Every transaction in life, business or otherwise, comes with a certain amount of risk. It does not matter if you are building a multi-million dollar company with investors that could sue you for business losses or simply lending your neighbor your lawn mower, there is always a level of liability to be considered.

In deals that brandish abnormal amounts of risk, it can become necessary to implement safeguards to protect yourself from legal or financial burdens. This is where indemnity agreements become a vital practice.

First, for those who are unfamiliar, indemnity is defined as, “a duty to make good any loss, damage, or liability incurred by another” (Black’s Law Dictionary). This essentially means that the agreement changes who will be liable in the case of injury or damages brought on by the initial contract. This is also referred to as a “hold harmless” agreement in which one party agrees to hold another harmless for any losses or damages; effectively mitigating one’s risk of being sued in such an event.

But when exactly is it a good idea to enter into an indemnity agreement?

When to Leverage Hold Harmless Agreements

In business, any time you seek to shift responsibility for any loss, damage, or injury to another party, you should be entering into an indemnity agreement.

This effectively allows you to divert legal ramifications from yourself, or vice versa.

If your company is engaged in projects with above average risk factors, like construction, an indemnity agreement is likely necessary.

For more personal matters, such as allowing another to use your property, there is always a potential for injury so implementing a hold harmless document is always in your best interest.

Types of Businesses that Use Indemnity Agreements

The most common example of a business enforcing indemnity agreements is in the construction field as there are extreme dangers for the individuals working on-site, and massive financial risks come along with these types of projects.

Rental car companies are also prone to using hold harmless protocol to mitigate their legal responsibility in the event of an unforeseen accident, placing responsibility on the driver as opposed to the company.

Gyms, fitness centers, and other physical activity-based businesses are also inclined to use these types of forms. This helps to block any legal consequences of injuries that take place on their property or equipment.

Categories of Indemnity Levels

The most common forms of indemnity agreements are as follows:

Broad Form

This is exactly how it sounds; broad. This agreement will cover every action covered in the document. This means that a party can be relieved of all liability from a project, no matter which party caused the loss, damage, or injury.

Intermediate

This type of agreement dictates that a party can only be held responsible for issues caused solely by that party itself. This is the most common form of indemnity used between subcontractors and general contractors in construction.

Limited

Sometimes referred to as a, “Comparative Fault Indemnification Agreement,” the terms of this accord govern that the party which is responsible for any problems will be the one held responsible. In the event that both parties contributed to the complication, each would be held partially responsible.

Final Thoughts

Before entering into an agreement, it is always good practice to consider the potential liabilities of a project to determine if an indemnity agreement is in order. If you find yourself uncertain, it’s always better to be safe than sorry.

On the flip side, always be sure to carefully read indemnity documents before signing so as to fully comprehend the terms you are agreeing to. And if all else fails, it may be best to seek legal counsel to help reach a solution that creates safety, protection, and fairness for all.