Indemnity Agreements - the Good, the Bad, and the Ugly

We're not Attorneys and we know that; however, we are often called on to review contracts from our clients and their vendors and we are glad to do that from a Risk Management and Insurance perspective. We even field calls from Attorneys that understand contract law, but they don't know how the contract language affects the insurance transaction.  

One of the areas that comes up all the time (and more frequently these days) is Hold Harmless Agreements or Indemnity Agreements (which we won't distinguish between here).  Wikipedia defines Indemnity as "... an obligation by a person (indemnitor) to provide compensation for a particular loss suffered by another person (indemnitee)."   In other words, you take responsibility for a loss that might occur (which in itself is fine).  The difficulty is that some contracts require that you take TOTAL responsibility for ALL losses of ALL kinds for ALL reasons.  Of course your vendor wants you to be responsible for all losses that happen; but what if the vendor or one of his employees caused the loss, what if an act of God caused the loss, what if circumstances beyond your control caused the loss?!?!?  When you see words like all (or any, every, no matter what, regardless of cause, etc.) in an Indemnity Agreement BEWARE!  Those are things that even broadly-interpreted insurance policies won't protect you from and they certainly won't protect your vendor from - that means that when you sign the contract you might be taking full individual responsibility for those losses and the insurance company won't and can't help you; so these contracts can be very risky.  It's still your business decision whether you sign them or not, but you should do so only where it is a critical contract that you have no way of modifying or negotiating changes.  

In contrast, the best kind of Indemnity Agreement is commonly called a Mutual Indemnity Agreement or a Mutual Hold Harmless Provision.  If you Google 'Mutual Indemnity' you'll find lots of great articles about these, but the basic purpose is to declare 'You take full responsibility for your mistakes and we'll take full responsibility for ours'.  Here's a link to a pretty good discussion of this topic from an insurance Broker's website in California, but you'll find lots of similar articles through your own Google search.  Your Attorney would also be able to supply standard contract language reflecting Mutual Hold Harmless provisions.   

The Bottom Line - Whenever you are offered a contract, read it carefully!  If you have any concern what your responsibilities are under the contract, contact us and send us a copy of the contract.  You can even do that securely through your Insurance Zone login.  We'll be glad to help you sort out the insurance and Risk Management implications of those contracts and we will even discuss those issues directly with your vendors or their Risk Management Teams.