Indemnification Provisions for Staffing
Client-dictated indemnification provisions are becoming more and more common in the staffing industry. Unfortunately for staffing firms, these provisions tend to be one-sided in favor of the client company, and at times, are overreaching to the point of indemnification being requested. Beyond consideration of what’s appropriate liability to assume in such arrangements, under your client’s supervision and direction, it’s important to understand where your insurance coverage steps in to respond to such liabilities and even more vital to understand when it doesn’t respond.
There are two key concepts to keep in mind when reviewing (or having your attorney review) indemnification provisions in the context of your insurance coverage:
- What acts insurance coverage responds to
- How a third party can trigger your insurance coverage to respond on your behalf
What Your Policy Covers
Various insurance policies respond to different types of injuries and damages that result from business activities. For example, general liability coverage responds to bodily injury and property damage suffered by third parties on your premises and operations. Professional liability responds to financial damage caused by your professional services. Liability policies only respond to claims for damages that you’re legally obligated to pay, where the most common legal obligation responded to is negligence.
It’s essential to review the circumstances you’re agreeing to defend when indemnifying and holding your client harmless in that context. I often see language like the following:
Staffing Firm shall indemnify, defend and hold harmless Client from and against any and all claims arising from the acts or omissions of Staffing Firm and its employees.
“Acts or omissions” is very broad language that could encompass several scenarios that don’t necessarily involve any wrongdoing on your employee’s part. What if your employee correctly utilizes machinery that malfunctions and causes harm or damage? Your employee’s usage of the machine is an act. What if your employee stood by and didn’t physically intervene in a situation where a third party was injured in the workplace? Failure to act is an omission. Neither of these situations involves wrongdoing or negligence on your employee’s part, and because of that are unlikely to trigger a response from your general liability policy. It could, however, still trigger a contractual requirement that you pay for both defense costs and damages incurred by your client. Contract language should be worded more narrowly and with consideration of your insurance coverage.
How a Third Party Triggers Coverage
Even if the claim is one where the in force policies will respond on your behalf, it’s a bit trickier to trigger coverage for a client who’s requiring that you (or your insurance carrier) both defend and pay damages on their behalf. There are two primary ways a third party can gain the protection of your insurance coverage – either through additional insured status or contractual liability coverage. Additional insured status adds your client to your policy as an insured, but on a more limited basis. In the absence of additional insured status, an indemnification agreement can trigger your policies to respond, but only for policies that contain contractual liability coverage. It’s critical to note that while contractual liability coverage is typically included under a general liability policy, it’s normally not included on professional liability policies. If you’ve agreed to an indemnification agreement that’s broad enough to include suits that fall under professional liability coverage, but your client didn’t require additional insured status under your policy, the policy will respond on your behalf, but pay nothing on behalf of your client, leaving you on the hook.
For more information on indemnification provisions, contact a member of the ‘A’ Team.
- Liability Coverage Q&A Video
- 3 Tips for Overcoming Contractual Liability Shortcomings
- Am I Covered? The One Question You’ll Never Have to Ask Again
- Liability E-Book
- Staffing & PEO Blog
- Staffing & PEO Industry Page
- Staffing & PEO Webinar Replays
- Staffing & PEO Library Resources
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