December 6, 2022 – It seems appropriate that I penned this column on Hallowe’en. I am often asked to review contracts and, predominately, subcontracts, and the one item that keeps rearing its ugly head—that no one can identify as an inappropriate allocation risk—is indemnities.

The extent of the indemnities to which you are agreeing will be found in the particular contract clause providing for them. They are typically loosely worded so that you end up covering off and indemnifying, not only the party with whom you contracted, but others as well, thereby effectively protecting them from any losses or claims.

The wording of these indemnity clauses is almost always misunderstood and, because of that, largely ignored.

An indemnity clause is essentially your agreement to protect another party or group of parties from any losses incurred because of something you may have done, or not done—even when your improper action or failure to act is only proportionally allocated to you.

One reason to start paying more attention to these clauses is to understand what has occurred in the United States, where nearly half of the states have passed anti-indemnity legislation, prohibiting the enforcement of provisions that purport to indemnify the indemnitee for losses resulting from the their “sole negligence” or “willful misconduct”.

So why is it that half of the United States—typically a bulwark against government intervention—has anti-indemnity legislation and we do not? Obviously, there was sufficient concern to pass such legislation in the States… yet Canada has no equivalent legislation that I know of.

If half of American states believe indemnity provisions inappropriately allocated risks in contracts, then perhaps we—and more importantly, you—should regard them as problematic, and spend more time reviewing them as they arise in your tender documents, contracts and subcontracts.

Dan Leduc is a partner in the law firm of Norton Rose Fulbright LLP, and practices exclusively in the area of construction law. He is always happy to take on new clients from anywhere in Canada. Contact Dan at dan.leduc@nortonrosefulbright.com.

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