1. 1
Les Régimes de Responsabilité
Contractuelle aux USA: l’exemple des
―Master Supply Agreements‖
Eliot Norman | Avocat, Williams Mullen, Washington DC, USA
Sophie Moysan | Conseiller Spécialisé Senior RC, Marsh France
Antoine de La Chapelle | Directeur juridique, Groupe Latécoère
#20874593

2. Introduction: Le Défi Américain
2

3. Your French company, Toulouse Aerospace SA, provides
engineering and manufacturing services to supply “les
trappes” and landing gear system for a new type of
corporate jet manufactured by an American company. Your
buyer specifies the type of composites to be used for “les
trappes” and which will involve new technologies. Your
company signs a 50 page supply agreement that applies
Georgia law and will be enforced in the federal courts in
Atlanta. The deal is worth $25 million dollars.
But before you start celebrating, do you know the answers to
the questions on the next page?
3

4. Des questions
• Will the Georgia courts enforce liquidated damages for delay in
deliveries as the exclusive remedy?
• Can the buyer be required to assume the risk for use of new
composite technologies it has specified and you have accepted to use
in manufacturing ―les trappes‖?
• Can the customer collect lost profits from timely sales of the planes if
Toulouse Aerospace is in breach for defects or can the buyer sue only
for the costs of repairs?
• Can you exclude consequential damages and will your ―limitation of
liabilities‖ clause be enforceable if there is a failure in ―les trappes‖
that causes property damage to the jet?
• How broad or narrow are your indemnification obligations if a third
party asserts a claim against your buyer?
• Can you limit your maximum liability in the contract?
• Can you use and enforce a ―flow-through‖ clause to impose upon
your Tier 2 subcontractors the same liabilities and obligations that
you have accepted to provide your American buyer; and
• If the contract incorporates by reference the version of Article 2 of
the Uniform Commercial Code adopted by the Georgia State
Legislature, how will that change the terms of the contract you just
spent 100 hours negotiating to protect your French company?
4

5. 5/27/2013
5 5
"Règles du jeu équitables??”
créer un « level
playing field »
Allocation des
risques

6. 5/27/2013 666
Avoir confiance: Voici le petit
déjeuner de vos avocats
américains

7. Manufacturing Supply
Agreements: USA Style
7

8. Structure du MSA: Master or
Manufacturing Supply Agreement
1. Product specifications
2. Delivery times
3. Payment terms
4. Seller’s limitations of liability and Buyer’s Remedies
5. Seller’s Product Warranties and Buyer’s Remedies
6. Indemnification
7. Insurance
8. Termination
9. Choice of Law
10. Dispute Resolution
11. Miscellaneous:
8

9. Régime de Responsabilité:
au cœur du MSA américain
***l’allocation des risques***
4. Seller’s limitations of liability and buyer’s remedies
– Liquidated damages
– Cumulative remedies
– Limitations of consequential and indirect damages
– Limitations on punitive damages?
– Maximum liability
– Buyer’s assumption of risk
5. Seller’s product warranties and buyer’s remedies
6. Indemnification—à l’américaine
– Introduction to concept
– Distinction between 1st party and 3rd party claims
– Model indemnification provisions
7. Insurance coverage as a risk allocation tool 9

10. Une précaution
• Il faut lire le contrat dans son
intégralité
• Pièges: les articles intitulés
– « miscellaneous »
– « definitions »
– « flow-through » ou
« incorporation by reference »
• RTBC! RTBC!
10

11. Limitations of Liability
Limitation de responsabilité
11

12. Liquidated Damages: Model
Clause
Liquidated Damages. If the Seller fails to deliver the
Products by the Delivery Date (the "Seller Breach"), the
Seller shall pay to the Customer an amount equal to $2500
per day for each day a Seller Breach continues (the
"Liquidated Damages"). The parties intend that the
Liquidated Damages constitute compensation, and not a
penalty. The parties acknowledge and agree that the
Customer's harm caused by a Seller Breach would be
impossible or very difficult to accurately estimate at the
time of contract, and that the Liquidated Damages are a
reasonable estimate of the anticipated or actual harm that
might arise from a Seller Breach. The Seller's payment of
the Liquidated Damages is the Seller's sole liability and
entire obligation and the Customer's exclusive remedy for
any Seller Breach as defined herein. 12

13. Compare: Liquidated Damages
# 2
The liquidated damages of any nature (delays, performance,
quality) provided for in the MSA do not under any
circumstances constitute the exclusive remedy for the loss
and/or damage sustained by the Purchaser as a result of a
breach by the Service Provider of its obligations. If the actual
loss and/or damage suffered by the Purchaser exceeds the
amount of the liquidated damages, the Purchaser shall be
entitled to claim for and will be justified to obtain, the amount
corresponding to the entire loss and/or damage, after
deduction of the amount of liquidated damages already paid by
the Service Provider with regards to the non-compliance having
caused such prejudice.
13

14. “Liquidated Damages”: Les
Avantages?
• Un Exemple: ― liquidated damages‖ pour des livraisons qui sont en
retard.
• Seller: reduces its uncertainty by capping its liability, even if the cap
turns out to be greater than actual damages to Buyer
• Buyer: reduces its uncertainty by fixing at least acceptable level of
compensation
• Dispute Resolution: Eliminates calculation of damages, streamlines
dispute resolution to proof of delay only
• U.S. Law: Uniform Commercial Code: UCC 2-718 and 2-719.
• Drafting Points ; Be specific –fix the amount to the type of breach
– State difficulty to estimate damages
– Liquidated damages are reasonable estimate of damages
– Liquidated damages are the exclusive remedy for the specified
breach ( late delivery, defective medical devices etc. )
– Avoid right to elect alternative remedies– creates risk that
liquidated damages will be viewed as penalty and unenforceable
in at least some states like New York
– UCC 2-719 does not favor alternative remedies as in #2
14

15. Liquidated Damages # 3: Sans
Limites?
• The liquidated damages are intended to represent
a genuine pre-estimate of the loss and damage
likely to be suffered by the Purchaser in the event
that they become payable (including direct loss,
and also loss of profits, business, contracts,
anticipated savings, goodwill on revenue, loss or
corruption of data, and any indirect or
consequential loss or damage).
• Should the actual prejudice suffered by the
Purchaser exceed the amount of the liquidated
damages, the purchaser shall be entitled to
claim for and would be justified to obtain
damages amounting to the entire prejudice
suffered.
15

16. Liquidated Damages:
Principes du droit américain
Statement:
• Most jurisdictions will enforce liquidated damage provisions in supply contracts
if :
• Actual damages, by their nature, are difficult or impossible to prove with
accuracy; and
• The liquidated damage amount is determined to be reasonably related to what
the actual damage amount could be and is not viewed as a ―penalty‖.
Issues:
1. How common are liquidated damage provisions in supply contracts—on the
supplier side? On the purchaser side?
2. Under what circumstances will courts/arbitrators find actual damages difficult
or impossible to determine with precision?
3. How ―excessive‖ must liquidated damage amounts be before they will be
determined to be unenforceable penalties?
4. Is it appropriate for a single contract to contain both a liquidated damage
provision and a provision calling for the assessment of actual damages that
exceed the liquidated damage amount?

17. Liquidated Damages:
Principes du droit américain.
Responses:
1. Liquidated damage provisions are quite common, especially on the
purchaser side, where actual damages for breach may be difficult to
determine. Usually the supplier should be able to determine actual
damages if the purchaser defaults.
2. Most U.S. courts/arbitrators will try to uphold the intent of the parties
as expressed in the contract so long as some minimal showing of
difficulty is presented. Such showing will vary depending on whether it
is the buyer or seller and what the product or service is.
3. Liquidated damage amounts will be seen as a penalty if they are
grossly in excess of what the actual amount might be; as compared to
the cost of the items and the total amount of the contract; and
experience with similar contractual provisions.
4. It should be considered inconsistent for a party to a contract to say on
the one hand I need liquidated damages because it is difficult or
impossible to prove actual damages and then to say if I can prove
damages in excess of the liquidated amount I want the higher number.
Of course, ―everything is up for negotiation between the parties.‖
UCC 2-719 may apply to bar enforcement, however. 17

18. Liquidated Damages:
Aspects assurantiels
• Exclusion standard dans les programmes d’assurance RC
des obligations exorbitantes du droit commun
Exemple d’exclusion :
Les obligations exorbitantes du droit commun applicable, c.a.d. les
obligations que les Assurés ont acceptées par convention et qui
n’auraient pas été mises à leur charge sans cette convention et
notamment les pénalités contractuelles dans la mesure où
elles excèderaient les indemnités résultant de la seule
application dudit droit commun ou des accords
habituellement en usage dans les contrats de vente ou de
prestations de service du secteur (…)
• Exclusion standard dans les programmes d’assurance RC
des préjudices résultant de retard de livraison
18

19. Problem: Cumulative Remedies
Recours cumulatifs
• Typically hidden in « miscellaneous » at the end of the
contract. Often overlooked. « RTBC. »
• Cumulative Remedies. ― The rights and remedies in
Agreement are cumulative and not in substitution for any
other rights and remedies available at law or in equity or
otherwise. ―
• Buyer: will wish to reserve rights to pursue other remedies
• Seller: will wish to make remedies in contract exclusive and
make the contract the « Entire Agreement » and the « Law of
the Contract »
• Solution?
19

20. Cumulative Remedies: Solution
• A ―Carve Out‖ = ―une exception‖
• Model MSA 17.11 ―All rights and remedies provided in
this Agreement are cumulative and not exclusive, and
the exercise by either Party of any right or remedy does
not preclude the exercise of any other rights or
remedies that may now or subsequently be available at
law, in equity, by statute, in any other agreement
between the Parties or otherwise.‖ AND
• Model MSA 17.11 ―Notwithstanding the previous
sentence, the Parties intend that Buyer's rights under
Section 6.5 dealing with Liquidated Damages and
Section 9.5 (Buyer’s Exclusive Remedy for Defective
Goods) are Buyer's exclusive remedies for the events
specified therein.‖
20

21. Consequential Damages
21

22. John Farmer v. John Deere
22

23. Consequentional Damages
• Risks for Both Sides (Seller or Buyer)
– Consequential: « any loss » that is « a natural and
probable consequence of the breaach »
– 2 Tests under UCC 2-715:
• #1: did the loss result from « general or particular
requirements and needs » that seller knew of or
had reason to know of at the time of contracting;
and
• #2 : Did buyer comply with its duty to mitigate
damages « by cover or otherwise ». Failure to
mitigate bars recovery of consequential damages.
– All these issues are fact specific and expensive to litigate
– Courts will usually let these issues go the jury,
23

24. L’histoire Triste de Sunnyvale
FARMS
24

25. Consequential Damages
Examples from Case Law:
• John Farmer v. John Deere Tractor
• Sunnyvale Farms
• Defective valves: $1.5 million to fix, another $2.5 million in
lost profits and attorney’s fees
• The sinking sailboat
• Wall Street Auction-Rate Securities: ( Kajeet v.UBS
Financial Services) $8 million =$81 million in compensatory
for lost business opportunities
• Texaco $20 million over oil lease
• The Atlantic City Hotel/Casino
• Big Retailer v. JDA Software: $98 million
25

26. Types of Consequential Damages:
as a result of seller’s breach
What Conclusions can we draw from these examples?
• #1: Buyer’s lost profits on other contracts (yes if foreseeable)
• Distinguish Buyer’s lost profits on the contract itself with Buyer’s
lost profits as direct damages: ex. Joint Venture to mine Bauxite
or sell cell phone services
• loss of goodwill: very rare
• diminution in value of the business: rare
• buyer liability to customers, can include death of child where
seller breached implied warranty of merchantability
• defending claims by buyer’s customers = attorney’s fees?
• Interest on money borrowed by buyer
• Loss of investment opportunities?
• Conclusion: ―l’imagination au pouvoir‖ 26

27. Negotiation of Limitations on
Consequential Damages
• Closely review list of potential damages to see what can be
limited
• Adapt the limitation of liability to specific contract terms or
purchase orders vs contract as a whole
• Limitations: reciprocal or unilateral?
• Exclusions from Limitations:
– Liability for indemnification
– Liability for breach of confidentiality
– Liability for IP violations
• Comes down to calculation of amount of each party’s
consequential damages, assuming worst case scenario.
• Not limited to Buyer: Seller is entitled as well to
consequential damages, as with requirements contract:
example, factory in Houston.
• Insurance Coverage? Problematic and industry/product 27

28. Limitations on Liability:
Consequential Damages
• « In no event shall either party be liable to the other
for incidental, consequential or special loss or
damages of any kind, however, caused, or any
punitive damages »
• « Except for damages payable in connection with
a party’s indemnification obligations (which may
incude liability for consequential damages owed by
the indemnified party to a third party), neither party
shall have any liability to the other party for any
special, indirect, consequential, exemplary,
punitive or incidental damages suffered by such
other party… »
• ***Difficulties in enforcement of Limitations
Provisions (Texaco Decision)
28

29. Limitation on Consequential/Indirect Damages
Model MSA: 11.1. NO LIABILITY FOR CONSEQUENTIAL
OR INDIRECT DAMAGES.
• [EXCEPT FOR EXPRESS OBLIGATIONS TO MAKE PAYMENT UNDER THIS
AGREEMENT,
• EXCEPT FOR LIABILITY FOR INDEMNIFICATION,]
• EXCEPT FOR LIABILITY FOR BREACH OF CONFIDENTIALITY OR
• EXCEPT FOR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF
INTELLECTUAL PROPERTY RIGHTS,
IN NO EVENT SHALL SELLER BE LIABLE FOR CONSEQUENTIAL,
INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE OR
ENHANCED DAMAGES , LOST PROFITS OR REVENUES OR DIMINUTION
IN VALUE , ARISING OUT OF OR RELATING TO ANY BREACH OF THIS
AGREEMENT, REGARDLESS OF
(A) WHETHER SUCH DAMAGES WERE FORESEEABLE,
(B) WHETHER OR NOT SELLER WAS ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES AND
(C) THE LEGAL OR EQUITABLE THEORY (CONTRACT, TORT OR OTHERWISE)
UPON WHICH THE CLAIM IS BASED, AND NOTWITHSTANDING THE FAILURE
OF ANY AGREED OR OTHER REMEDY OF ITS ESSENTIAL PURPOSE.
29

30. Consequential Damages
Aspects assurantiels:
ambiguïté terminologique
• Notion de dommages immatériels dans les programmes d’assurance RC
de Droit français : un dommage immatériel peut être :
 Un IMMAT. CONSECUTIF (consequential loss) = un dommage
immatériel consécutif à un dommage corporel ou matériel garanti,
OU
 Un IMMAT. NON CONSECUTIF ou DINC (pure financial loss) =
un dommage immatériel non consécutif à un dommage corporel
ou matériel garanti, c.a.d. :
 soit un dommage immatériel non consécutif à un dommage
corporel ou matériel,
 soit un dommage immatériel consécutif à un dommage
corporel ou matériel non garanti
30

31. Consequential Damages
Aspects assurantiels: ambiguïté
terminologique
• Les concepts suivants des Master Supply Agreements US :
 Incidental damages, consequential damages, secondary damages,
indirect damages
 loss of use, loss of revenue, loss of profit
 IMMAT.CONSECUTIFS si consécutifs à un dommage corporel
ou matériel garanti
 IMMAT. NON CONSECUTIFS (DINC) si pas consécutifs à un
dommage corporel ou matériel (garanti)
31

32. Consequential Damages
Aspects assurantiels: ambiguïté
terminologique
Immatériels Non Consécutifs (DINC)- exemple :
• Du fait d’un lot de composants défectueux livré par un
équipementier aéronautique (problème identifié à
l’occasion d’une opération de grande maintenance sur un
moteur), toute une série de moteurs qui avaient été
avionnés et étaient en exploitation doivent être déposés
pour remplacement des composants défectueux.
 Aux yeux de l’assureur RC Produit Aéronautique
de l’équipementier, les frais de retrait engagés
par le motoriste constituent des DINC car ils ne
sont pas consécutifs à un dommage matériel ou
corporel
32

33. Consequential Damages
Aspects assurantiels:
ambiguïté terminologique
• Dans les polices RCG de Droit français (hors produits aéro) :
 La couverture des IMMAT. CONSECUTIFS est généralement
acquise
 Celle des IMMAT. NON CONSECUTIFS (DINC) :
 n’est pas systématique
 est souvent sous-limitée
 est onéreuse
• Dans les polices CGL US
 Seuls IMMAT. CONSECUTIFS COUVERTS : la privation d’usage
(« Loss of Use ») de bien matériellement endommagés
 Les Pure Financial Losses ne sont généralement pas couverts
• Dans les polices RC Aéronautique, en standard
 Seuls les IMMAT. CONSECUTIFS sont couverts
 Les IMMAT. NON CONSECUTIFS (DINC) ne sont pas couverts
(pour les équipementiers aéro, possibilités limitées de couverture des DINC & frais de
retrait, en extension au programme EAPLS de Marsh)
33

34. Other Limitations of
Liability
Autres Limitations de
responsabilité
34

35. Punitive Damages
• Definition
• What effect ? Clause limiting punitive
damages in a contract?
• Judicial limitation on punitive damages
• Statutory limitations
– Consider choice of law as to the law of
the state that will apply
35

36. Punitive Damages
Aspects assurantiels
• Problématique d’assurabilité dans certains Etats
US  affirmative cover difficile à obtenir
• Programmes RCG de Droit Français :
– Silent cover
ou
– Exclusion
• Programmes CGL US :
– Silent cover
– Most favored venue clause
– Wrap Bermudien
36

37. Responsabilité maximale pour
les dommages et intérêts:
Negotiating Points
• Goal: eliminate damages that are
disproportionate in relation to economics
of transaction
• Must consider whether consistent with or
contrary to liquidated damages clause
• Flat $ dollar amount or
• Multiple of prices paid under contract
37

38. Responsabilité maximale
Model MSA 11.2 MAXIMUM LIABILITY FOR DAMAGES.
[EXCEPT FOR [OBLIGATIONS TO MAKE PAYMENT UNDER
THIS AGREEMENT,] [LIABILITY FOR INDEMNIFICATION,]
LIABILITY FOR BREACH OF CONFIDENTIALITY, OR
LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION
OF INTELLECTUAL PROPERTY RIGHTS,] IN NO EVENT
SHALL [SELLER'S/EACH PARTY'S] AGGREGATE
LIABILITY ARISING OUT OF OR RELATED TO THIS
AGREEMENT, WHETHER ARISING OUT OF OR RELATED
TO BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, EXCEED [[NUMBER OR
PERCENTAGE OF] THE TOTAL OF THE AMOUNTS PAID
[AND AMOUNTS ACCRUED BUT NOT YET PAID] TO
SELLER PURSUANT TO THIS AGREEMENT [IN THE
[NUMBER] [YEAR/MONTH] PERIOD PRECEDING THE
EVENT GIVING RISE TO THE CLAIM [OR $[AMOUNT],
WHICHEVER IS [GREATER/LESS]]. 38

39. Exceptions à une
responsabilité plafonnée
• May accept maximum liability for some
types of breaches
• Seller accepts exceptions to Cap for
– Breach of obligations relating to
intellectual property, indemnification,
confidentiality
– Gross negligence willful misconduct,
intentional acts
– Any personal injuries resulting from
seller’s negligence
39

40. Limitations de responsabilité:
Assumption of Risk:
• Model MSA 11.3. ASSUMPTION OF RISK. WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, BUYER ASSUMES
ALL RISK AND LIABILITY FOR THE RESULTS OBTAINED BY
THE USE OF ANY GOODS IN THE PRACTICE OF ANY
PROCESS, WHETHER IN TERMS OF OPERATING COSTS,
GENERAL EFFECTIVENESS, SUCCESS OR FAILURE, AND
REGARDLESS OF ANY ORAL OR WRITTEN STATEMENTS
MADE BY SELLER, BY WAY OF TECHNICAL ADVICE OR
OTHERWISE, RELATED TO THE USE OF THE GOODS.
• Will bar claims in tort by buyer
40

41. Seller’s Product
Warranties and Buyer’s
Remedies under the
UCC (Uniform
Commercial Code)
Garantie des produits du
vendeur et recours de
l’acheteur au titre de l’UCC. 41

42. Allocation des risques: UCC
Express Product Warranties
• This is an area where product warranties are created by
law and not by contract
• Uniform Commercial Code (UCC) Articles 2 and 2A apply:
• Express Warranty: Seller can create it by affirming facts
about the goods, making a promise about the goods ,
describing the goods and providing a sample.
• To limit this area of liability, sellers specify in the MSA:
– the duration of each express warranty,
– conditions that invalidate it and
– exclusive remedies for breach of the warranty.,
42

43. Décharge dans le cadre de
garantie “implicite” des
produits
• UCC Articles 2 and 2A read into supply agreements implied
warranties of merchantability and fitness for a particular
purpose.
• Parties should always disclaim these implied warranties,
which can contradict the express warranties and
specifications in the contract
• The UCC requires this type of clause for the disclaimer to be
effective , disclaiming any express warranties not expressly
stated in the contract and all implied warranties
• See Model MSA
43

44. Décharge dans le cadre de garanties
“implicites” des produits
MODEL MSA 9.5. DISCLAIMER OF OTHER REPRESENTATIONS
AND WARRANTIES; NON-RELIANCE. EXCEPT FOR [THE
EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH
IN SECTION 9.2 AND ]THE PRODUCT WARRANTY SET FORTH IN
SECTION 9.3, (A) NEITHER SELLER NOR ANY PERSON ON
SELLER'S BEHALF HAS MADE OR MAKES ANY EXPRESS OR
IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER,
EITHER ORAL OR WRITTEN, INCLUDING ANY WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
TITLE[,] [OR] NON-INFRINGEMENT [OR PERFORMANCE OF
GOODS OR PRODUCTS TO STANDARDS SPECIFIC TO THE
COUNTRY OF IMPORT], WHETHER ARISING BY LAW, COURSE
OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE
OR OTHERWISE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED,
AND (B) BUYER ACKNOWLEDGES THAT IT HAS NOT RELIED
UPON ANY REPRESENTATION OR WARRANTY MADE BY
SELLER, OR ANY OTHER PERSON ON SELLER'S BEHALF,
EXCEPT AS SPECIFICALLY PROVIDED IN SECTIONS 9.2 AND 9.3
OF THIS AGREEMENT.
44

45. Seller’s Product Warranties
Aspects assurantiels
Ne sont pas couverts dans les programmes d’assurance RC :
• Le défaut de performance
• Les dommages au produit livré lui même
• Les préjudices résultant de la non-conformité apparente du produit
• Les obligations contractuelles exorbitantes du droit commun
• La Contractual Liability (programmes d’assurance US)
45

46. Indemnification
a l’americaine
46

47. 4 types of indemnifications
• Common Law
• Implied
• Statutory (rare)
• Contractual
47

48. American Indemnification
• A l’origine dans le droit commun américain:
l’american indemnification transfère la
responsabilité de la partie qui doit payer les
dommages et intérêts à une tierce partie, vers la
partie qui est principalement responsable et qui
devrait assumer la perte totale.
• Les concepts d’indemnification définis par le droit
commun sont souvent appliqués par les tribunaux
lorsque le contrat est vague ou équivoque.
48

49. Common Law Indemnification
Often a tort concept, Common Law
Indemnification transfers liability from the one who
has been compelled to pay damages to the one
who is primarily responsible and should bear the
entire loss.
Common Law Indemnity concepts are often
applied by courts when contract is ambiguous or
lacks specifics on issue 49

50. L’indemnification americain:
Eviter une “indemnification
implicite.”
• Illinois Decision (7th Circuit Court of Appeals (Judge
Posner):
• ―But even if the parties fail to include an indemnity
provision in their contract, if it is apparent that they
would have done so had the point occurred to them
the courts will read it into their contract unless it is
disclaimed. Contract completion is a standard function
of common law courts‖.
• Key requirement: parties already had a relationship
when the tort giving rise to the liability occurred.
Function of doctrine: fill out the contract; it is not to
create a contract where none existed.
• New York law: disagrees, no implied
indemnification
50

51. American Indemnification by
Statute
• None as applies to commercial
transactions
• Only in special cases do statutes apply
• Example. NYC must by law indemnify
its employees against claims brought
against them in the course of their
duties as policemen, subway
conductors, etc.
51

52. American Indemnification is
Contractual
• Thus, a necessity to include it or disclaim it
• Any disclaimer must be explicit and specifically refer to
obligation of indemnification.
• Next Fundamental Question: What Type of
Indemnification?
– Third Party—indemnify against
• Liability, loss or claims
• Example, claims from ultimate purchaser of
corporate jet
– First Party- Indemnify against
• any loss arising out of the Seller’s breach of contract
• Example, claims from buyer, lost profits arising out of
defects in ―les trappes‖ which caused buyer to lose
sales
52

53. Le Danger:
53
L’indemnification
Limitations de responsabilité

54. Example of 1st and 3rd Party
claims
54
Battelle Memorial Institute v. Nowsco Pipeline Services
56 F. Supp. 2d (S.D. Ohio 1999)
―COMPANY and PARTICIPANT agree, for themselves and for
their successors and assigns, and heirs and administrators, to
release, indemnify and hold harmless BATTELLE and GRI,
their divisions, affiliates, officers, trustees, agents and
employees, from all liability, damages, claims, suits or other
consequences (including but not limited to personal injury or
death) caused by or arising out of this Agreement and the
access granted thereby.‖
•Held to apply to both first party and third party claims
.

55. Lessons from Battelle Institute
• Clearly Limit Indemnification to 3rd
Party Claims only
• See MSA Model 10.1.
• You will need language instead that
says:
– « Seller indemnifies Buyer solely for losses
arising out of a Third Party Claim directly
caused by a [material] breach of the
contract by Seller, subject to certain
exceptions, etc. »
55

56. Indemnification: “First New
Jersey Decision”
• “[Dome] hereby covenants and agrees to
indemnify and hold [First Jersey] harmless from
and against any and all claims, actions,
judgments, damages, losses, liabilities, costs and
expenses of any nature whatsoever (including
without limitation attorney's fees), arising directly
or indirectly from, out of or incident to this
Agreement and/or oral instructions delivered to
[First Jersey] pursuant to this Agreement. This
indemnity shall exclude only intentional and
deliberate misconduct on [First Jersey's] part.
• Attention a cette sorte d’exclusion !! 56

57. Les 4 Points Importants :
• Limitations de l’indemnification aux réclamations de
tiers « Seller indemnifies Buyer solely for losses arising
out of a Third Party Claim directly caused by a breach of
the contract by Seller, subject to certain exceptions,
etc. »
• L’ interprétation correcte des termes d’une clause
d’indemnification americain: : for example la difference
entre: « duty to indemnify, duty to defend, duty to hold
harmless »
• Les exceptions ou « carve-outs »
– les consequential damages de l’acheteur!!
– les dommages couverts par l’assurance
– les dommages couverts par un autre forme de
réparation sous le contrat
• Comment imposer un « cap » sur l’indemnification ??? 57

58. Comment utiliser « American-style
Indemnification » à
votre avantage
58

59. Indemnification: Negotiation Points
Indemnification can be the most important risk allocation tool, will
usually be heavily negotiated.
Some pointers for your checklist:
• Avoid mutuality, use separate provisions to reflect different
levels of risk between buyer and seller. Too confusing.
• Consider role of insurance: limit indemnity obligation to losses
not covered by insurance proceeds received by indemnified
party;
• Buyer will want to be indemnified for all losses ―relating to‖.
Seller will want to limit to those ―solely resulting from‖ or
―caused by‖
• Seller will want ―loss‖ to include only judicial awards, buyer will
want broadest possible definition of ―loss‖
• Buyer will resist limiting indemnification to losses arising out of
―material‖ breach of seller’s representations, will want
indemnification for all claims relating to the contract.
• Seller will want to negotiate a CAP or Maximum on payment of
third-party claim liabilities.
59

60. USA Indemnification: Definitions and Their
Practical Consequences
• Seller shall ―indemnify, defend and [hold harmless] ‖ : means act of
making good the loss of the other party and defending the party,
including hiring and paying the party’s attorneys.
• Hold Harmless can mean the additional requirement of making
advance payment for covered unpaid expenses as they incurred. It is
bracketed in MSA 10.1 and should be avoided if possible.
• Write EXCLUSIONS into your Indemnification Provisions!
• Whether claim is valid or not , seller pays reasonable costs of
defending.
• Loss: you must define it (example 10.1.) in a way that makes economic
sense in your deal. Do not leave undefined. Generally means ―Buyer
actually spending money‖
• Damages, leave undefined or clarify? Be consistent. Do damages
exclude consequential damages in 11.1 and then agree to indemnify
buyer for consequential damages in 10.1.?
• ―relating to is broader than ―arising out of ― or ―resulting from‖: be
careful not to open the door to claims not directly related to the sale of
your products.
60

61. 10.1 Model Indemnification
(Exclusion)
• [Notwithstanding anything to the contrary
in this Agreement, this Section 10.1 does
not apply to any Claim (whether direct or
indirect) for which a sole or exclusive
remedy is provided for [or barred] under
another section of this Agreement,
including Section 4.4, Section 4.6,
Section 9.5[,/ and] Section 9.8 [and
Section 10.3].] and Section 11.1
61

62. 10.2 Exceptions and Limitations on
Indemnification
• 10.2. Exceptions and Limitations on Indemnification. Notwithstanding
anything to the contrary in this Agreement, an Indemnifying Party is
not obligated to indemnify or defend (if applicable) an Indemnified
Party against any Claim if such Claim or corresponding Losses arise
out of or result from[, in whole or in part,] the Indemnified Party's or
its Personnel's:
– ***[negligence/gross negligence] or more culpable act or
omission (including recklessness or willful misconduct); [or]***
– bad faith failure to [materially] comply with any of its obligations
set forth in this Agreement[./; or]
– [use of the Goods in any manner not otherwise authorized under
this Agreement [or that does not materially conform with any
usage [instructions/guidelines/specifications] provided by
Seller].] (improper testing of “les trappes”)
• Compare with ―First Jersey Bank‖
62

63. Indemnification / Pactes de garantie
Aspects assurantiels
• Exclusion standard des Programmes d’assurance RC des
« obligations que les Assurés ont acceptées par convention et
qui n’auraient pas été mises à leur charge sans cette
convention »
• Contractual Liability exclusion des programmes CGL US
63

64. Insurance Considerations
• Specify types of insurance and minimum limits: CGL
(commercial general liability); umbrella liability, Aviation
Product Liability
• Address whether parties may self-insure
• Describe whether and on what terms the insured party must
add the other party as additional insured or provide
evidence of insurance
64

65. Insurance Considerations
• Type d’assurance (RCG – RC Produit Aéronautique – RC
Produit Spatial)
– exclusion systématique des produits aéro et spatiaux
dans les polices RCG
• Trigger
– base réclamation pour les polices RCG française / base
occurrence en standard aux USA (souvent exigée dans
la MSA)
• Assuré Additionnel
• 30 days advance notice
• Renonciation à recours de l’assureur /Waiver of subrogation
65

66. La Prochaine Fois:
Duty to Defend = Power to
Control les litiges
• Means we will also address these important
points
• Choice of law: which state law applies?
• Dispute resolution
• Control of attorneys defending your position
• Insurance
• Additional details and points concerning
indemnification
66

67. 67
Some Final General Points
Gestion des contrats
• « Americanize » vos contrats! Et RTBC! RTBC !
• Examinez avec soin les contrats commerciaux américains ;
sollicitez des conseils juridiques pour interpréter et faire
appliquer les contrats
• Comprenez vos droits et responsabilités, respecter les termes du
contrat et les droits de demande de modifications
• Sachez quelles lois s’appliquent
• Comprenez les conditions particulières des contrats passés avec
le gouvernement fédéral
• Autres options de résolution des litiges contractuels aux États-
Unis :
• Médiation & Arbitrage ;
• Il est souvent moins cher et plus rapide de passer par le
tribunal fédéral d'instance américain « U.S. District Court »

68. 68
Les résultats souhaités seront obtenus par
la bonne gestion du ―régime de
responsabilité‖ dans vos contrats
americains

69. 69
DES QUESTIONS ?
Coordonnées pour toute demande d'informations :
Eliot Norman
Williams Mullen
1666 K St. N.W. Suite 1200
Washington, D.C. 20006
Ligne directe : 001.804.420.6482
enorman@williamsmullen.com
www.williamsmullen.com
Sophie Moysan
Marsh
Tour Ariane, La Défense 9
92088 Paris, La Défense
Ligne directe : 01.41.34.50.72
sophie.moysan@marsh.com
www.marsh.fr
Antoine de La Chapelle
Groupe Latécoère
135, rue Périole BP 25211
31079 TOULOUSE CEDEX 5
Ligne Directe :
antoine.de_la_chapelle@latecoere.fr
www.latecoere.fr/