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Avoid Unfavorable Indemnity Provisions in Institution Contracts

Alyssa Keehan, Esq.
April 2021
Strategies to take when entering into contracts

Your institution should be careful when entering into contracts where it assumes liability for claims it neither caused nor can control.

Consider the following example:

A university enters into a one-day rental contract to use a local theater as the site for its graduation ceremony. The contract states the “university promises to defend and indemnify the theater for all claims or losses arising out of the university’s use of the facility.”

At the ceremony, a student’s grandparent trips on a toolbox a theater employee left behind and breaks her hip. She sues the university and theater. As a result of the contract language, the institution pays to defend the theater and resolve the claim, even though the theater employee’s negligence caused the injury.

Most contracts include language that addresses how parties to the agreement will share responsibility for claims or losses arising from that agreement, often referred to as an “indemnification” or “hold harmless” provision. If the provision is unfavorable to it, the institution may assume responsibility for losses the other party’s negligence causes, or incur legal fees when it tries to clarify that provision’s original intent.

Unfavorable indemnity provisions are common sources of liability claims that can be mitigated by working with your college or university’s legal counsel or Risk Manager and implementing a few key practices.

Common Unfavorable Indemnity Provisions

  • One-sided language. Avoid contract language in which your institution assumes all responsibility for both its own negligent acts and the other party’s negligent acts. Example: “The institution agrees to defend and indemnify party X for all claims and losses arising out of the contract.”
  • Ambiguous language. Contract language is often so unclear that an institution can’t tell what responsibility it has assumed for losses arising from the agreement. Then when a claim arises, institutions can’t rely on the indemnity provision to protect them. They must instead incur legal fees to determine the provision’s intent and fight for the other party to pay the appropriate share of the losses. Any indemnity provision should make clear how the parties will allocate responsibility. Example: “Each party promises to indemnify each other for claims or losses.”

Strategies for Avoiding Unfavorable Provisions

  • Review indemnity provisions before finalizing contracts. Before signing, thoroughly review every contract to which your institution is a party. Too often, employees reviewing contracts are overburdened or unfamiliar with how indemnification works. To streamline review, some institutions use a step-by-step checklist to help identify vague indemnity provisions. (See Checklist: A Guide for Reviewing Contracts for sample review checklists.) Be aware that public institutions must consult legal counsel and review state law requirements, as these requirements often limit or prohibit indemnification and alternate indemnification language may be necessary.)
  • Draft model indemnity language. Consult with legal counsel and your institution’s Risk Manager to draft model indemnity language to include in written contracts. Include the model indemnity language in your contract review checklist and form contracts for purchase orders, facility use, and construction. If a contracting party wants to change the model indemnity language, use a clear process for considering and approving changes. The process should require a lawyer to review proposed changes.
  • Publicize and educate relevant people about the process. Ensure that staff or independent contractors who are authorized to negotiate, review, or sign contracts understand your institution’s campus contracting policy, model indemnity language, and the significance of indemnification provisions. Make sure they know when they may need to consult the Risk Manager or school’s attorney.

 

More From UE

Checklist: A Guide for Reviewing Contracts
Online Course: Contracting Fundamentals

Additional Resources

Central Michigan University: Contract Review Process Checklist
George Washington University: Contract Process Guide
Iowa State University: Alternate Indemnification Clauses
The University of Texas System: Indemnification Sample Clauses
University of Wisconsin System: Hold Harmless and Indemnity Agreements