The Indemnity Agreement Gives Legal Protection to People Involved In Families, Businesses and Charities
Why and How to Use the Indemnity Agreement with Families, Businesses and Charities
This Preventive Law Study was written by: John Goodson, Colleen Manley and Christine Goodson Forakis.
Summary
The Indemnity Agreement is executed by members of a family, persons involved in a business, and persons involved in charities and other organizations in order to protect these individuals from lawsuits arising out of their involvement in the enterprises. If you do no have protection with the Indemnity Agreement, family members, businesses, business participants and organizational members may be sued. The organization they are a part of may let them hang and swing in the wind as they try to rustle up money to pay an attorney and defend themselves. The Indemnity Agreement puts the burden on the organizations that can afford it and encourages the organizations to buy the protective insurance in order to assist in the defense of those involved in the organizations. This means that when there is a lawsuit the business and the employees all work together to defend it. The only exceptions to the Indemnity Agreement protection is when a person involved in a family business or charity performs an act which is characterized as an intentional wrong doing or gross negligence. In those instances, they will not be protected under the Indemnity Agreement.
The Indemnity Agreement protects members of a family, officers, employees and agents of a business, and members of organizations and partnerships. Persons protected are called Indemnitees, and the organization responsible for protecting them is the Indemnitor.
For preventive law purposes we want every large and complex family, every business, charity, partnership or organization to protect the people involved with an Indemnity Agreement similar to the Indemnity Agreement certified by the College of Preventative Law.
Everyone in these Indemnitor organizations are human beings and likely to make mistakes and commit negligence. We accept those mistakes because it is part of the learning process and we strive through good management and administration to reduce the mistakes and eliminate the negligence whenever possible. But, if someone makes a mistake we would not want to hang them in the gallows or allow someone outside of the organization to sue them, seek to put them in jail, or force them individually to pay for their mistakes.
When an Indemnitee is threatened with a lawsuit, they are immediately worried about the attorney fees, the court costs, and the claims against them and their family. An Indemnity Agreement takes care of these instances in somewhat the same way that workman’s compensation takes care of workers who are injured without the worker having to expend money in filing an expensive lawsuit.
Usually in following preventative law procedures, we encourage clients to include with the Indemnity Agreement the Confidentiality Agreement and the Integrity Agreements that are approved by the College of Preventative Law. When signed by persons in the organization, the Integrity Agreement protects everyone against lawsuits. It requires that anyone having discomfort claims or controversies bring these to the attention of the person involved in (1) conversation, then (2) in written communication, and if that does not work, (3) through negotiation, mediation or arbitration but never, never expose anyone in the organization to heavy expenses and unpleasant notoriety of a lawsuit.
The Confidentiality Agreement insures that everyone in the organization may discuss confidential matters and be assured that these confidential matters will not go outside the organization. It particularly protects the organization where the organization has secrets, copyrights, special processes and other competitive ideas which enable the organization to succeed. The organizations encourage everyone involved to sign the Integrity Agreement and the Confidentiality Agreement and as a benefit for doing this they will have the protection of the Indemnity Agreement.
If an Indemnitee is sued they will have the organization pay their attorney fees, their litigation costs, allow them time off for the legal proceedings, cooperation and assistance in the legal actions. If the worse happens and there is a judgment against the Indemnitee, the organization will pay that judgment for them so that the Indemnitee’s livelihood will never be put into jeopardy. The only exceptions to the required defense of the Indemnitee would be when the Indemnitee is guilty of gross negligence or intentional wrong doing. If there is any question about whether there was wrong doing or gross negligence, there are provisions in the Indemnity Agreement which allow a fair way to resolve that question without further distressing litigation.
The Indemnitor — the organization involved — must seek assistance in providing these benefits to the Indemnitees by having liability insurance, particularly umbrella liability insurance, directors and officers insurance, errors and omissions insurance and other coverages which protect the organization — Indemnitor — from the large amounts of funds necessary to handle the litigation claims. The Indemnitor organization may easily afford these high exposures by utilizing the highest amount of deductibility levels. There, for instance, the Indemnitor covers $10,000 — $50,000 of the claim and the insurance company covers the rest. If this technique is used then the expense of the coverages are within the budget of a family business or charity.
Preventative law is identifying every way a family business or charity organization may be damaged and plan in advance to prevent that damage or easily handle the damage should it occur. The Indemnity Agreement is one of those preventative law tools which enables a business to sustain itself even if mistakes occur from time to time.
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