Compared to other legal language and contracts, you can write an indemnity clause for a subcontractor with relative ease. This is not to say the clause is unimportant; in fact, it’s vital. Let’s assume that you manage a construction company and a homeowner hired you to build a bedroom addition. You, in turn, hire a subcontractor to install the framing. An accident unfortunately occurs and the homeowner sues you -- the company he signed the contract with -- to compensate him for damages and/or injuries. An indemnity clause -- a clause that provides for compensation -- would place the financial obligation squarely on the framer’s shoulders -- where most fair-minded people believe it rightfully belongs.
Write a succinct, streamlined indemnity clause that gets right to the point. For example, you can write "The subcontractor agrees to indemnify and hold harmless the contractor against loss or threatened loss or expense by reason of the liability or potential liability of the contractor for or arising out of any claims for damages.”
Write an indemnity clause that contains a bit more amplification in cases where subcontracted work puts you at a higher risk of a lawsuit. This is particularly suitable for large projects that can result in a significant financial loss. For example, you can write "The subcontractor hereby agrees to indemnify and hold harmless the contractor against any and all liability, claims, suits, losses, costs and legal fees caused by, arising out of or resulting from any negligent act or omission of the subcontractor in the performance and/or failure to perform within the subcontract, including the negligent acts or omission of any subcontractor or any direct or indirect employees of the subcontractor or subcontractors.”
Write a highly detailed indemnity clause to close any potential loopholes in a more vague clause that can still make you liable for any problems caused by the subcontractor. In the book "Business Contracts," Laura Plimpton recommends writing: "Each party shall indemnify, defend and hold the other party harmless from and against any and all claims, actions, suits, demands, assessments or judgments asserted and any and all losses, liabilities, damages, costs and expenses (including, without limitation, attorneys fees, accounting fees and investigation costs to the extent permitted by law) alleged or incurred arising out of or relating to any operations, acts or omissions of the indemnifying party or any of its employees, agents and invitees in the exercise of the indemnifying party's rights or the performance or observance of the indemnifying party's obligations under this agreement. Prompt notice must be given of any claim, and the party who is providing the indemnification will have control of any defense or settlement.”
Seek legal counsel if you don’t understand any facet of the legalese contained in an indemnity clause. It’s a step worth taking because the consequences could be grave if you choose to bypass the clause and trust that a subcontractor will "do the right thing" in reconciling a conflict. If you don’t include an indemnity clause in a contract with a subcontractor, and a lawsuit against you does proceed, you would have to sue the subcontractor to reimburse you for costs and damages. Most likely, you would also have to hire an attorney to represent you.
Tips & Warnings
- Understand that indemnity clauses -- like most legal concepts and agreements -- vary greatly in length and specificity. Some people believe that “brevity is best” while others feel comforted by an added blanket of words. In the end, it i largely a matter of personal preference.
- It is also possible for an indemnity clause to go both ways, with both parties agreeing to pay compensation if losses or liabilities are incurred. If this is the case, you will need to explicitly detail the agreement to include a break down of how to pay for any losses. For example, the subcontractor may be responsible for 60 percent of the liability and you are responsible for the other 40 percent.
- ExpertLaw; Common Contract Clauses; Aaron Larson; October 2003
- “Business Contracts”; Laura Plimpton; 2007
- Photo Credit Jupiterimages/Photos.com/Getty Images Jupiterimages/Creatas/Getty Images
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