It seems that with ever greater frequency, clients are sending us documents to review which contain provisions under which our client is required to “defend, indemnify, and hold harmless” some other party.
There are multiple potential problems with these types of provisions. The imposition of these obligations on Party A may be completely unreasonable and without any justification.
Another problem is that contractually assumed obligations of this nature may not be covered by Party A’s liability insurance, thereby leaving Party A exposed to costs out of its own pocket.
I recently encountered a situation in which a medical client received a form from its billing company. The form had been drafted by a third party, and requested that our client confirm that its billing company was authorized to provide the third party with certain types of information. Our client had no contractual relationship with the third party. However, not only did the form that was provided obligate our client to give the authorization permitting the disclosure, but it provided that our client would indemnify the third party in the event that the third party was subject to any claim arising out of the negligence of our client’s billing company.
The letter which accompanied the form from our client’s billing company requested that our client sign the form and forward it on. When our client inquired as to what this “indemnification” language was all about, a representative of the billing company said that: “everyone’s always signed that. No one has ever asked that question before. I checked with our lawyers, and they said it was fine.”
Well of course their lawyers said it was “fine”. It had no negative effect on the billing company at all. However, it certainly was not “fine” from our client’s perspective.
Defense, indemnification, and hold harmless agreements can be found in places other than commercial transactions. They can show up in consumer or personal transactions as well. A number of years ago I signed up one of my daughters to attend an overnight summer camp that included mountain climbing type activities. Two weeks before our daughter was scheduled to depart for camp I received a “waiver and indemnification” form. The accompanying letter stated that unless the form was promptly signed and returned, my daughter would not be able to go to the camp, even though by this time I had already filled out other paperwork and paid the fee.
The language in the indemnification provision was extremely broad. In fact, one of the provisions would have had the result that if, through the negligence of the camp and its personnel, my daughter got into a life threatening situation, and if some third party bystander (not a camp employee) came by and rescued my daughter from the life threatening situation, and, in the course of effecting the rescue the third party was injured, I was obligated to indemnify the camp for any claim made by the rescuer against the camp.
When I pointed this absurd result out to the camp’s lawyer (who had called me to inquire about a host of changes I had made to the camp’s form) he agreed to change the language to eliminate the above result. However, the camp refused to remove other unreasonable provisions from the document. This left me with the choice of demanding my money back and depriving my daughter of her summer experience, or proceeding to sign the document with the hope that nothing harmful would occur. I chose the latter course, and, fortunately, nothing happened.