Wednesday, June 20, 2012

Company Wonders About Indemnity Clause

Dear Rich: We're planning a company event and hiring an event planner and he sent over a contract with this clause? Is this standard? If so, we won't worry about it. We just thought these things were usually more of a two-way street.
Indemnification. The Client agrees to indemnify, save and hold Planner harmless from any and all liabilities, claims, injuries, accidents, or actions of any kind whatsoever resulting from or arising out of performance of this agreement, whether by rendering services and/or rentals of props and other products, services and equipment. The Client further agrees to indemnify, save and hold Planner harmless against any arrearage or deficiency resulting from misrepresentation, breach of warranty, or from non-fulfillment of any agreement on the part of the Client under this contract, including but not limited to all actions, reasonable attorney’s fees, proceedings, demands, assessments, judgments, reasonable costs and expenses incident to the foregoing.
We don't know if it's "standard" for event planners but it's a typical scorched-earth overkill indemnity provision that's intended to relieve the planner of any liability.  
What is indemnity? Indemnity is a powerful shield that is typically invoked to get one party to defend the other against third-party claims. For example, if someone (a third party) is injured at the event and that person sued the event planner, you would have to defend the lawsuit. That's not an extraordinary request by the event planner, but this provision goes further. By not limiting indemnity to third-party claims it illogically implies that you would have to pay for a lawsuit brought by the planner, even if it is brought against you and based on his negligence. Plus, the first sentence follows a kitchen sink approach and seems to require that you pull out your checkbook for any possible contingency ("actions of any kind whatsoever"). Ideally, you should only have to indemnify for actual legal claims filed against the planner.
Rule of the last antecedent. The last sentence has a common contract drafting problem. It includes a list of conditions ("misrepresentation, breach of warranty, or from non-fulfillment of any agreement"), separated by commas, the last of which includes a qualifier ("on the part of the Client"). We assume the qualifier is meant to apply to all conditions --  Client's misrepresentation, Client's breach of warranty, and Client's non-fulfillment of any agreement --  but if we applied the rule of the last antecedent, the qualifier would only apply to the final condition ... leading to a bizarre outcome in which your company might arguably be required to pay damage resulting from the planner's false statements. We assume this wouldn't happen and a court would take a more common sense approach.
In an ideal world ... If the provision were revised to consider these issues, it might look like this
Indemnification. The Client agrees to indemnify, save and hold Planner harmless from any and all third-party claims resulting from any Client misrepresentations, or breaches of Client warranty, or from non-fulfillment of this agreement on the part of the Client, including but not limited to reasonable attorney’s fees and reasonable costs.
Should it be mutual? Indemnity isn't always a two-way street and these clauses are often one-sided—that is, one party provides the indemnity and the other stands to receive it. But they can be mutual and an attorney looking out for your interests might seek an indemnity provision protecting your company against third-party claims arising out of the planner's negligence, misrepresentations or failure to properly perform his job.