We all sign contracts – credit card apps, loan agreements, website disclosures. These sometimes contain provisions that I and my clients encounter in settlements of personal injury or wrongful death cases. These may provide that my clients, or you, agree to protect the company or person you are contracting with from any claims that might be made against them as a result of the transaction or incident involved. That agreement to protect is called “indemnity”. Should signing such an agreement concern you? Perhaps.
You may have assigned some interest in your claim or your property to someone who is not a party to the contract, for instance your home mortgage lender. If your home is damaged and your insurance company pays you for that damage, your insurance company may ask you to sign a release containing indemnity language, or that indemnity language may already be in your insurance policy. You are then agreeing to indemnify your insurance company if someone tries to collect money from them as a result of the storm damage. Your mortgage documents likely contain a provision that the lender can claim any insurance proceeds payable due to damage to the home which they have a lien on. If your insurance company doesn’t make the insurance settlement check payable to both you and your lender or doesn’t obtain a release from the lender permitting payment directly to you, the lender might discover the settlement and demand that the insurance company pay the amount of the settlement to them to be applied on the mortgage, even though you’ve already gotten the money. That’s when your insurance company can point to the indemnity provision in your release or your policy and demand you pay them back the money which should have gone to the lender in the first place. This is not unfair, but you need to be aware of these indemnity provisions. Before I allow a client to sign a release containing indemnity language, I add, “provided that indemnitee gives notice to the indemnitor upon receipt of any claim asserted against such indemnitee and cooperates with indemnitor in the resolution, denial and/or defense against such claim.” The reason for the added language is to avoid the possibility that the indemnitee (in my field of personal injury practice, that would typically be the insurance company or the person who caused the injuries, or both) would receive a claim from a third party, perhaps the hospital where my client was treated for the injuries, and pay the hospital and then turn around and demand my client (the indemnitor) indemnify the indemnitee by paying them the amount they paid out to the hospital. While that might seem fair, there may be a reason my client did not pay the hospital; perhaps my client disputes the bill or has a malpractice case against the hospital and doesn’t want to pay the bill until that is resolved. By requiring the indemnitee to give notice to my client before paying the bill to the hospital, I provide my client with the opportunity to explain why the bill should not be paid and to contest it if they choose to.
©2022-Roland Brown – Prepared July 29, 2022 – This article has been released in a shortened form for publication in the Wimberley News and Views and the Dripping Springs Outlook.