Indemnity: Limited "to the extent" of insured's negligence

Tue, 22 Mar 2011 13:02:00 GMT

The professional liability policy provides coverage for claims to the extent that they were caused by the insured’s negligent acts, errors, or omissions. Professional liability insurance only pays for damages caused by the insured, not for damages caused by other parties.

We recently reviewed a contract that included an indemnification provision containing the following statement: “This indemnity obligation applies regardless of whether or not such claim…is caused in part by the negligence or other fault of a party indemnified hereunder.”

In some jurisdictions, this language may expand the insured’s legal obligation to pay for damages that are partially caused by another party. In other jurisdictions, this language could impact comparative or contributory negligence statutes. The interpretation and enforceability of indemnity provisions depends upon the jurisdiction, statutes, and case law. There are significant differences on how different jurisdictions interpret and enforce indemnity provisions. Accordingly, when reviewing or drafting indemnity provisions, consultation with knowledgeable legal counsel is essential.

Here is an example of an indemnity provision that attempts to limit the design professional’s indemnification obligation to the proportionate share of the design professional’s negligence:

Sample provision: To the fullest extent permitted by law, Consultant shall indemnify Client, its officers, directors, partners, employees, and representatives from and against losses, damages, and judgments arising from claims by third parties, including reasonable attorneys’ fees and expenses recoverable under applicable law, but only to the extent they are found to be caused by a negligent act, error, or omission of Consultant or Consultant’s officers, directors, members, partners, agents, employees, or subconsultants in the performance of services under this Agreement.

In the following mutual indemnification provision this limitation is further clarified:

Sample provision: To the fullest extent permitted by law, Client and Consultant each agree to indemnify the other party and the other party’s officers, directors, partners, employees, and representatives from and against losses, damages, and judgments arising from claims by third parties, including reasonable attorneys’ fees and expenses recoverable under applicable law, but only to the extent they are found to be caused by a negligent act, error, or omission of the indemnifying party or any of the indemnifying party’s officers, directors, members, partners, agents, employees, or subconsultants in the performance of services under this Agreement. If claims, losses, damages, and judgments are found to be caused by the joint or concurrent negligence of Client and Consultant, they shall be borne by each party in proportion to its negligence.

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Indemnity: Limited "to the extent" of insured's negligence