The Duty to Indemnify and Real Estate Contracts

Almost every real estate contract contains an indemnification provision. Indemni­fication provisions appear in leases, purchase agree­ments, construction contracts, development deals, and mortgages. Based on this fact, you would assume there is a basic under­standing of how the duty to indemnify applies across jurisdictions. However, the caselaw suggests otherwise as it is full of disputes re­garding the same issues.

Black’s Law Dictionary provides the following definitions for indemnify: (1) to save harmless; (2) to secure against loss or damage; (3) to give security for the reimburse­ment of a person in case of an anticipated loss falling upon him; (4) to make good; (5) to compen­sate; and (6) to make reimbursement to one of a loss already incurred by him. This definition might lead to the conclusion a generic indemnification provision covers every loss a business might experience.

By contrast, in Nevada, the Nevada Revised Statutes and caselaw define contractual indemnity more broadly. It is where two parties contractually agree that one party will reimburse the other for liability resulting from the former’s actions. See Medallion Dev. v. Converse Consultants, 930 P.2d 115, 119 (1997). See generally Nev. Rev. Stat. § 17.245.

These differences illustrate a common issue for businesses examining contractual indemnification provisions after an accident or lawsuit. The Black’s Law definition implies generic indemnification provisions include all of the protections provided for in the definition. However, Nevada, and other influential jurisdictions, have proven much less generous. Therefore, it is prudent for multi-jurisdictional businesses to examine and update their contractual indemnification provisions based on jurisdiction-specific considerations.

Contractual Considerations

The following are some general considerations for your business:

The burden of proof is on the party being indemnified as it relates to the scope of the indemnification provision. Also, this party can only recover for matters expressly covered by the indemnification provision. As a result, the plain language of the indemnification provision will likely define its scope.

A provision that is triggered when a party incurs “liability” may only protect that party in the case of a legal finding. A provision that is triggered by “claims” made against a party may protect that party much earlier in the process, such as when the claim is initially filed. Provisions can even be triggered by “notice” clauses.

An indemnification provision covering damages is essentially a reimbursement agreement. In that case, an indemnitee might be required to pay damages before it is entitled to be reimbursed.

The duty to defend and the duty to indemnify are not the same thing. Therefore, a party should not presume reimbursement for the costs and expenses of defending a claim. In some jurisdictions, including New York, the duty to defend is broader then the duty to indemnify, such that a court may not permit a claim for defense costs absent express obligation.

The indemnitee will not likely control the defense of the claim, especially during the tender process. The prudent party will expressly address these issues contractually.

A provision that protects the indemnitee from the consequences of their own negligence is enforceable. However, courts will not imply this absent express language. A provision covering intentional actions such as fraud, willful misconduct, or gross negligence is generally not enforceable.

This short list of considerations is by no means comprehensive. It simply provides a starting point for improving your business’ liability protections as you move across jurisdictions.

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