Beware of Indemnification Clauses
Many contracting business owners and project managers enter into contracts drafted by general contractors or project owners. Most of these contracts spell out the insurance requirements, which include the types, limits or coverage and additional insured requirements. Also included in most of these contracts is a paragraph on indemnification.
Many business owners and project managers assume that their insurance policies protect them from the liabilities required in the indemnification clauses. But the fact that the indemnification agreements are generally next to the insurance requirements has no bearing; one doesn’t have anything to do with the other.
The phrase containing the words “any and all claims” is prevalent in many of these clauses. Yet, contractors would be hard-pressed to find an insurance policy that covers any and all claims.
Also, a disclaimer in these clauses usually states that the contractor is liable regardless of whether the insurance will respond. Keep in mind that when these agreements are signed unaltered, the contractor is now an insurance company. It will be self-insuring a number of potential circumstances and liabilities that will not be covered on its insurance program.
A number of options and risk management techniques can be utilized to help mitigate the liabilities inherent in these clauses. Be aware of these contractual requirements and not sign the contracts without proper scrutiny by an insurance professional or attorney.