Indemnification Agreements: Risk Management For Your Vendors

by Jessica Patrice Gomez, esq

Many nonprofits and small businesses run their businesses using third-party vendors for services such as janitorial, technology, building contractors and transportation. While having a third party vendor can help your organization run more cost efficiently consider the following before signing an agreement with a vendor. 

If you hire third party vendors an important risk management tool your organization should consider is to assess responsibilities for liabilities that may arise in the provision of services provided by third parties. More specifically, you should always be wondering who is responsible for payment in the event of a law suit or claim. 

In order to protect your organization, your contracts should require that your third party vendor is legally responsible for any claims or damages arising out of the work they perform. Your vendor can be held responsible by including an indemnification provision in the contract for their services. An indemnity provision is a contractual promise by which one person or entity accepts full legal responsibility for losses related to certain specified events.

Usually the third party vendor’s insurance carrier is responsible the damage or liability caused by the vendor. These types of agreements are an effective tool for transferring the risk associated with a particular activity and establish clear responsibility in the event of a loss.

This is especially important because most Commercial Insurance Policies will not pay for damages caused by your third party vendor. Further, you should always require the third party vendor to provide proof of insurance. Make sure you always contact your organizations attorney before signing an agreement and make sure it makes sense for your organization.

If you have any questions, please contact us. We are here to help.