An indemnity clause is a type of agreement wherein one party agrees not to hold another party liable if certain injuries or losses occur. The indemnity clause is usually included as a part of a broader contract regarding the purchase of a product or the provision of services.
Indemnity clauses are commonly used for the rental of products. For instance, suppose that a person rents an automobile from a rental company. As part of the rental agreement, the customer may be required to sign a clause that states that they won’t sue the rental company if they get into an accident while renting the car. This will limit the company’s liability; instead of being subject to a lawsuit, they may be allowed to provide other remedies, such as a discount on future rentals.
Indemnity clauses are usually somewhat limited in their scope. Their purpose is not necessarily to allow one party to completely avoid liability; rather, their purpose is to prevent the filing of frivolous lawsuits for claims that the other party can’t reasonably be held liable for.
Thus, indemnity clauses are usually used when there are certain risks associated with the product or services. If these risks don’t have anything to do with the seller’s actions, then an indemnity clause may be useful. For example, indemnity clauses are often used for patrons of amusement parks or participants in organized high-risk sports activities.
Indemnity clauses can be powerful legal tools, because the basic result is that one party gives up their right to sue for the reasons stated in the clause. Therefore, indemnity clauses should be used cautiously, and should be entered into with a full understanding of its legal effects.
But like any other contract provision, indemnity clauses must meet certain requirements in order to be legally valid. For instance, they can’t be formed under circumstances involving deceit, fraud, coercion, or threats of harm. Both sides need to be clear on the terms of the indemnity clause. Neither party should be mistaken as to the meaning of any terms that might be considered potentially vague or ambiguous.
Thus, an indemnity clause is usually disputed on the basis that it didn’t meet the legal requirements for contract agreements. For this reason, it’s best if an indemnity clause is formally agreed upon using a written document rather than an oral agreement. Also, a lawyer may be consulted for help with reviewing the document before signing the agreement.
Indemnity clauses can often lead to very specific (and sometimes limiting) legal consequences. You may wish to hire a contract lawyer if you need help with an indemnity clause. Your attorney can go over the indemnity clause with you so that you understand what your legal rights are under the contract. Also, a qualified attorney can help you in court in the event that you need to file a claim for a damages award or other type of legal remedy.