Contractual Liability – Indemnity Agreements

There are several devices which are used by contracting parties to shift liability for damages from one party to another, regardless of which party is at fault. One such method of shifting liability is the indemnity contract. An indemnity contract is a contract whereby one party undertakes and agrees to indemnify the other against loss or damage arising out of some contemplated act on the part of the indemnitor or from some responsibility assumed by the indemnitee or from the claim or demand of a third person, that is, to make good to him some pecuniary damage he may suffer. Simply stated, contractual indemnity agreements are those whereby one party assumes the liability inherent in a situation and relieves the other party from responsibility. In addition to indemnity contracts and hold harmless agreements, a party may agree to waive his right of subrogation (and request that his insurer also waive subrogation) against another party that caused the damage complained of and/or may agree to name the other party as an additional assured on his liability policy by means of an endorsement to that policy. The classification of a contract as maritime or non-maritime is essential in determining the effect of its provisions. Generally, if the nature of the contract is maritime, it falls within the jurisdiction of federal maritime principles. Conversely, if it is not of a maritime nature, then it is governed by the law of the applicable state. It is not unusual to have "mixed" contracts wherein maritime aspects may be governed by federal maritime law and others governed by state law. State and federal law, when applied to interpretation of indemnity agreements, share certain principles. First, the courts should not construe an indemnity clause to impose liability for a loss not expressly within its terms. Further, indemnity clauses, especially indemnifying the indemnitee against his own negligence are strictly construed. Additionally, the courts will not presume that a mere agreement to indemnify includes indemnity for one's own negligence. Last, and perhaps most important, the intent to be indemnified for one's own negligence must be in clear and unequivocal language stating that the indemnitee's intent is to be held harmless for its own negligence in order to shift liability. Any ambiguities may be construed against the indemnitee. All too often, attorneys and those charged with preparing indemnity clauses, go to great lengths to try to cover every conceivable situation. The resulting indemnity agreement oftentimes is so complex and so convoluted that not only is it difficult for the parties to the contract to interpret their meaning, but it is equally difficult for the attorneys and courts to sort them out. If the parties to the contract have a difficult time interpreting the meaning then so will the courts which played no part in the negotiations leading to the contract. The likely result is that the court will refuse to enforce the obligations.

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