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Nonprofit leaders negotiating contracts with vendors, software providers, event venues, consultants, contractors, and other third parties understandably focus on costs, deliverables, implementation timelines, and performance expectations.
Less compelling details, like indemnity and insurance clauses, can be easy to overlook when decision makers are focused on the features that will have the most immediate impact on finances and operations.
Failing to look closely at those provisions may expose a nonprofit to serious financial consequences if a dispute, accident, or legal claim arises. They may never become relevant over the course of the relationship, but if they do, leaders will be glad they took the time to understand them before signing.
What Are Indemnity and Insurance Clauses?
An indemnity clause is a contract provision that outlines which party may be responsible for certain claims, damages, losses, or legal expenses.
An insurance clause establishes the types and amounts of insurance coverage a party is expected to maintain during the relationship.
Although they address different issues, these provisions often work together. An indemnity clause may establish responsibility for a claim, while an insurance provision may identify the coverage intended to respond to that claim.
How Indemnity Clauses Can Shift Liability
Indemnity provisions are designed to allocate risk between the parties.
For example, a nonprofit hosting a fundraising event may sign an agreement with a venue, caterer, security company, or equipment rental provider. Each contract may contain different indemnification language.
In some cases, an indemnity provision may require a nonprofit to assume responsibility for claims arising from specific activities. In others, responsibility may be shared between multiple parties.
The specific language used in these agreements matters. Small differences in wording can significantly affect how liability is allocated.
Why Insurance Requirements Deserve Careful Review
Insurance provisions often extend beyond a simple requirement to maintain coverage. Contracts may specify:
- The types of insurance that must be maintained
- Minimum coverage limits
- Whether proof of coverage must be provided
- Whether another party must be added as an additional insured
These requirements can create unexpected obligations if they are not carefully reviewed before an agreement is executed.
How These Clauses Work Together
Consider a nonprofit that signs a contract to host a fundraising event at an event venue.
The agreement may require the organization to maintain liability insurance while also agreeing to indemnify the venue under certain circumstances.
If an accident occurs during the event, the indemnity provision may help determine which party is contractually responsible for resulting claims. The insurance provision may then affect whether coverage is available and how those costs are addressed.
Because these provisions often operate together, reviewing one without considering the other may provide an incomplete picture of a nonprofit's contractual obligations.
Contract Language That May Warrant Additional Attention
Indemnity and insurance clauses are only two of several provisions that can affect liability. Nonprofit leaders may also want to pay close attention to:
- Defense obligations
- Insurance coverage limits
- Additional insured requirements
- Limitations of liability
- Termination provisions
- Renewal language
Contract terms that look like standard boilerplate can become extremely important if an incident occurs or a dispute arises. Taking the time to understand those provisions, ask questions, and negotiate changes when appropriate may help nonprofits avoid painful financial surprises later.
Our Atlanta Nonprofit Attorneys Can Clarify Contract Terms and Risks Before You Sign
A contract review can help nonprofit leaders understand what the organization is agreeing to, where insurance coverage may come into play, and whether certain obligations warrant clarification or negotiation.
The nonprofit attorneys at the Law Office of Cameron Hawkins can review vendor and third-party agreements and help Atlanta nonprofits better understand potential liability before they sign. Call 678-921-4225 to discuss your contract review needs.
