In our prior post, we talked about how indemnity applies to the claims of third parties. In this post, we will discuss the basis for indemnification. For example, some indemnity clauses require indemnity for a breach of contract, others for willful acts. Here are some possibilities:
1. Negligent acts, errors or omissions. This is the most common reason for indemnity. Such a clause might read: Owner will indemnify Engineer from any claims asserted by any third-party arising from its negligent acts, errors or omissions….. If you are a design professional, you should try to limit your indemnity obligation to negligence because those claims are generally covered by professional liability insurance. We usually try to limit risk under indemnity clauses to claims for negligence whenever possible.
2. Breach of Contract. Such a clause could read: Engineer will indemnify Owner for any claim asserted by any third-party arising out of or relating to Engineer’s breach of this agreement. Before you agree to such a provision, you need to talk with your insurance broker about whether your policy would provide coverage for such an obligation. You should also consider whether such a provision should be changed to provide indemnity for only a substantial breach of a material term of the contract. One would not want to indemnify merely because a field report was a day late. Not all provisions of a contract are really material.
3. Willful Misconduct. Some indemnity clauses impose an obligation to indemnify for willful misconduct. Try to avoid such a provision. First, it is probably not covered by your insurance policy. Second, what does willful misconduct really mean? Some equate it to criminal acts, others to an act that is intended.
4. Criminal Acts. Some contracts include an indemnity clause requiring indemnification in favor of one party for the criminal acts of the other party’s employees. The argument about why you should agree to it is that you should be responsible for the acts of your employees. That might sound morally nice, but the law does not always impose liability on employers for the criminal acts of their employees.
In our next post, we’ll talk about some special indemnity provisions.