Indemnity Clauses in Contracts

According to Brian K. Stewart, Esq. :

Indemnity legal wording for a way to shift the risk for a particular problem that might arise on a construction project. The variety that we are concerned with for purposes of this Article is “express indemnity” or Indemnity that arises from a Contract. An Indemnity provision contained within a Contract attempts to shift the risk for paying for the attorney’s fees that will go into defending against a claim as well as the cost of fixing and/or providing a remedy for the claim. In most cases for an Architect, this means an Owner trying to shift the risk and cost for problems that can regularly occur on a construction project on to the shoulders of the Architect.

Just a few years ago, indemnity clauses appeared to be the exception, rather than the rule. Now they seem to be the rule, rather than the exception.

Professional Liability Insurers are well aware of the exposure created by these onerous indemnity revisions. Indeed, Professional Liability Insurance Carriers are paying closer attention than ever to contractual liability exclusions that exist within the typical Professional Liability Policy. What these clauses state, in essence, is that a Professional Liability Insurance Carrier reserves the right to not step in, defend, and pay a settlement or judgment on behalf of the Design Professional for liability exposure assumed by Contract. While the Professional Liability Insurance Carriers will still defend the architect or engineer for their own professional negligence, these same Insurance Carriers are not in the business of covering Architects or Engineers for poor decisions made in negotiating a Contract which substantially increases the Insurance Carrier’s exposure over what the Insurance Carrier perceives as a reasonable risk to assume for the insurance premium paid.

The bottom line: You cannot sign an agreement with a bad indemnity clause and assume that your insurance will cover you.

You can visit the ae ProNet website HERE to view Kent Holland’s advice regarding these clauses and a template that may be useful when constructing these clauses in the future.