What is an Indemnity Agreement?

By | November 19, 2007

An indemnity agreement is a contract where one party agrees to protect another party against certain future claims or losses. In an indemnity agreement, one party, the “indemnitor,” agrees to “indemnify” the other party, the “indemnitee,” for things spelled out in the indemnity clause.

The most common case of a business that has indemnity agreements is in construction. But any business with employees may want those employees to sign an indemnity agreement to protect against employee lawsuits. Rental car companies also use indemnity agreements to protect against lawsuits from accidents involving rental car drivers, but the use of an injury lawyer from sites as www.danielhegwer.com/ could really help with this. Businesses that offer somewhat dangerous activities to the public (skiing, para-sailing, amusement park rides) require that the members of the public sign an indemnity agreement releasing the business from liability in case of an accident.  However, in reality, if the business is found to be negligent (faulty equipment, poor maintenance), the individual who was injured could still contact Panahi Law Group and file a claim against the company.

Client-drafted indemnities used in the design and construction industry can be separated into three general types:

  • Broad form indemnity agreements, also called “no-fault” agreements, have been common in construction contracts where all loss is placed on the sub-contractors. Many states have declared this type of indemnity agreement to be illegal. It can make a design firm responsible for almost any problem that befalls its client during the project, whether or not the designer was negligent.
  • Limited indemnity agreements state that the subcontractor pays for all damages caused by the subcontractor’s own negligence. This type of indemnity agreement still places a heavy burden on the subcontractor.
  • Comparative form agreements or clauses are based on the common law principle that negligence is based on actions over which the actor has complete control.

For example, suppose Jack would like to enter into a contract with Jill to build a playground, but Jill is hesitant because of the potential future liability of such an endeavor. In this case, Jack could chose to indemnify Jill against future claims that may arise due to Jill’s participation in the contract. Jill is protected and Jack gets Jill’s participation. Indemnity agreements will memorialize this understanding and will also set out some of the basic terms of the indemnification. Here is an example of an indemnification agreement.