Understanding Indemnity Agreements

Indemnity agreements are a legal agreement, or contract, that is used to identify which party will be responsible for any loss, liability, damage, or expenses that occur as part of the activities identified in the agreement. One of the simplest examples of this is a common insurance policy. The insured party is indemnified (not responsible) for the expenses caused by covered health problems. This type of indemnity agreement may state that if someone has insurance and they require surgery, the insurance company is required to pay the costs according to the policy.

There are many other ways that indemnity agreements can be used between businesses, and understanding how and when to use them is very important.

When an Indemnity Agreement May Be Smart

An indemnity agreement should be considered when there is a risk of an unexpected expense or problem. One of the most common situations would be with construction companies. When a construction company takes on a new contract, they will almost always require an indemnity agreement to be in place before beginning. This agreement will ensure that they are not responsible for extra costs if, for example, the job site was destroyed by a natural disaster, vandalism, or other unexpected events.

Transportation companies, such as train companies and semi-truck companies, will also insist on an indemnity agreement to help ensure they are not held responsible for certain problems. By putting these types of agreements in place, a business is able to dramatically reduce the amount of risk involved with starting a new project.

Helping Identify Potential Risks

While at first glance an indemnity agreement seems to only offer benefits to the business that is being indemnified, it is actually a helpful option for all parties. Using the example of a construction company from above, the indemnity agreement can remind the person hiring the construction company that they may need to purchase additional insurance on the project to get the necessary protections.

Doesn’t Cover Neglect

Indemnity agreements can provide a lot of protection to a business, but they do not allow a company to be neglectful. If there is an indemnity agreement stating that a landlord is not responsible for injuries of a tenant on the property, it will offer excellent protection against normal injuries. If the landlord fails to keep the property in good condition, and a tenant falls through a broken gate, however, the landlord will still be held responsible for the injuries.

Ensure Indemnity Agreements Are Properly Written

As with any type of legal contract, it is necessary to use the right wording and information to ensure an indemnity agreement is legally enforceable. If you need an agreement written, or reviewed, please contact The Trembly Law Firm to speak with an experienced business law attorney.