As a business owner, are you using insurance and indemnity provisions to your benefit, or are you unknowingly exposed to providing insurance and indemnity to the other side in your business contracts? This is an often overlooked, but significant issue for businesses.
For many businesses, management of contracts is an onerous and time consuming effort. Negotiating terms that place your business in the best possible position requires even greater effort, but in return can provide important protections. Businesses often don’t recognize that they have the right to negotiate favorable terms. Many vendors will provide a customer with a standard form of agreement for execution. If the vendor has substantial bargaining power and leverage, then the vendor’s contract may be the only option. Frequently, however, the bargaining power is not so one-sided, allowing a business to negotiate more favorable terms.
Two important areas for negotiation are (1) insurance; and (2) indemnification. Indiana courts have long recognized the ability of contracting parties to agree who will provide insurance coverage for work performed or material supplied under a contract. Sometimes this takes the form of a “purchase order” or written agreement. Often times, leases include an obligation to provide insurance coverage. The basic contract language is simple – the vendor agrees to provide insurance for the work and make your business an additional insured on the vendor’s insurance policy. This type of provision is routinely included in business contracts. Additional technical insurance provisions should also be included to clarify the parties’ agreement.
In all events, even if you do not negotiate your own business agreements, beware of signing a vendor’s standard form of agreement which may have insurance and indemnification obligations. Upon review of those standard terms, you may determine you are in a position to negotiate more favorable terms. At a minimum, however, you will be aware of your businesses’ obligations to provide insurance and can contact your insurance carrier to obtain the requisite additional insured coverage.
Similarly, read the fine print in purchase orders and terms and conditions of sale. These “standard” documents contain legally enforceable terms and you should be aware of your contractual obligations.
Indemnity agreements are another matter for negotiation. Indemnification provisions permit a business to recover from a vendor the amount of losses it has incurred as a result of the vendor’s work under the contract if you are sued by a third party. Indemnification agreements can take many different forms, and will depend on the type of contract in issue. If the indemnity agreement is to protect against a vendor’s negligence, there are specific requirements. Conversely, if the indemnity is to protect against a vendor’s breach of the agreement or violation of law, there are other requirements. Including an indemnity provision limits your businesses’ potential exposure as a result of the vendor’s performance of work under the agreement.
If you have questions regarding the contents of this article, or other similar issues, please contact your HWE relationship attorney or visit us at http://www.hwelaw.com.