Ask VRSA before signing on the dotted line

It is essential for elected officials and employees of public bodies to understand the issues involved in contracts.

The Virginia Risk Sharing Association (VRSA) offers contract review through a risk management lens as a safeguard to protect our members’ assets and promote risk management affecting their strategic objectives.

While we recommend the best policy is to require each party to the contract to accept liability on their own behalf – and to provide evidence of their insurance coverage – VRSA suggests your attorney review any contracts prior to signing.

However, VRSA will review contracts to ensure members have the correct insurance coverage and limits as required in the contract. We are also available to review insurance requirements in your Requests for Proposals (RFPs).

If you have any questions regarding insurance requirements in your contracts or RFPs, please contact your underwriter or member service representative. We are here to help.

The Intersection of Dillon’s Rule and local government contract

Dillon’s Rule is a legal rule created in decisions of the Virginia Supreme Court which restricts the powers of local governments. Local governments, unlike the Commonwealth, do not enjoy broad constitutional powers, only the limited powers conveyed to them by the General Assembly. All cities, towns, and counties receive power from the General Assembly through Chapter 15.2, the adoption of “Counties, Cities and Towns,” of the Code of Virginia, specifically §15.2-1100 and 15.2-1200, which convey many powers to counties, cities, and towns. In addition, the General Assembly has also granted powers to some cities and towns, but not counties, through their respective “Charters” or articles of incorporation similar to corporate articles.

Of course, understanding the identity of the parties to the contract, the term or length of the contract, the cost or expense, and the primary subject matter of the contract are always key issues necessary to understanding contracts.

However, another fundamental and frequently overlooked issue is whether or not the locality has the authority, based upon its charter or its statutory powers, to engage in the subject matter of the contract in question.

Under Dillon’s Rule, the actions of local governments are invalid if they are “ultra vires” or beyond the statutory or charter authority of the local government.

An example of common language to watch for includes language that asks the locality to be responsible for the actions of all parties, regardless of negligence. Below is a sample taken from a contract we reviewed of such unacceptable language:

“(Member) does hereby for itself, and its legal representatives, successors and assigns, agree to and hereby does expressly and fully release, indemnify, defend and hold harmless (Company), its affiliates, the owner of the property and their respective agents, representatives, principals, employees, successors, assigns, officers, directors, members, managers, shareholders, partners, venturers, trustees and representatives from and against any and all claims, suits, losses, damages, demands, causes of action and liabilities of any kind or character (including, but not limited to, attorneys’ fees, costs of litigation and investigation and other costs associated therewith) (collectively, “claims”) caused by or arising out of the entry or presence of requester or its affiliates or its or their agents, representatives, servants, employees, contractors, customers, or invitees in, on or about the property, or their activities in conducting (operation/contracted activity), whether imposed by statute, rule or regulation or theory of strict liability and regardless of cause including to the extent caused by the contributory, partial, joint, comparative, and/or concurrent negligence of (Company).”

Not only do you not want to accept liability on behalf of another entity, as mentioned before under the Dillon Rule, public bodies do not have the legal right to do so.

The best language has both parties accepting liability for their own actions, and both parties should agree to demonstrate proof of coverage for their own actions.

“The ‘MEMBER’ agrees to indemnify and hold harmless ‘Company’ and their officers, agents, volunteers, and employees against any and all liability, losses, damages, claims, causes of action, suits of any nature, cost, and expenses, including reasonable attorney’s fees, resulting from or arising out of ‘Member’s’ negligent activities or omissions arising from the services/performance provided under this contract.”

And similar wording should be noted for the company, making this a mutual agreement, whereby each party should be held accountable for their own actions under the contract:

The ‘Company’ agrees to indemnify and hold harmless ‘Member’ and their officers, agents, volunteers, and employees against any and all liability, losses, damages, claims, causes of action, suits of any nature, cost, and expenses, including reasonable attorney’s fees, resulting from, or arising out of ‘Company’s’ negligent activities or omissions arising from the services/performance provided under this contract.”

In certain situations, it may be difficult to persuade organizations to amend their contract wording. Railroads and state and federal governments are examples.

In these cases, using “to the extent allowable by Virginia law” may be the best solution. In accordance with the Dillon Rule, adding this language to your hold harmless and indemnity wording should equate to public bodies only accepting their own liability.

Often contracts will ask for waivers of subrogation. Waivers of subrogation are another way companies attempt to avoid liability. Under certain circumstances, a waiver of subrogation can invalidate warranties.

For example, a piece of equipment catches on fire, and VRSA pays to have it fixed immediately as it is a necessary piece of equipment. If you waive your right of subrogation, VRSA is unable to collect reimbursement from the at-fault company. VRSA recommends that members not waive their rights of recovery (subrogation).

Again, the best policy is to require each party to the contract to accept liability on their own behalf and to provide evidence of their insurance coverage.

If you have any questions regarding insurance requirements in your contracts or RFPs, please contact your underwriter or member service representative. We are here to help.

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