How to Define an Indemnification Agreement

The are three kinds of indemnification agreements.

According to James W. Jones, author of a web article, "Contracting Risk: A Quick Guide to Proper Risk Allocation Through Contracts for Subcontractors," an indemnification agreement is when the subcontractor agrees to pay the the general contractor for any loss or liability the general contractor suffers. Indemnification agreements are also known as "hold harmless agreements."

No Fault

Jones says the no fault type of an indemnification agreement means that "the subcontractor agrees to pay the general contractor for all losses regardless of who caused the loss". ContractingBusiness.com says this type is also known as "broad form indemnification clauses". Most states refuse to judicially enforce these agreements, or they prohibit them by statute, because all the risk is placed on the subcontractor.

Limited

The second type of agreement says "the subcontractor only pays for losses caused by its own negligence," according to Jones. ContractBusiness.com confirms this type has the same weakness as the broad form indemnification, in that "a subcontractor with a relatively low financial net worth [is] taking on the financial risks of the large general contractor and owner."

Partial

ContractBusiness.com says the partial type is the best for a subcontractor. "It is simply a restatement of the common law principle that an entity should be held liable for only those circumstances over which it exercises control."

References

• The Human Equation: Contracting Risk: A Quick Guide To Proper Risk Allocation Through Contracts for Subcontractors: James W. Jones
• ContractingBusiness: Managing Risk in Your Contracts