As an architect or engineer, you may be exposed to various claims and liabilities arising from your professional services, such as design errors, construction defects, delays, cost overruns, or personal injuries. To protect yourself and your firm from these risks, you may seek to include indemnity clauses in your contracts with your clients, contractors, or other parties involved in your projects.
An indemnity clause obligates one party to reimburse another party for any losses, damages, or expenses incurred as a result of a specified event or circumstance, such as a breach of contract, negligence, or violation of law. Indemnity clauses can be mutual, where both parties agree to indemnify each other, or unilateral, where only one party agrees to indemnify the other.
Not all indemnity clauses are created equal, however. Here are some key issues to consider when negotiating or reviewing indemnity clauses in your contracts:
- Scope: The scope of the indemnity clause defines what types of claims, liabilities, or costs are covered by the indemnification obligation. Ideally, you want to limit the scope to only those claims that arise from your own negligence or fault; you want to avoid indemnifying for the negligence or fault of others, such as your client, contractor, or third parties. Avoid broad or vague terms that could expand the scope beyond your reasonable expectations, such as “any and all claims” or “arising out of or relating to the project.
- Limitations: The limitations of the indemnity clause define what types of defenses, exceptions, or caps are available to the indemnifying party. Ideally, you want to preserve your right to assert any applicable defenses, such as contributory negligence, statute of limitations, or contractual waivers. Try to limit your liability to a reasonable amount, such as the fees you receive for your services, the insurance coverage you have, or a percentage of the project value. Clauses that require you to indemnify the other party for their own negligence, willful misconduct, or breach of contract may be unenforceable or against public policy in some jurisdictions — avoid these.
- Enforcement: The enforcement of the indemnity clause defines how and when the indemnification obligation is triggered and fulfilled. Ideally, you want to have a clear and fair process for notifying, investigating, and resolving any claims that may arise, and to have a say in the selection and control of the legal counsel and experts involved. You want the right to approve any settlements or judgments that may affect your interests; you also want reimbursement for your reasonable costs and expenses in defending or indemnifying the other party. Avoid clauses that require you to indemnify the other party in advance or without proof of liability, or that allow the other party to withhold or offset payments due to you.
As you can see, indemnity clauses can have significant implications for your professional practice and financial security. Therefore, understanding the indemnity clauses in your contracts is important. Please seek legal advice if you have any doubts or concerns; doing so can minimize your legal exposure and protect yourself and your business.
Contact us with questions relating to an existing indemnity clause or for help drafting new clauses for your contracts.
