What Is an Indemnity Agreement (and Should You Use One)

What Is an Indemnity Agreement (and Should You Use One)

two people signing an agreement, business law attorneyAn indemnification agreement is an essential document that helps protect businesses from the risks associated with doing business. It is a document that identifies the risks clients and guests accept when visiting a client’s property or utilizing their products or services. This effectively shields the business from lawsuits should clients or guests experience property damage or personal injuries under certain circumstances.

Types of Indemnities

There are three types of indemnities.

  • A broad form indemnity attempts to shield the indemnitee from all liabilities that are associated with the agreement, except for situations in which the indemnitee is solely negligent.
  • With intermediate indemnity agreements, injured parties may pursue claims against the defendant in instances where the individual or entity acted with willful misconduct or gross negligence. These agreements are less protective than broad form indemnities and may expose the independent contractor/business to liability for injuries caused by subcontractors, other customers, etc.
  • The final type of indemnity agreement is a “limited” agreement. This states how much liability a business or contractor is willing to accept in the event of property damage, personal injuries, or wrongful death. For example, the business owner will accept liability for 15-20% of damages in the event a customer dies while utilizing rented equipment, etc.

Anti-Indemnity Statute in Illinois

Illinois law does not allow individuals to stand behind broad form indemnity clauses. The courts have ruled that these are too restrictive and do not protect clients from liability for their own actions. Essentially, the courts have ruled that businesses and contractors must accept some form of liability for their actions and the actions of contractors or subcontractors they hire in the course of providing their products or services.

Negotiating Indemnity Clauses

It is common practice in many industries including construction, home remodeling, interior design, etc. to negotiate and amend indemnity clauses. When negotiating indemnity clauses with clients, a business law attorney should draft the final agreement. This helps protect the business while allowing the enterprise to reach a fair and equitable division of liability with its clients. Whether reciprocal, unilateral, or split indemnity is desired, a business law attorney can help create the proper division of liability so that the work may be performed without unduly exposing the business or its employees to risks that could jeopardize the future of the business.

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