Via the ContractsProf Blog, I learned of this item in the Philadelphia Inquirer about recent developments in a case brought against defense contractor Kellogg, Brown and Root, Inc. (KBR). It was brought by the parents of staff sergeant Ryan Maseth, who died after being electrocuted in a shower at a U.S. military base in Iraq for which KBR had contracted to provide services.
In the latest chapter of this long-running dispute, KBR recently claimed in federal court that U.S. soldiers living on military bases in Iraq had no expectation that they were protected by Pennsylvania law instead of Iraqi law.
This is of course a complex issue, but one strand caught my eye, namely an argument advanced by a lawyer representing the parents:
KBR’s contract with the military also says that U.S. law would apply to any claims arising from the contract, he said. While KBR says that language only applies to contract disputes, Stickman argued that it also establishes the expectation that the soldiers on the base would be protected by liability laws in the United States, not Iraq.
This relates to an issue I’ve discussed previously, in greatest detail in this article about the AAA standard arbitration clause. The idea is that if in a governing-law provision, a forum provision, or an arbitration provision you refer simply to “claims arising out of this agreement,” you’re inviting a fight over whether that provision covers, for example, tort claims. And it is that very issue that has arisen in the dispute between KBR and Maseth’s parents.
If you want a given provision to cover more than contract claims, it’s clear how best to accomplish that. You don’t play games with “arising out of and relating to.” Instead, you state explicitly what you have in mind.
For example, in its contract with KBR, the agency handling the contract could have required that the governing-law provision cover any claims arising out of the contract and any claims arising out of services provided by KBR. It could also have required that the governing-law provision cover claims brought by the U.S. government and claims brought by any U.S. citizen, as a third-party beneficiary under the contract.
Failure to adequately consider how you should refer to claims covered is a recurring source of contract-party unhappiness. What’s different about this case is that it’s a nonparty that’s having to deal with it.
But here’s a question I have for you. It’s clear how to make a provision cover all kinds of claims. But would it ever be appropriate to limit a provision to “claims arising under this agreement,” with the potential for confusion that that entails? In other words, should you always choose whether you want a broad provision or a narrow one, and if you want a narrow one, should you say “claims arising under this contract, and not tort claims, statutory claims, or other noncontract claims,” or some such?
Presumably if you opt for a narrow provision, you’d then have to specify what the governing law is for purposes of noncontract claims. For example, in this dispute, KBR could have said that U.S. law governs all contract disputes and Iraqi law governs all noncontract disputes.
But that strategy probably wouldn’t have gone over real well at the Pentagon. So maybe it’s a legitimate drafting strategy to refer only to contract claims and to leave to a later date, should it come to that, any fight over noncontract claims.
5 thoughts on “How Should You Refer to Claims Covered?”
Ken, imagine an IT contractor’s employee, visiting the customer’s offices for a meeting, parking his car in the customer’s parking lot, and accidentally knocking down a sign post. Not likely to result in huge litigation, I know, but is that a “claim arising from this agreement or from the services providing under this agreement”? I’ve never been sure that it is, and I’ve favored adding language referring to claims that arise from the parties’ relationship established by the agreement. But I’m not sure that works either. Thoughts? Mike
Ken, so we don’t have to worry about whether the contractor is responsible for the employee’s accident (i.e., whether it was within the scope of his employment), let’s make the contractor an individual, and he knocks down the sign post himself.
Michael: “Arising out of” is vague—that’s inescapable—so there will always be the potential for this sort of question. But with respect to your IT contractor, I’d have thought it a bit of a stretch to bring fender-benders within the scope of the contract’s dispute-resolution provisions. Ken
Yes, it makes sense that at some point the tort will be so far removed from the contractual relationship that a court will apply the conflict-of-law rules for torts, rather than the law chosen by the parties in the contrat to decide what law governs the tort claim, and my fender-bender example may well go beyond that point. Maybe a closer question is whether the contractor’s defamation claim against the customer for disparaging the contractor’s services is a “claim arising out of Contractor’s services,” but, as you say, “arising out of” is always going to be vague no matter how carefully one writes the words that follow.
Thanks for your response and insight.
You could conceivably include a laundry list of exactly what kinds of claims are covered, but I think you’d quickly reach a point of diminishing returns.