Indemnification – be careful what you sign for
These days, legal waivers and release forms are a part of modern (and for some of us, daily) life. Whether renting a car, using a credit card or accessing information from the Web, there’s a good chance you’ll be asked to sign some sort of agreement. Many of us barely read most of it. While they may seem long and tedious, the reality is that indemnities transfer significant risk to consumers and in many cases end up costing money. While your homeowner’s policy and umbrella liability will cover direct costs for legal fees and judgment, these policies will not pay to defend a Hertz or Amazon because you signed their agreement.
If you will permit an editorial note – these one-sided indemnities are, while not illegal, push the outer limits of commercial balance and fairness. Furthermore, without realizing it, signing these forms essentially turns the consumer into the insurer/ responsible party, whereby they are agreeing to protect a business or some other party from claims and legal fees. This is true even if it the fault lies on the side of the commercial entity you have signed this agreement with. This can leave individuals facing major liabilities should something go wrong in the use of their goods or service.
Presently, there tends to be little regulation of indemnity clauses, thus businesses can insert whatever they want into these forms. For example, in a recent New York Times Op-Ed the author cited an Indiana case where a trial court held that a gas station operator and his helper had to pay to defend an oil company for its own negligence in injuring them with gasoline, a ruling based in part on an indemnification clause. The state Supreme Court found that provision unenforceable, but the plaintiff had to incur substantial legal fees.
The case above is only one example of the significant risks within indemnity agreements and the unintended consequences that may result if consumers are not careful to review key terms. Furthermore, demands for indemnification are not limited to businesses. Non-profit organizations, schools and recreation groups usually require individuals to sign and agree to defend them against any and all claims, costs of defense and settlements.
One other item to be aware of your homeowner’s policy and umbrella liability will cover your direct cost for legal fees and a judgment. It will not cover the cost to defend Hertz or Amazon as well, even if you agreed to by accident.
About the Author
Bruce MacDougall is a Senior Vice President in the Property & Casualty group and leader of the Private Client Group. His responsibilities include developing relationships and serving as a resource for WGA clients in all areas of property and casualty insurance brokerage and risk management consulting.