Beware of Losing Benefits of an Indemnity Provision Elsewhere in the Contract

Beware of Losing Benefits of an Indemnity Provision Elsewhere in the Contract

Timothy Murray, partner, Murray, Hogue & Lannis, discusses possible drafting pitfalls in creating complex indemnity provisions in contracts designed to manage costs and risks of loss.

The author writes:

This is a cautionary tale for attorneys who draft contracts -- a warning to avoid a common, often costly, mistake that is so fundamental that it is not only easy to make but easy to avoid, if only attorneys are on the lookout for it.

In negotiating contracts, lawyers often exercise extreme care in allocating the costs and risks of loss, as well as the cost of procuring insurance, with meticulously drafted indemnity provisions. Drafting complex indemnity provisions can be a daunting task for the novice, since such provisions pose innumerable traps for the unwary. There are all manner of special common law and statutory rules that govern the drafting of such clauses, often necessitating the incantation of particular buzzwords or catchphrases. Moreover, as a practical matter, consultation with the client's insurance provider is often necessary to be certain that the risks being assumed are, in fact, covered.

But regardless of how carefully the indemnity provision is drafted, it is possible for the parties inadvertently to lose whatever benefit they sought to achieve in the indemnity clause in other provisions of the contract, most notably clauses limiting liability and clauses excluding consequential damages.

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