Research Policy Analysis and Coordination
Chapter 21-400: University Requirements
The University Risk Financing Policy, the Standing Orders of The Regents, the Tort Claims Act, and the University's insurance programs are all factors which determine acceptable indemnification and insurance terms and conditions in sponsored agreements. Extramural awards may contain specific requirements for insurance coverage, indemnification, termination, repayment, re-performance, and/or liquidated damages, which could be potential sources of liability for the University. As described below, whenever standard language is not used in these areas, the appropriate campus office should be consulted.
21-410 Standard Insurance Coverage Language and Certificates of Insurance
A Certificate of Insurance is a document that provides evidence that an individual or entity has adequate insurance coverage in force to protect the interests of the University of California and other parties when necessary. A Certificate is issued:
- By the University or by University insurance carriers as evidence of the University’s insurance coverage to non-University parties in connection with risk incurred by the University;
- To the University by insurance carriers and/or self-insurance administrators as evidence of non-University party’s insurance in connection with risks incurred by independent contractors, consultants, vendors, and other service providers performing any type of work or activity under a service agreement, purchase order, or any other contract entered into by the University; and
- To the University by insurance carriers and/or self-insurance administrators as evidence of non-University party’s insurance in connection with risks incurred by external users of University facilities,
As outlined in BUS-63, Insurance Requirements/Certificates of Insurance, requests for issuance of a certificate of insurance from the University to an external sponsor may be submitted to the campus Risk Manager.
BUS-63 also sets forth the recommended insurance requirements for sub-agreements including indemnification and obtaining certificates from a subcontractor, subrecipient, or consultant. (Also see BUS-43, Materiel Management, Cost-Reimbursement Type Subagreements for Research, an Informal Guide.) Exceptions to the recommended insurance requirements may be developed after consultation with the campus Risk Manager following an appropriate risk identification analysis. Campus Risk Management Office may determine that little or no risk is involved and may lower the requirements. Conversely, campus Risk Management Office may determine that additional risk is present and may raise coverage requirements. Whenever standard insurance language is not provided in an agreement, the campus Risk Manager must be consulted to review and assist with developing acceptable language.
21-420 Liquidated Damages and Reperformance Exposures
Any clause for liquidated damages, repayment, or re-performance is cause for concern and should be negotiated out of an agreement or referred to the Office of General Counsel for review.
The term "liquidated damages" refers to a sum stipulated and agreed upon by the contracting parties at the time the contract is made as being payable as compensation for loss suffered in the event of a breech. They are not damages necessarily based on an actual loss. Liquidated damages are often used in contract breeches for the late delivery of goods or late completion of construction projects. For examples of liquidated damages clauses in federal contracts, see 21-F02.
Re-performance exposure for the University arises when a contract requires that the contractor redo work which is unacceptable to the sponsor at the contractor's expense or charges the contractor for the additional costs of having the work done by a new contractor if the contract is terminated for unsatisfactory progress. This includes clauses that require repayment of the sponsor award for work that the sponsor does not find “acceptable.”
Both liquidated damages clauses and clauses which create repayment or re-performance exposures are inappropriate in an award to the University because research at the University is conducted on a "reasonable efforts" basis. Specific results are not guaranteed. However, "reasonable efforts" means a vigorous, high quality effort consistent with the University's normal standard of excellence and professionalism. (See Chapter 2-635, Research Based on Reasonable Efforts.) In addition, the University receives no fee or profit on its research. Since payment is generally based on actual costs incurred to perform the research, there is no fund to pay for liquidated damages or re-performance exposure. Thus, such clauses create an unfunded liability for the University.
21-430 Indemnification and Third Party Liability
Indemnification means that one party assumes financial responsibility in the event of a specified loss. An indemnification clause transfers the risk of damages or loss from one party to another. The language of an indemnification clause should only hold the University liable for the culpable acts or omissions of its own employees, officers, agents, students, invitees or guests. Culpability includes strict liability, negligence, and gross negligence. Requiring the University to assume liability for other parties such as subcontractors and consultants that are not under the University's control is considered "third party liability."
Standing Order 100.4 (dd)(9) describes the duties of the President, including the President’s ability to contractually indemnify another party. Specifically, 100.4 (dd)(9) requires a resolution of The Regents to solicit, accept, or execute "agreements by which the University assumes liability for conduct of persons other than University officers, agents, employees, students, invitees, and guests..." This Standing Order applies to contracts, pledges, gifts, grants, and "other documents necessary in the exercise of the President's duties..." (Regents' Standing Order 100.4(dd)(9).) Proposals and awards which assume third party liability must be submitted to The Regents for approval, subject to the limited redelegation described below. (See 21-610; also Chapter 10-210 on Regents' Items.)
Language which improperly attempts to require the University to assume third party liability or to expand the University’s liability beyond acts “arising out of the University’s performance of the Scope of Work” may be found in various clauses, in addition to the indemnification clause, such as those covering insurance, Workers' Compensation, leasing, intellectual property (patents, copyrights and rights in data), limitation of liability, and equipment. Any clause which discusses liability should be reviewed for this issue.
The language in an indemnification clause must limit the University's liability to culpable acts, most frequently negligent or intentional but may also include strict liability, over which it has control and to the extent that it has control, i.e., its own employees, officers, or agents’ acts or omissions, arising out of the University’s performance of the scope of work. The payment of attorneys' fees should also be limited. Sample standard indemnification clauses can be obtained from the campus Risk Manager. For exceptions to indemnification language, consult with the appropriate campus office in accordance with campus procedures.
In May 2007, The Regents delegated to the President to authority execute contracts that contain indemnification provisions in (a) material transfer agreements to transfer tangible research product into the University, (b) in research or training or public service agreements with nonprofit or governmental entities, and (c) in land access agreements, all in the furtherance of research, training or public service that might require assumption by the University of third-party liability as a result of or arising out of University acts or University contract performance. Whereas previously such contracts required approval by The Regents, agreements within the qualifying agreements with indemnification language consistent with the delegated authority no longer require Regental approval. The President’s authority to enter into these qualifying agreements has been redelegated to the Provost and Executive Vice President and, subsequently, to the Executive Director, Research Policy Analysis and Coordination (OP RPAC). Acceptance of such clauses in these qualifying agreements may be done in consultation with OP RPAC, the Office of General Counsel or the campus Legal Affairs, and the campus Risk Manager.
21-440 Partial Immunity from Tort Liability
Tort liability refers to a civil or private wrong based on a legally enforceable obligation. Failure to meet the legal requirement of using a degree of care of an ordinary and prudent person can result in liability for damages. Under the California Tort Claims Act, the University is partially immune from tort liability. Division 3.6 of the California Government Code sets forth the conditions under which a public entity such as the University is liable for actions and when it is exempt. For example, it is immune to claims for punitive damages (Code Section 818). However, a public entity may not be immune from liability when it has a statutory duty to protect against certain kinds of risk and fails to discharge that duty with reasonable diligence (Code Section 815.6).
21-450 Special Coverages
As noted above in 21-300, University Insurance Coverage, Contract and Grant Officers must consult with campus Risk Management if a specific sponsored project requires additional coverage beyond that provided by the University's insurance programs. The cost for coverage above the University's Risk Services Program is an allowable charge if it meets the criteria set forth in 2 CFR Part 220, Appendix A. C. 25 (formerly OMB Circular A-21, J.21.a.) as stated in 21-300.
21-460 General Review of Agreements
Risk Management recommends that sponsored agreements, whether they are for funds into the University or for subawards from the University to another entity, be reviewed in accordance with the following checklist:
- Read the entire award document to identify all language about indemnification. It is not unusual for references to indemnification issues to be located in several places. (For an example, see 21-500 below on federal clauses.)
- Does the other party have adequate liability coverage for the type of activity covered under the contract? Business and Finance Bulletin BUS-63, Insurance Requirements/Certificates of Insurance, provides guidance on minimum liability requirements or consult with the campus Risk Management Office.
- Are the limits required of the University reasonable and appropriate for the type of activity covered by the award (e.g., are they too high)?
- Does the award need to be modified to show that the University is self-insured? For example, if it just requires an "insurance policy", add "or a program of self-insurance."
- Does the award limit the University's liability to the negligent acts or omission of University officers, agents, employees, students, invitees, and guests as stipulated in The Regents Bylaws and Standing Orders or does it extend Regents' liability to third parties? (See 21-430, Indemnification and Third Party Liability, above.)
- If the award requires assumption of liability for property damage, is it covered by the University's property insurance programs? Consult with the campus Risk Manager.