Indemnification Hierarchy of Risk—Questions to Consider

  • Who is asking you to indemnify them? Most often you will be asked by your client to indemnify them. Sometimes a third party may ask.

  • Why are you being asked to indemnify? Determining the answer may provide information in order to suggest an alternative that is acceptable to all parties.

  • What exposure is the subject of the indemnification request? It is almost NEVER appropriate to agree to indemnify your client or third party for exposures directly related to the client's obligations to you. For example, any request that provides indemnity for your client's failure to accurately and timely inform you of information necessary to complete your work is very risky and not appropriate. On the other hand, client requests for indemnity for exposures unrelated to your professional services is far less risky. For example, clients may ask for indemnity for risks arising as a result of your personnel being in the client’s offices (e.g., slip and fall, damage to property, etc.). We often see large corporations, municipalities and other governmental entities making such requests.

  • Is the indemnity request limited? A broad blanket indemnification, again, is almost never appropriate. Remember, unless specifically limited, an indemnification does NOT require you to be negligent in order to trigger your duty to indemnify. On the other hand, indemnification agreements limited to exposures requiring you to be negligent and the sole cause of the loss create very little additional exposure to you.

  • What insurance issues need to be considered? By far the most important insurance issue to consider is the impact of your acceptance of indemnification on your professional liability insurance. Before you agree to any indemnification, check with CAMICO or your insurance company. The other insurance issue to consider is the extent to which you can protect against the indemnity risk through other insurance. For example, many business owner policies (BOPs) address the premises risk exposure from your personnel being in the client’s offices. If you cannot insure against the risk created by the indemnification, you must consider fee/exposure leverage. Assess the size of the indemnity risk versus your fees. If the indemnification exposure is much greater than your fees, risk increases, and the reward is limited.

  • If you are still considering the indemnity request after asking these questions, consult CAMICO and/or your legal advisor. Never decide on your own. Indemnification law varies state by state, so this risk discussion does not address every possible issue or solution on a per-state basis.

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