Source: Robin Roth, Senior Contracts Editor, Conferon, Inc.
E-Specs: October 13, 2003

One of the nagging questions many planners have when trying to understand indemnification is how does insurance fit in? It is said that the purpose of indemnification is to cover the parties’ liabilities above and beyond their insurance coverage. But it is also said that an indemnification clause is only as good as the insurance policy covering the indemnifying party’s obligations. Although it may appear that these statements are contradictory, they are actually both correct – and complementary.

If a hotel employee had just mopped a floor and an attendee was injured falling on the slippery floor, both the hotel and the group would probably be sued. A court would probably find that the hotel was at fault, but long before the verdict was delivered, the group would incur the costs to defend itself. These costs would not normally be covered by the group’s liability insurance. Without an indemnification clause in the hotel contract where the hotel indemnifies the group, the group would have to absorb those costs. That is where the first statement applies: the purpose of indemnification is to cover the parties’ liabilities above and beyond their insurance coverage.

However, if the hotel contract does call for the hotel to indemnify the group, the hotel must normally arrange for a separate rider onto its general liability insurance policy to cover the potential additional costs of reimbursing the group for the costs of defending itself against the hotel’s negligence. That is where the second statement applies: an indemnification clause is only as good as the insurance policy covering the indemnifying party’s obligations.

It is recommended that groups, especially larger ones, agree to a reciprocal indemnification clause and purchase the insurance to cover their obligations. The cost of a rider is minimal, considering the potential liabilities the group could incur. Under some circumstances the directors and officers of a nonprofit group could be held personally liable if the group was adjudged negligent and the costs exceeded the limits of the group’s insurance policy without the indemnification rider. Keep in mind too that the example above does not take into account any worker’s compensation liability, which is a whole separate issue.

If you are interested in researching and getting quotes for your insurance needs, go to this link: http://www.asaenet.org/buyers_guide/1,2286,,00.html - select the Category "Insurance Administration/Brokers"

(Note: This information is not intended to be "legal advice." A qualified attorney should be consulted to review all legal issues.)