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What is an Indemnity Agreement?

indemnity agreement
Man Signing Agreement

A NJ attorney can help companies draw up an indemnity agreement. When an indemnity agreement is set in place, financial responsibility is decided.  Indemnification according to Black’s Law Dictionary, is “a duty to make good any loss, damage or liability incurred by another.” In general it means to “hold harmless” such that one party will hold another harmless in the case of damage or loss. Therefore, indemnification is the act of not being held liable, or of being protected from costs associated with damages. The costs are shifted to another party who is held liable and will have to pay for any such losses. Indemnity also comes with the understanding that when a party is injured, they have a right to claim compensation or reimbursement for any loss or damages. It can also refer to being compensated for damages or loss that occurs because of the action of a separate party. Or it can be described as a sort of legal exemption from having to pay any type of loss or damage in cases where an indemnity clause is included in a contract.

Indemnity Agreements

In many contracts, an indemnity agreement, or a “hold harmless agreement” is included. These clauses specify that a party will be indemnified (held harmless) should damages occur to the other party or property. As an example, many times in a rental agreement a tenant may agree to be held responsible if the property becomes damaged. It can also be used when companies invest in stocks and bonds trading. An individual who uses the company’s services will have to sign an agreement that they will not hold the company liable should money be lost through the company’s investing practices. There are also some companies who require an indemnity agreement before allowing anyone to participate in certain activities. Skydiving or parasailing usually require that the participant sign an indemnity agreement in the event that they become injured or die while engaged in the activity. This type of agreement is very common for companies which offer various types of dangerous leisure activities. The only exception in these types of cases is if the company is found to be negligent then the injured individual can contact a NJ attorney in order to file a claim against the company.

Types of Indemnity Agreements

In many cases, indemnity agreements are used in various types of construction contracts. Most states have three different types of indemnity agreements, or contracts: limited indemnity, partial indemnity, and broad form indemnity. Only about 5 states still consider a broad indemnity agreement to be legal as in NJ and nearly all of the other states they have been deemed illegal because of the subcontractor being held liable for any loss no matter who causes the damage; and the contractor is considered to be totally guiltless no matter who caused the damages or losses. A limited indemnity agreement will state that a subcontractor will pay for any damages caused by their own negligence which still places a heavy burden on a subcontractor, but only holds them accountable for their own actions. The only trouble with a limited indemnity is that a contractor who does not have a substantial amount of net worth is taking on a financial risk that could be much larger than what the company is worth.  A partial indemnity agreement is a clause which basically states each participating company or individual is only held accountable for their own actions or for actions over which they have complete control. In these cases, one contractor is not liable for another’s actions. The partial indemnity is perhaps the best legal agreement for the subcontractor as they are only liable for circumstances which they have full control and are not held liable for other company’s neglect or areas in which they have absolutely no control.


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