An indemnity agreement is a promise to hold another party harmless when that party suffers some injury, legal harm, or financial harm. Indemnity agreements are rather common in Massachusetts business contracts, but not all of them are enforceable. It is important for your business to understand when these agreements are enforceable, and when they are not.
At the Katz Law Group, we have the years of experience needed to represent your business in indemnity agreement litigation of all kinds which results in saving your company both time and money.
Indemnity Agreements: What Are They?
Indemnity is defined by Black's Law Dictionary as "a duty to make good any loss, damage, or liability incurred by another." It generally means to "hold harmless" another party for some type of loss or damage.
Depending on the language of the indemnity agreement, it can also mean various other related things, such as:
- Compensation for loss or damage from the actions of another party;
- An understanding between the parties that the injured party has a right to claim compensation or reimbursement for some type of damage or loss;
- As a legal exemption from damages or loss.
Business Use of Indemnity Agreements
Indemnity agreements are often associated with more dangerous activities or professions. For example, consumers who ski, para-sail, skydive, or horseback ride may be asked to sign an indemnity agreement, often called a release.
In the business context, these agreements often look different. The most common business that uses indemnity agreements is construction companies. Construction work comes with inherent hazards of doing business, including unpredictable weather conditions, multiple subcontractors, and many separate employees.
When Indemnity Agreements Are Enforceable
When an indemnity agreement is in a written contract, called an "express" contractual indemnity, the first thing you and your attorney must do is determine if the agreement is enforceable. This is true whether you are seeking the protection of the indemnity, or are having it used against you.
Validity of Agreements
In Massachusetts, indemnity agreements are generally enforceable unless an applicable statute or public policy invalidates them. While other states strictly construe indemnity agreements against the drafter, Massachusetts interprets them according to normal contract law.
The court will look at the wording of the agreement to determine if it is reasonable, and has been properly negotiated. Cases in which one party to the contract has an extremely powerful bargaining position, and who added the indemnity agreement without proper consideration for it, could see the provision struck down. However, most businesses come to the table on relatively equal bargaining power, so the agreement will likely be upheld, so long as its terms are reasonable.
Indemnity provisions which seem to force a party to hold the indemnitee (the party granted the protection of indemnity) harmless for even its own conduct, are often considered invalid. An example best illustrates this:
Example: Business A, a subcontractor, agrees in a contract to hold Business B, a construction company, harmless for "all injuries, losses, claims, and liability arising by the negligent or non-negligent act or omission in the fulfillment of this contract." Business B is the indemnitee because it is held harmless under the agreement.
Business B, through the fault of one of its officers, is damaged by its own negligence. Although the broad language could be interpreted to require Business A to indemnify Business B, because Business B was solely negligent courts will routinely hold Business B liable for its own costs, despite the agreement.
Indemnity Disputes and Litigation
Indemnity disputes usually arise after a lawsuit has been filed for some other reason that implicates a contract between two parties. As part of the lead up to the trial, parties will file motions asking the court to uphold or invalidate the indemnity provision, just in case that party would lose at trial.
With an experienced attorney at your side, your business can protect itself against unenforceable indemnity agreements. Certain Massachusetts laws invalidate indemnity agreements as a matter of law, and many others fail for being overbroad or against public policy.
Ensuring Your Agreement Will Stand
If your business uses or wishes to use indemnity agreements to protect itself from potential loss, you need to ensure that the agreement is enforceable. This allows you to plan for the unexpected, and protect the financial health of your company. With experienced legal help, you can best protect your indemnity provisions from invalidation by a Massachusetts court.
Consult a Massachusetts Contract Litigation Attorney
There are ways to prevent issues with indemnity agreements in your contracts and to protect your business from unenforceable indemnity agreements in litigation.
At the Katz Law Group, we are here to protect your business's rights. Contact us today for a consultation.