Indemnification Agreement: Purpose and Common Protections

An indemnification agreement, also called an indemnity agreement, hold harmless agreement, waiver of liability, or release of liability, is a contract that provides a business or a company with protection against damages, loss, or other burdens. This type of contract allows businesses to carry out their services and/or provide products without the risk of being held responsible for problems in the future.

An indemnification agreement provides additional protection for businesses by ensuring that they are not held liable for damages or losses that occur outside of their control. This agreement allows the company to continue its operations while protecting against lawsuits. An indemnification agreement could also be a clause in a longer contract rather than a separate contract.

Here is an article about what indemnity means.

Purpose of an Indemnification Agreement

This legal document will hold harmless the initial party, the business or company and ensure that they are able to continue its operations and continue providing high quality products and services to its customers. With an indemnification clause or agreement, the business does not have to worry about loss or damages that occur to a third party outside of their own control.

The benefits related to the indemnity agreement include a lack of reason requirement for an indemnified party to prove causation, loss mitigation for the indemnified party, and a decreased level of risk associated with the contractual obligations and supplying of goods or services by the indemnified party.

Here is an article about the purpose of an indemnification agreement.

Common Areas of Protection

Frequently, an indemnification agreement will be created in an insurance agreement between two parties. This could exist in any form of insurance including motor vehicle insurance, health insurance, life insurance, homeowners’ insurance, malpractice insurance, and others.

They are also frequently used in fields such as construction, where the indemnification agreement may protect a contractor or builder who uses specific materials with the purpose of providing specified protection for the property. These agreements or clauses can be found in or used with a construction contract .

Other examples could include waivers of liability from ‘risky’ experiences or businesses, such as amusement parks, gyms, skating rinks, and ski slopes. These types of businesses may also ask their clients to sign liability waivers .

Indemnification agreements can exist in other forms, however, and may be included provisions in many contracts made between two parties. It then covers nearly any loss potentially suffered by the company including court costs, fees, and any settlements reached.

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Examples of Indemnification

Indemnifications will provide protection in a number of different ways, such as:

• A manufacturer of hospital beds has a contract with a hospital where they will provide the beds the facility needs. They then enter into an indemnification agreement with the hospital that says they cannot be sued by patients of the hospital if they are injured in any way while using the beds. They are indemnified from liability for injuries.
• A manufacturer of carnival rides enters into a contract with a carnival to provide them rides for their traveling fair. They enter into an indemnity agreement with the carnival that says they cannot be sued by fair-goers if someone is injured while on one of their rides.
• An individual takes out a car insurance policy on her vehicle. The insurance company indemnifies them from liability for accidents or injuries that occur as a result of the vehicle. If the driver gets into a car accident the insurance company would take care of any claims that are made against the driver or the vehicle.
• Emily is having work done on her home and the entire area is a construction zone. There is debris and tools everywhere. She has all of her contractors sign an indemnity agreement, or hold harmless agreement , that says that will hold harmless the owner of the home in case of any injuries that happen from the mess at the job site.

Here is an article with several examples of indemnification agreements.

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What’s Included in an Indemnification Agreement?

While an indemnification agreement will vary from one situation and one business to another, there are a few different characteristics that will be the same or vastly similar between them.

• Named parties . The two parties to the indemnification agreement are also known as the indemnitee (person being protected) and the indemnifiers (the person doing the protecting).
• Contract . In order to have an indemnity agreement the two parties above must have some form of contract between them that lays out a product or service to be exchanged.
• Liability . The contract should otherwise create some implied liability from the indemnitee to the indemnifier and to third parties.
• Damages, loss, or burden . The indemnification agreement will typically state that it frees the indemnitee from responsibility or liability for ‘damages, loss, or burden.’
• Statement of ‘protection’. The agreement includes a statement that offers the protection, stating that the indemnifier ‘holds harmless,’ indemnifies,’ or ‘releases from liability’ the indemnitee.
• Period of indemnity . The agreement must lay out the specific length of time for which the agreement is in place and payment would be required.

Types of Indemnification Agreements

There are two different types of indemnification agreements, which include express and implied indemnity. These specify:

1. Express Indemnity . A written indemnity agreement or contract which outlines terms and conditions that are required to be followed by both the indemnitee and the indemnifier. The indemnity is ‘expressly’ written/named.
2. Implied Indemnity . An obligation that is not expressly named where the indemnifier can be held responsible to the indemnitee through a reasonableness standard.

We can also look at specific areas where indemnification agreements may be entered into. These can include:

• Construction . An example may be a builder making a claim about the quality or features of the products being used.
• Insurance . An example may be when an individual is involved in an accident that injures another person.
• Rental . An example may be a landlord requiring a tenant to be responsible for injury that occurs to others within their rental property.
• Pet boarding . An example may be a boarding facility being freed from liability if another pet injuries your pet during boarding.
• Licensing . An example may be when a third party uses a service that has been contracted out to another party.

Here is an article with several types of indemnification situations.

Who Signs an Indemnification Agreement?

The two parties of the contract will sign the indemnification agreement. This means the indemnitee, or the person/business/company providing the good/service, will sign the document. The indemnifier, or the person/business/company receiving the good/service, will sign the document as well.

A contract that is not signed by both of these parties may not be legally enforceable. There are exceptions to this rule as noted by the existence of implied indemnification agreements. The implied agreement means that there is no written contract between the parties, but a reasonable person would assume a similar agreement.

If no document is signed, however, it is possible for a suit to occur and then the burden of proof that an implied agreement existed would be on the party being sued.

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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