By Justin Saar
Ogden & Sullivan, P.A.
Posted 2/23/21
Do you want to impress a client? Show them that a new lawsuit filed against them is the responsibility of another entity. Do you want to endure the wrath of a client? Wait until the eve of trial for the client to ask you why they have to pay a verdict when they have an indemnification clause in their contract with a vendor.
From a practical standpoint, indemnification is a mechanism that shifts liability from one entity to another entity. For example, Store A is being sued for an incident involving a patron falling over a box on the floor left by Vendor B while employee of Vendor B is stocking shelves. If the contract between the store and vendor includes an indemnification clause, the store may tender the defense to the vendor, and the vendor (or its GL carrier) will fund the defense and be responsible for any money damages. A happy client indeed!
According to American Jurisprudence, Second Edition, “indemnity refers to the obligation resting on one party to make good a loss or damage which another party has incurred. Indemnity is a form of compensation in which a first party is liable to pay a second party for a loss or damage which the second party incurs to a third party.” 41 Am. Jur. 2d Indemnity § 1.
Common examples you may encounter when you are defending a premises case that may trigger indemnification include a store seeking indemnification from a vendor making a delivery or a restaurant seeking indemnification from a janitorial service company for creating a dangerous condition. Indemnification may arise when a landlord seeks indemnification from tenant based upon the location of an accident, or when an employer seeks indemnification from an employee for the employee’s negligence. Within the construction industry contracts often include language for indemnification between general contractor and a subcontractor.
Indemnification can rely upon “three bases:” (1) an express contract; (2) a contract implied-in-fact; or (3) equitable concepts arising from the tort theory of indemnity, often referred to as a contract implied-in-law.
The most common example a practitioner comes across is an express contract. When a personal injury tort is alleged, usually involving a condition or event caused by another entity, the contract would be the first step in the analysis to determine if another party is required to indemnify your client. Oftentimes, a contract will include a section titled “Indemnification,” while other times the clause may be buried in a section on duties or responsibilities. For example, an indemnification clause can be found below:
“Tenant covenants and agrees to pay, defend, indemnify and save harmless Landlord from and against any and all liability, loss, damage, cost, expense (including without limitation all attorneys' fees and expenses of Landlord) causes of action, suits, claims, demands or judgments of any nature whatsoever based upon, arising from or connected in any manner with (a) injury to or the death of any person ... occurring on the Premises during the Term, (b) the use, non-use, condition, possession, construction, operation, maintenance, management or occupation of the Premises or any part thereof....”
Under this clause, the tenant is contractually obligated to indemnify the landlord for any claims arising from an injury occurring on the Premises.
One of the more unique indemnification cases I was involved with concerned a vendor’s employee making a delivery to a large grocery store and knocking on the door near the loading dock. The store’s employee opened the door by kicking the door, causing the door to hit the vendor’s employee’s shoulder, resulting in a shoulder surgery. After the dust settled, the vendor accepted the store’s demand for indemnification. The contact had very favorable language for the store within its indemnification clause. The clause required the vendor indemnify the store for any and all claims made against the store for any injuries or claims brought by the vendor’s employees. In this situation, the store’s employee committed the negligent act, but the vendor still had to indemnify the store. Even if your review of your client’s contract leaves you scratching your head, its better to discuss the potential for indemnification with your client before you brush it aside because it seems too far fetched to be a legitimate option.