the parties on the project agree to waive their rights of subrogation in the event of a paid loss. D. Federal Regulatory Constraints The FTA, one of the 10 modal administrations of the United States Department of Transporta- tion, provides financial assistance to develop new transit systems and improve, maintain, and oper- ate existing systems. The public transportation systems include rail transit, commuter rail, pas- senger ferry boats, buses, and vans. FTA issues a series of master agreements, cer- tificates, circulars, guidance, and best practice manuals that contain insurance requirements. Section 20, Insurance, of the standard FTA Mas- ter Agreement provides that at minimum, recipi- ents will comply with the insurance requirements normally imposed by their state and local laws and regulations, except as the federal government determines otherwise in writing. It further refer- ences compliance with flood insurance provisions

16 of the Flood Disaster Protection Act of 197336 for projects having insurable cost of $10,000 or more. FTA Certifications and Assurances do not di- rectly specify insurance requirements but do re- flect cost principles. FTA C5010D Grant Management Require- ments, which provide guidance for federal assis- tance requirements, refer to the same provisions of 49 Code of Federal Regulations (C.F.R.) Part 19.31 set forth above. Recipients of federal grants must comply with the provisions of the Master Agreement, which provide that project costs be reasonable and ad- here to the allowable costs regulations prepared by the Office of Management and Budget, Circu- lar A-87 Part 225, Cost Principles for State, Local, and Indian Tribal Governments, which covers awards carried out through grants and cost reim- bursement contracts.37 The Master Agreement also requires that recipients be subject to an an- nual audit pursuant to 49 C.F.R. Parts 18 and 26. Other federal provisions include 2 C.F.R. Part 230, Section 23, Insurance, which provides that the types, extent, and cost of insurance coverage must be in accordance with the governmental unit’s policy and sound business practice. The provisions provide guidance for contribution to reserves for self-insurance programs, including workers’ compensation, unemployment compensa- tion, and severance pay.38 They also include provi- sions on accounting records and requirements for reasonable estimates for self-insured liabilities, etc. The regulations also specify the documentary requirement for self-insurance funds,39 but do not mandate specific insurance coverages. In addition, FTA Third Party Procurement Guidelines do not provide insurance require- ments, but do provide the opportunity to obtain responses to insurance questions.40 In summary, transit officials should be aware that insurance costs must be reasonable and that they are sub- ject to FTA annual audit requirements. 36 Pub. L. No. 93-234, 87 Stat. 975 (1973). 37 FTA Master Agreement (MA) (19), Oct. 1, 2012, at 60–61. See http://www.fta.dot.gov/documents/Appendix _A_Legal_Capacity_Documents_Master.pdf (last accessed Apr. 2014). 38 Cost Principles for State, Local, and Indian Tribal Governments (OMB Circular A-87), 70 Fed Reg. 51,910, at 51918 (Aug. 31, 2005), to be codified as 2 C.F.R. pt. 225. 39 Id. at 51,923. 40 Frequently asked questions may be found at http://www.fta.dot.gov/about/13057.html. The best resource for FTA insurance guidance and discussion is reflected in FTA’s Best Practices Manual, Chapter 6, Procurement Object Types– Special Considerations, at pages 50–56. The Best Practices Manual alerts recipients to comply with state insurance requirements, which generally require workers’ compensation, builder’s risk, general liability, railroad protective, automobile, and errors and omissions, etc. The manual also urges consideration of wrap-up41 policies for large projects over $100 million, and indicates that the wrap-up approach has been used with excellent results.42 It discusses the numerous advantages of wrap-ups, which include cost savings in workers’ compensation premiums, enhanced disadvantaged business enterprise (DBE) participation, reduc- tion of the cost of settlement of claims, coordina- tion of safety issues, and assurance that all con- tractors and subcontractors have adequate insurance coverage. The manual relies on the General Accounting Office (GAO) report on wrap- ups.43 According to this GAO report, wrap-ups can save project owners up to 50 percent on the cost of traditional insurance, or from 1 percent to 3 per- cent of a project’s construction costs depending on the size. Barriers to implementation include sev- eral states having systems that prevent wrap-up for workers’ compensation and the additional cost of staff to create and administer a viable wrap-up program.44 E. State and Regulatory Constraints Affecting Ability to Assign Risk Contractually 1. Legal Liability—Strict Liability or Comparative Negligence Transit insurance professionals should have a basic understanding of the following legal terms and basic tort law concepts that can impact insur- ance programs. To begin, public owners may be 41 A “wrap-up” is a colloquial reference to a CIP. De- pending on the sponsor, a “wrap-up” can be either an OCIP or a CCIP. As noted previously, the authors would encourage readers to consult the IRMI online Glossary of Insurance and Risk Management Terms found at http://www.irmi.com/forms/online/insurance- glossary/terms.aspx. 42 FEDERAL TRANSIT ADMINISTRATION, BEST PRACTICES MANUAL, at 52. See http://www.fta.dot.gov/grants/13054 _6037.html. 43 U.S. GENERAL ACCOUNTING OFFICE, TRANSPORTA- TION INFRASTRUCTURE: ADVANTAGES AND DISADVANTAGES OF WRAP-UP INSURANCE FOR LARGE CONSTRUCTION PROJECTS (1999). 44 Id. at 53.

17 liable for the negligence of their contractors and employees. Negligence is generally defined as failure to exercise the care a reasonably prudent person would exercise under the same circum- stances that led to the injury. In order to prove negligence the plaintiff must prove a duty on the part of the defendant, that the defendant breached the duty, and causation and damages.45 Defenses to allegations of negligence may in- clude asserting that the plaintiff contributed to the loss. This contributory defense has generally been replaced by the theory of comparative negli- gence. Contributory negligence is defined as the common law doctrine that states that if a person is injured due to his or her negligence or that neg- ligence contributed to the accident, then he or she would not be able to recover damages from an- other party that supposedly caused the accident. Under this rule a severely injured party who is only slightly negligent would not be able to re- cover against a very negligent defendant. The ba- sic unfairness of this result has led juries to ig- nore this rule, and numerous states have adopted a comparative negligence standard in which the relative negligence percentage by each person is used to determine the damage recovery.46 Comparative negligence is a partial legal de- fense to what a plaintiff can recover in a negli- gence claim based upon the degree to which the plaintiff’s negligence contributed to the injury. When this defense is asserted, the fact finder or jury must decide on the plaintiff’s percentage of negligence as compared to the combined negli- gence of all other parties. California, for example, has adopted a pure comparative negligence system whereby a jury assigns a percentage of liability of fault to each responsible party and then apportions the award accordingly. Under this system the plaintiff’s award is reduced by the percentage of its fault. For joint and several liability situations where there is more than one tortfeasor, the remaining liability (after deducting plaintiff’s comparative negligence) is split between the parties depending on the nature of the damages.47 Contrasting to 45 See THOMAS, supra note 33. 46 Contributory negligence is defined as proving that by the greater weight of evidence not only was the plaintiff negligent, but also that the negligence was a proximate cause and direct efficient cause of the acci- dent. Estate of Moses v. Sw. Va. Transit Mgmt. Co., 273 Va. 672, 643 S.E.2d 156 (2007). 47 AMERICAN BAR ASSOCIATION COMMERCIAL TRANS- PORTATION LITIGATION COMMITTEE, COMPARATIVE/ this is Massachusetts, which has adopted a modi- fied comparative fault by statute: if the negligence of the plaintiff is 50 percent or less then his or her recovery is reduced pro rata, and if the plaintiff’s negligence is greater than 50 percent then recov- ery is barred.48 Neither contributory negligence nor compara- tive negligence should be confused with joint and several liability, which generally holds two or more defendants responsible for all the damages sustained by the plaintiff. New York law, for ex- ample, allows joint and several liability such that one party may be held liable for the entire amount of provable damages caused by all liable parties. In Massachusetts a defendant who pays more than his pro rata share may seek contribution from the other responsible defendant or defen- dants, while in New York if the defendant is 50 percent or less liable, the contribution for none- conomic damages (pain and suffering) is limited to its proportionate share.49 Practical reasons gener- ally dictate, when faced with a defense of com- parative negligence, a joinder of all potentially culpable defendants to the litigation because the plaintiff’s negligence will be balanced against the combined negligence of all the defendants.50 Standard of Care. Failure to adhere to the ap- plicable standard of care is an important element in tort litigation. Although a transit owner has coverage for design errors and omissions, it may be denied recovery if the designer adheres to the applicable standard of care. Standard of care is defined as the exercise of watchfulness, attention, and prudence that a reasonable person would ex- ercise under the circumstances that led to the in- jury. If a person fails to meet the standard of care, it is considered negligence and damages resulting CONTRIBUTORY NEGLIGENCE AND JOINT AND SEVERAL LIABILITY, A STATE BY STATE SUMMARY 10 (2009), http://axilonlaw.com/wp-content/uploads/2012/04/50_ State_Compendium_-Final_reduced_size.pdf (hereinaf- ter referred to as ABA State by State Summary); See also Li v. Yellow Cab Co., 13 Cal. 3d 804, 532 P.2d 1226, 119 Cal. Rptr. 858 (1975), and Safeway Stores v. Nest- Kart, 21 Cal. 3d 322, 579 P.2d 441, 146 Cal. Rptr. 550 (1978). 48 ABA State by State Summary, supra note 47, at 41; see MASS. GEN LAWS C. 231B § 1-4. 49 ABA State by State Summary, supra note 47, at 41 and 64. See also N.Y.C.P.L.R. § 1411,1401, 1601. 50 Black’s Law Dictionary defines comparative negli- gence as a plaintiff’s own negligence that proportion- ately reduces the damages recoverable by the defen- dant; also called comparative fault. BLACK’S LAW DICTIONARY 1062 (9th ed. 2009).

18 from it may be claimed by the injured party. Whether the applicable standard of care has been breached is determined by the trier of facts and is usually phrased to the fact-finder in terms of what a reasonable prudent person would have exercised under the circumstances.51 2. New York State Labor Law Liability New York law provides an excellent example of how state law affects insurance exposure. There is little debate that construction in New York has historically been subject to a litigious environ- ment. In New York, while construction workers are protected by workers’ compensation laws, workers who suffer an injury in a construction accident may commence a tort action against the general contractor and/or the owner of the con- struction site.52 New York is currently the only state with a law that makes employers and owners strictly liable for worker injuries on the job site. Labor Law Sec- tion 240, also known as the “Scaffold Law,” makes the contractor on the site and the owner of the property liable for workers’ injuries as a result of inadequate or missing safety equipment at ele- vated work sites. The section provides that con- tractors and owners provide scaffolding, ladders, slings, and other devices that are secured and braced and have a safety rail. The statute is de- signed to protect those employees working at ele- vated heights and also employees working on the ground from the danger of falling objects. The statute imposes absolute liability on own- ers and general contractors regardless of fault of the plaintiff.53 This means that the injured worker does not have to show that the contractor/owner was negligent or that the contractor/owner in- tended to harm him or her. The New York courts interpreting Labor Law Section 240 observe that the required safety devices (scaffolding hoists, braces, etc.) evidenced legislative intent to protect workers from special hazards limited to specific gravity-related accidents, such as falling from 51 See Black’s Law Dictionary defining negligence as the failure to exercise the standard of care that a rea- sonably prudent person would have exercised in a simi- lar situation. BLACK’S LAW DICTIONARY 1061 (8th ed. 2004), and Feiser v. Kan. State Bd. of Healing Arts, 281 Kan. 268, 130 P.3d 555 (2006). 52 N.Y. LAB. LAW §§ 200, 240, and 241(6). 53 The statute does exempt single and two family homeowners, unless they exercise control of the work, and professional engineers and architects so long as they are not directing the work being performed. N.Y. LAB. LAW § 240 (1). heights or being struck by falling objects.54 In 2009 the New York Court of Appeals (New York’s highest court) expanded the scope of elevated re- lated hazards to situations where a worker was neither felled nor injured by a falling object, but by injury flowing from the application of laws of gravity.55 In order to prevail, the plaintiff need only prove that the statute was violated and the violation was the proximate cause of injury. Fur- ther, if the worker’s action was the proximate cause of the accident there is no Section 240 li- ability. In addition, strict liability is imposed by New York Labor Law Section 241(6), Construction, Ex- cavation and Demolition, which mandates that owners and contractors provide reasonable and adequate safety equipment for anyone employed in construction, excavation, and demolition. Both Sections 240(1) and 241(6) impose vicari- ous responsibility on the owner and contractor, whether they supervise or control the work site directly or delegate that to others. Further, New York Labor Law Section 200 codifies the common law obligation of reasonable care in the maintenance of the work site. It speci- fies that the contractor, owner, and employer each have the duty to provide a safe place to work and the general duty to protect the health and safety of workers by requiring that the work sites be con- structed, equipped, arranged, operated, and con- ducted so as to provide reasonable and adequate protection to the lives, health, and safety of all persons employed therein or lawfully frequenting such places. Unlike Sections 240(1) and 241(6), there is no vicarious liability, so that the owner can be liable only if it is in control of the work. The aforementioned New York statutes creat- ing strict liability situations for the owner and contractor have contributed to the increased cost of insurance premiums in New York and resultant increased project costs. A study conducted by the Cornell University Department of Policy Analysis and Management and the State University of New York Nelson A. Rockefeller Institute of Govern- ment concluded that the law resulted in more ac- cidents and cost the construction and real estate industries $3 billion a year in additional costs.56 54 Ross v. Curtis-Palmer-Hydro-Elec. Co., 81 N.Y.2d 494, 618 N.E.2d 82, 601 N.Y.S.2d 49 (1993). 55 Runner v. N.Y. Stock Exchange, 13 N.Y.3d 599, 922 N.E.2d 865, 895 N.Y.S.2d 279 (2009). 56 Daniel Geiger, Obscure Law Drives Up Building Costs, CRAIN’S NEW YORK BUSINESS, Feb. 19, 2014, available at http://www.crainsnewyork.com/article/

19 In 2012, for example, insurance brokers indicated a 10 to 20 percent increase in premiums in prac- tice policies with increased minimum primary CGL limits, in addition to almost doubling OCIP rates.57 3. Acts of God—Force Majeure Another legal issue is the question of to what extent is the insurer, owner, or contractor respon- sible for damages caused by so-called “Acts of God” or “Force Majeure.” Understanding Acts of God has become extremely important in view of the extensive damage caused by modern hurri- canes and storm surges. An Act of God is gener- ally defined as an extraordinary and unexpected manifestation of the force of nature arising from inevitable necessity, which cannot be prevented by reasonable foresight and care.58 The significance of an Act of God defense is that when it is the sole cause of damage, it ex- empts defendants from liability from negligence.59 The Act of God (or force of nature) defense allows a defendant to avoid liability. The issue of what is an Act of God is now of increased relevance based on the issue of responsibility for damages occa- sioned by Hurricane Sandy. Hurricane Sandy was a 100-year storm with a storm surge of 9 ft above normal, producing winds in excess of 90 mi per hour. Was this storm so unprecedented in violence and fury that defendants could not have made preparations to prevent and mitigate the catas- trophic effects? Perhaps the concept of a 100-year flood is by definition speculative and unpredict- able. But what weight is to be given to Governor Andrew Cuomo’s statement that, with climate change coming, “we have a 100 year flood every two years now.”60 20140219/REAL_ESTATE/140219844/obscure-law- drives-up-building-costs (last visited Apr. 14, 2014). 57 Willis Group Holdings blog Web site, Construction Practice Blueprint, New York Labor Law (Oct. 2012), at 7, accessible at www.willis.com (last accessed Mar. 2014). 58 38 AM. JUR. Negligence § 7,649. 59 Meyer Bros. Hay & Grain Co. v. Nat’l Malting Co., 124 N.J. L. 321, 11 A.2d 840 (1940). 60 See Eric Noll, New York Governor Andrew Cuomo Worries About More Storms Like Sandy, ABC News Blog, Oct. 30, 2012, http://abcnews.go.com/blogs/ headlines/2012/10/new-york-governor-cuomo-worries- about-more-storms-like-sandy/ (last accessed Apr. 2014). 4. Caps on Liability Caps on liability provide the transit owner with another tool to allocate risk. The question for transit lawyers is whether owners should allow caps on liability to limit exposure from potential lawsuits that may arise? Limitation of liability clauses are contract provisions that limit the amount of exposure a party faces in the event a claim is made or a lawsuit is filed. If the provision is enforceable, the clause can “cap” the potential damages to which the contracting party is ex- posed. Limitation of liability clauses typically limit the liability to one of the following amounts: 1) the compensation and fees paid under the con- tract; 2) an agreed-upon amount of money liqui- dating the claim; 3) available insurance coverage; or 4) a combination of two or more of the above. Such caps or limitations can be viewed as tools for efficiently allocating risk. An example is exe- cuting a waiver of subrogation relative to recover- ies under property policies, which reduces the need for certain parties, such as constructors or designers, to carry high levels of liability for dam- age to the work or for resultant damage, which might reduce the professional liability exposure and the amount of coverage carried. Limitation of liability clauses have been en- forced in many states. Certain states have deter- mined that they are unenforceable because, being contracts of adhesion, the parties did not have opportunity to freely negotiate them, and thus they are void as a matter of public policy. In gen- eral, these provisions are enforceable if they are not ambiguous or unconscionable; the party’s in- tentions are expressed clearly; one party does not have unequal bargaining power; and there is no policy or statute prohibiting their enforcement.61 The clause can be valuable in limiting exposure, but the transit lawyer must be aware of its en- forceability within his or her jurisdiction. 5. Workers’ Compensation Requirements Workers’ compensation statutes require em- ployers to either get approved or licensed as a self-insured employer or obtain workers’ compen- sation insurance to pay for injuries for all employ- ees. In most cases workers’ compensation insur- ance is generally considered the injured workers exclusive remedy against the employer. As noted previously, the commercial alternatives may be proscribed by a monopolistic state fund require- 61 See Fox Alarm Co. v. Wadsworth, 913 So. 2d 1070 (Ala. 2005), and City of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d 1271 (Alaska 1994).