If you provide goods and services to corporations and limited liability companies, then you have probably had to negotiate and sign agreements. But do you really know what it is that you are signing? There are some terms inserted into agreements that may escape your notice, or that you think you understand, but don’t. Deciding to not get help in reviewing such terms and provisions in favor of “going it alone” can be very costly.
Indemnification and Hold Harmless provisions may seem innocuous, or like boilerplate provisions, but sometimes the other party isn’t interested in playing fair, and simply wants to shift all the risk in a transaction to you, even risks that they would otherwise be liable for.
An indemnification and hold harmless agreement is one in which one party agrees to indemnify (and usually defend) claims brought against the other party, and hold them harmless for said claims. And there are activities which make sense for one party to indemnify the other from certain kinds of claims, usually those in which the party indemnifying the other is the party actually at fault for the injury or default which caused the claim to begin with. However, some indemnification provisions go too far, requiring one party to indemnify the other for any and all claims, without any recognizable limitation, and even when the indemnified party isn’t just the party at fault, but guilty of negligence.
When presented with an agreement that requires you to indemnify someone else and hold them harmless, you should consider:
—Is there any clear limitation on what I am expected to offer indemnification for?
—Does the agreement require me to waive rights on behalf of a third-party, such as a customer or client of mine?
—Is there a limitation on the amount of the claim that I am required to indemnify the other party for?
—Am I insured if I accept these terms?
It’s the last question that can be one of the biggest pitfalls. While your business insurance will often pay for defense of a claim against you, and pay on the claim itself if it is legitimate, your policy may not pay for you to defend someone else from a lawsuit, or on a claim against a third-party, which may mean that your business could end up paying that bill.
This is why it is important to make sure you understand your insurance coverage and policy limits, and to call your insurance agents or brokers if you are considering an agreement and don’t know if you are covered for the risks you are being asked to assume. If you don’t understand parts of the agreement itself, make an appointment and consult with a business attorney before signing…because the last thing you want to hear is “I wish you would have talked to me before you signed this.”