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The Importance of Indemnity Clauses

Engel Professional Association Aug. 10, 2022

Few adults go through life without insurance policies that indemnify them from losses and damages attributable to them. There is auto insurance liability coverage that protects them from paying for injuries and damages they cause through their own negligence. There is premises liability coverage in a homeowner’s policy that does the same for property negligence. In the event of a claim against them, they count on the insurance coverage to pay a claim or judgment rather than digging into their own pockets.

When it comes to contracts entered into by individuals or businesses, the underlying value of indemnification is the same. It protects from financial loss. At Engel Professional Association, protecting our business clients, either by creating indemnity clauses in contracts or enforcing them, is an important part of what we do. We have been delivering experienced legal counsel to our business clients in Minneapolis, St. Paul, Maple Grove, St. Cloud, Woodbury, Mankato, and across Minnesota for more than 20 years.

What Are Indemnity Clauses All About?

Indemnity clauses are also referred to as “hold-harmless provisions” because that’s what they do. They hold a party harmless for damages related to a contract. When parties sign the contract, they agree on who is financially responsible for potential damages and who is not.

The indemnifying party agrees to bear the costs of judgments by a third party against the indemnified party. They also provide the indemnifying party with the obligation to defend a third-party claim by paying for the costs associated with defending the claim. With that obligation comes the indemnifying party’s right to take over the defense of the claim, even when the defendant is the indemnified party.  

For example, you have probably seen language in a contract that states that a party agrees to “…release, acquit, discharge, and hold harmless [the company] and its employees, agents, and assigns from any and all liability arising from any circumstance, including the negligence of [the company] and its employees, agents, and assigns.”

This example can provide you tremendous protection from liability if you are “the company.” You can also see how it can leave you financially exposed if you are not “the company.”

This example is extremely broad in scope but common in contracts. There are many other indemnifications that may be included in a contract, such as the indemnified party’s ability to recover attorney’s fees and expenses which are not usually recoverable in a civil lawsuit or commercial litigation.

What Types of Acts Might Indemnity Clauses Cover?

There are four types of incidences that well-crafted indemnity clauses may address:

  1. Breach of contract;

  2. Bodily injury or wrongful death claims;

  3. Negligence; and,

  4. Non-compliance with any laws.

Why Are Indemnity Clauses Important?

There are two basic reasons why indemnity clauses are important. First, it allows you to assume the amount of risk you agree to take when working with the other party. Second, it protects you from bearing the financial burden of claims and judgments for damages when the other party is far more able to bear them.  

How Are Indemnity Clauses Enforced?

Indemnity clauses are enforceable in Minnesota courts, so long as they do not violate any state laws regarding the scope of indemnification. For example, Minnesota has a specific statute that addresses the unenforceability of certain agreements in construction contracts.

Enforcement may be pursued using any method designed to resolve breach of contract disputes. Negotiation and arbitration may be viable, although a lawsuit is usually necessary for enforcement, particularly where large sums of money are on the line.

Legal Support You Can Trust

Contracts are vital documents in business, and indemnity clauses provide critical protections within them. You should work with an experienced business attorney to not only draft your contracts but to review any agreements before you sign them. When disputes arise, your attorney can defend your company.

If your business is in Minneapolis, St. Paul, or anywhere in Minnesota, call Engel Professional Association today to schedule a consultation about indemnity clauses and other contractual issues.