Indemnity is a legal term of art, but the basic principle of indemnity is that one party (the “indemnitor”) has contractually agreed to take responsibility for the liability of another party (the “indemnitee”). Common Indemnity Risk Allocation Schemes Each has its own merits, and the best scheme is often determined by a company’s contracting philosophy, market leverage, and the applicable law. reciprocal indemnity is a condition where each party accepts responsibility for loss to its own people and property and for the people and property of its contractors and subcontractors. Narrow reciprocal indemnity is a condition where each party accepts responsibility for loss to its own people and property. The protection is extended to the indemnitee and closely-related entities. Modified reciprocal indemnity is a hybrid. Indemnity for One’s Own Negligence To be successful, risk allocation requires that indemnity obligations be enforceable. Indemnity for one’s own negligence or strict liability is a common contractual provision, but it must be clearly expressed in “unequivocal terms.” “howsoever arising in any way directly or indirectly” is not “unequivocal.” A good example is the model terms of the IADC Daywork Contract: [I]t is the intent of parties hereto that all releases, indemnity obligations and/or liabilities assumed by such parties ... be without limit and without regard to the cause or causes thereof including, but not limited to, pre-existing conditions, defect or ruin of premises or equipment, strict liability, regulatory or statutory liability, products liability, breach of representation or warranty (express or implied), breach of duty (whether statutory, contractual or otherwise) any theory of tort, breach of contract, fault, the negligence of any degree or character (regardless of whether such negligence is sole, joint or concurrent, active, passive or gross) of any party or parties, including the party seeking the benefit of the release, indemnity or assumption of liability, or any other theory of legal liability. “Pass through” Indemnity Contractual liability to a third party flows through indemnity agreements. Ensure that all relevant contracts contain complementary terms. Consider anti-indemnity acts applicable to subcontracts.
the employees of Contractor. Contractor shall have control and management of the Work, the selection of employees and the fixing of their hours of labor, and no right is reserved to Operator to direct or control the manner in which the Work is performed, as distinguished from the result to be accomplished. Nothing herein contained shall be construed to authorize Contractor to incur any debt, liability, or obligation of any nature for or on behalf of Operator. An “independent contractor defense” can be particularly important if the indemnity or insurance protection owed to the company is unenforceable. Louisiana Statutory Employer Under Louisiana law, a “statutory employer” is entitled to immunity from tort claims asserted by its “statutory employees.” A statutory employer provision creates a rebuttable presumption of statutory employer status. But to obtain this immunity, there generally must be an express language in the MSA along the following lines: In all where Contractor’s employees (defined to include contractor’s direct, borrowed, special or statutory employees) are covered by the Louisiana Worker’s Compensation Act, La. R.S. 23:1021 et seq., Company and Contractor agree (a) that all Work performed by Contractor and its employees pursuant to this Agreement are an integral part of and are essential to the ability of Company to generate Company’s goods, products and services for purposes of La. R.S. 23:1061A(1) and (b) that Company is the principal or statutory employer of Contractor’s employees for the purposes of La. R.S. 23:1061A(3). Irrespective of Company’s status as the statutory employer or special employer (as defined in La. R.S. 23:1031C or otherwise) of Contractor’s employees, Contractor shall remain primarily responsible for the payment of worker’s compensation benefits to its employees and shall not be entitled to seek contribution for any such payments from Company. Choice of Law Consider the effects of state law including anti-indemnity and implied warranty acts, the location of the majority of work, and whether that selection of law will be enforceable under the state law where the work will be performed. Declare that the law chosen is the “substantive law of the state, exclusive of its conflicts of law principles.” Payment Require a standard of performance. Contractors must earn the rate they charge.