THE INDEMNIFICATION CLAUSE

Great American’s Professional Liability’s “Year of the Contract” is coming to an end. Over the last 12 months, we have dissected various contract provisions that should be carefully reviewed and analyzed to best protect design professionals when entering into project contracts. We saved the best for last: Indemnification. The indemnification provision of your contract can come in many shapes and sizes. Clients usually aim for the broadest of provisions, which in most cases, can mean an increase of exposure to design professionals.

What is “indemnification”? In the simplest terms, to indemnify another party is to compensate them for their losses. However, it does not end there. Most times, an indemnification provision includes a defense obligation as well, making the design professional responsible to defend their clients in the instance of a claim or a lawsuit and indemnify them against all losses. This can present a big exposure to design professionals and, most importantly, a typical professional liability policy does not provide coverage for defense costs of another party.

In addition, many times, the client/owner will increase the scope of indemnification to include an obligation to defend and indemnify other parties, such as the client/owner’s agents, subsidiaries and affiliates. In some cases, the obligation will go as far as defending and indemnifying the contractor. It should be noted that a typical professional liability policy will only provide indemnification coverage for the party with whom the design professional is contracting.

To better understand some of the most common issues that arise from the contractual indemnification provisions often seen in insureds’ contracts, please consider the following: John Doe Architect enters into a contract with a developer, and the contract contains the following indemnification provision:

To the fullest extent permitted by applicable law, consultant [Insured] will indemnify, defend and hold harmless the company [Developer] from and

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