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Indemnity notes

Indemnity obligation may implicitly require claim defense

The California Supreme Court has held that, under that state’s statutory law, unless the parties to a contract agree otherwise, a party having an indemnity obligation under the contract is also obligated, upon request, to provide a defense for the protected party. See Crawford v. Weather Shield Mfg. Inc., No. S141541 (Cal. Jul. 21, 2008) (affirming court of appeal’s affirmance of trial-court judgment).

Injury indemnity extending to customer’s negligence

Some services contracts state that, for example, “ will defend and indemnify and its protected persons from third-party claims of death, bodily injury, or loss of or damage to property performance of its obligations or exercise of its rights pursuant to this Agreement.”

This kind of indemnity gets really … interesting when it covers the customer’s own negligence: “The injury indemnity obligation extends to claims arising out of Customer’s alleged negligence or gross negligence .”

The customer-negligence provision arguably makes the provider an insurer for the customer. One commentator opines that “If you agree to do this, you have just given your client full access to your company’s general liability contract—for free!!” Kit Werremeyer, Indemnities and Additional Insured Status (accessed Oct. 16, 2008).

If a third-party makes a covered claim against the customer, the provider might have to pay the insurance deductible, even if the customer is at fault, and the customer’s insurance claim might drain the provider’s coverage limits, leaving nothing for the provider in the event of another claim. See id.

When a customer demands to be covered by a provider’s insurance, the provider may be tempted to respond, Buy your own %#$@ insurance! The Werremeyer article cited above sets out several possible responses that are likely to be more productive, including putting a dollar cap on the provider’s indemnity exposure, and excluding uninsurable claims from the indemnity obligation, both of which are options in this clause.

The express-negligence rule may require ‘conspicuous’ language

In many jurisdictions, the ‘express negligence rule’ requires that an obligation to indemnify a party against its own negligence must be conspicuous. See, e.g., C. Randy King and Jacqueline Moy, The Express Negligence Rule In Oil Field Contracts, Nov. 1, 2002 (accessed Oct. 17, 2008).

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