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Indemnity Clauses

Indemnity Clauses

Indemnity Clauses

Every so often, our company brings our professional liability insurance carrier rep into our office to give the project managers a refresher course on contract language.  Recently we had one such visit.  We were reviewing a clause in a fictitious contract that read:

“The Consultant agrees to indemnify, defend and hold harmless the Client, its officers, employees and agents from any and all allegations and claims arising in whole or in part out of the acts, errors or omissions of the Consultant, except for those caused by the sole negligence of the Client.”

This clause, when given to a consultant (us) from a potential client to sign is, of course, asinine on so my levels.  As we were discussing how we would approach this from a negotiation angle, I casually remarked that this clause, as is, would likely never be truly enforceable.  The insurance rep and others jumped on me.  They told me that anything you sign is entirely enforceable.

I agree that we should treat this type of language as if it actually WERE enforceable, but I do not believe that a judge (if a case based on this clause ever went to trial) would generally rule in the clients favor.

First of all, there are no limits.  “Defend and hold harmless?”  To make this enforceable, I put it to you that the client would need to include a limit such as “defend and hold harmless up to $1,000,000, the limits of Consultants insurance.

Second, “…claims arising in whole or in part out of the acts, errors or omissions….except for those caused by the sole negligence of the Client.”  Again, this is ridiculous.  Any judge worthy of being on the bench would need to see, at least, a dollar figure:  if client is 90% at fault and client is 10% at fault, then the Consultant is in the clear.  There must be something.

My summary:  Treat this clause as if it were enforceable and negotiate as appropriate.  Perhaps in the vast theory of law, the clause could somehow be enforceable, but in the real world, it would never be enforceable as is.

We’ve got some very intelligent people out there in this group that can probably speak to this.  What say you?

RE: Indemnity Clauses

NTOE: I am not a lawyer.

There is a big difference between a contractual agreement between corporate entities, and when a "real person" is involved.

In cases involving people, there are many unenforceable liablibility indemnities that people sign - think the ski lift tick liability thing. The reasons are many, but primarily, it comes down to the issue the the signee doesn't really "understand" what they signed, and therefore, the courts have by precedent usually not enforced them.

Between 2 corporations, it is a different matter. The courts for the most part have interpretted the 2 sides to be on equal footing, and therefore, have in past precedents, generally enforced the signed contracts.

It is interesting. I went with a lawyer friend to pick up her new car. Before she signed the paperwork, she had to call Ford's in-house counsel, and draw up a different agreement for her to sign (she brought this with her). At the dealership, of course, there was an issue and the general manager came out, on a conference call to the in-house counsel, got permission to used the substitute agreement. I asked her why. She said since she was also a corporate lawyer, she would be held to a different standard with regards to the agreement that I wouldn't be. Since she didn't like it, she had it changed. For me, in court, she said I can always use the "how would I have known that" defence, and get relief that way.

Anyway, if my liability insurance representative told me something was true, I accept it as true. It doesn't matter whether it makes sense, if it is right, etc. It is reality and that is all that matters.

RE: Indemnity Clauses

In Indian courts the dictum is Ignorance is not a bliss.Know your laws before you sign is the general advice.

RE: Indemnity Clauses

Liability clause are and have been enforcible. Liability is seprate from insurance. Most contracts specify minimum insurance levels, but ideminity is almost always with out limit. If your negligence (in whole or in part) destroys something that damages either the owner, or a third party, they will sue. If you want your liability to be limited to the proportional share of your negligence, it should be so stated in the contract. Most judges will interpret such languge in the contract very strictly. The other side will argue that your assumption of responsibility was their inducement to enter the contract at the contract terms. Liability is real. Welcome to the world of contracting.
Another item to watch for in the insurance requirements is the word "Primary", espicially if you are a subcontractor. Primary insurance bears the cost of all defence. Once the case is setteled, any other insurace contributes to the settlement and court costs. However, the insurance kicks in only after the deductable, so if you have a 250 deduct., you pay the first 250 out of pocket.

RE: Indemnity Clauses

I use indemnity clauses in my contracts.

But, it's my feeling that in the real world, they don't do much - except they do allow you to point out to the judge that the indemnity clause was in the contract, and it will allow to explain to the judge why you think your indemnity clause is fair in the particular situation before the court.

Of course, the judge could disagree - and all bets are off.

Without the indemnity clause, you don't even have that, however...


RE: Indemnity Clauses

Check out this link on this topic that just came out in the latest CE News:

CE News Link

RE: Indemnity Clauses


You can also set an upper limit to your liability..."to a maximum of $1,000,000.00".

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