1. Basics of Indemnity Agreements
2. Using an Indemnity Agreement

Updated November 25, 2020:

A contractor indemnification agreement is a type of contract that you can use to limit a contractor's liability for a specific contract. Using these contracts is a good idea if a project is inherently risky and you want to give yourself stronger liability protections than a normal contract would provide.

Basics of Indemnity Agreements

Certain transactions, purchases, and projects involve much more risk than regular endeavors, so before engaging, you may want to limit your liability as much as possible. Deciding who will be liable in a project can save you a great deal of money and stress. If you want to limit your risk in a project, you can use something known as an indemnity agreement.

Indemnity basically means that you are absolving someone of responsibility for the consequences of their actions. In a legal contract, indemnification means that one party agrees to assume liability if another party gets sued as a result of a project or transaction. For instance, if you are involved in a car accident, you can agree to accept responsibility for the accident even if you weren't at fault. Accepting liability for the wreck would indemnify the other party from the accident.

If you enter into a contract with another person, and that person causes you harm, then you usually have the right to sue them for damages. With an indemnity agreement, you can outline who is culpable if there is a problem with a project or a serious accident occurs.

Using an Indemnity Agreement

If you want to use an indemnity agreement, you can either use a separate indemnification contract or incorporate the agreement into an existing contract. In one of these contracts, the party that agrees to assume liability is the indemnitor and the party that gets shielded from liability is the indemnitee.

Indemnification contracts are also known as hold harmless agreements, and they are useful tools if you want one party in a contract to assume all the liability in the relationship. Once this agreement is in place, you can prevent the other party from getting sued by taking on all the risk yourself. Generally, you would use an indemnification agreement if someone else is providing you with services or if you and another person are embarking on a project.

One of the main reasons to use a hold harmless agreement is to protect yourself if you allow another person to use your property. Several industries and organizations make use of indemnity contracts, including:

  • Construction and real estate companies.
  • Gyms and sports clubs.
  • Car rental companies.

An indemnity agreement can also be very useful if your business is involved in an inherent risk field or if you allow others to rent your property for dangerous activities. Any time you engage in a project with another person, and your property will be used during the project, you should consider using a hold harmless agreement.

Although indemnification contracts are most commonly used by businesses, you can also use these agreements for personal endeavors. If you own a piece of construction equipment, for example, and want to let one of your friends or family members use this equipment for a project, using an indemnification contract can protect you if any damage results from the use of your equipment.

Many people are wary about asking family members to sign a hold harmless agreement, and in most cases, these agreements won't be necessary. That said, requesting one of these agreements before loaning valuable property can help to protect you from financial damage. There are three types of indemnification contracts that you can use. The type of contract you use will determine what liability is covered, so you need to be sure that you are choosing the right type of agreement.

A broad form indemnity contract covers everything that you describe in the contract. For instance, if you use a broad form contract for a project, all potential liability related to the project gets covered. In addition to the actual work of the project, this agreement will cover the monetary contributions that each party has made. Broad form contracts are not all that common, as it can be difficult to get both parties to agree to the terms of the contract. With these broad agreements, one party can act however they wish, regardless of the outcome, since the other party will hold all liability.

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