Indemnity = insurance coverage |

Indemnity = insurance coverage

Rohn RobbinsVail, CO, Colorado

As much as this may stretch your imagination, lets say youve messed up something. You left the barn doors of some commercial transaction open, and not only are the cows never coming home, they paraded, sadly lowing, before a semi driver on the graveyard shift who misplaced his No-Doz. And now the herd is hamburger on the skillet of the interstate. Whats a body to do?Well, you, if not the cows, just might be in luck. That is, if you were indemnified.Indemnity is a collateral contract or assurance by which one person engages to secure another against a potential loss. It means that someone not a party to a transaction (say you, for example) agrees to be responsible for something one of the parties to the transaction (say me, for example) does to mess up the transaction. A party to a transaction may also indemnify the other party for losses for which the indemnified party would otherwise be liable. In the case above (lets call it the cow case), if you were indemnified, the indemnifying party, instead of you, would be responsible to the other party for the hamburger on Interstate 70. Cool, huh? Its sort of like institutionalized parenting. I spill my milk and cookies all over the neighbors zillion-dollar Andean alpaca-wool carpeting and you, not me, foot the bill for the steam cleaning.But why would someone agree to indemnify someone else? There are at least two good reasons. First, shocking as the concept may be, some businesses are actually in the business of indemnifying others. These businesses are called insurance companies. Youve cursed at them, no doubt, when youve had to pay your premiums, or when youve had a loss that youre pulling your hair out over in order to get them to pick up the tab. Insurance, in the classic way most of us think about it, is, in fact, an agreement for indemnity. Instead of like a good neighbor or some other drivel, what accurately could be recited as the spinal column of insurance is this: You screw up, we pay.Lets say Im tooling around town in my pathetic excuse for a car. Say, too, that the way I mess up is to tool my car through a red light and thence into the sparkling skin of your Lamborghini. You hop out, hopping mad, and I throw up my hands, breathing steadily and easily. This ones not on my nickel, I know. The insurance company, which has issued me a policy of indemnity insurance in exchange for my faithful payment of premiums, is picking up the tab. Whew!Another good reason that someone might indemnify someone else is in order to induce the indemnified person to enter into an agreement that is, in one way or another, important to the person doing the indemnifying. Say Mr. A owns property that he wants to develop into a retail center. Mr. B is a general contractor. Messrs. C, D, E and F are all subcontractors who will only work on As project if B indemnifies them. If B wants the contract with A badly enough, he might capitulate to C, D, E and Fs demand that he indemnify them. In this way, relieved of the burden of screw-ups, C, D, E and F march happily off to work on the project of construction, and B gets what he wants the contract to build As retail park.Boiling it all down, indemnification is the means by which a victim of a loss is restored to his or her former, pre-loss glory by the payment, repair or replacement of the thing which is lost or damaged. It is a process by which the person responsible for the loss is held harmless for his or her own actions. It is one of the underpinnings of commercial insurance and a legal concept without which business simply could not get done. In purchasing insurance, which indemnifies the buyer, the buyer is capable of undertaking transactions which would otherwise be prohibitive. It allows one to buy, for a fraction of what the loss itself might prove to be, assurance that whatever losses might accrue are covered.So, you see, indemnity, not love, makes the commercial world go round. Still, prevention always is the better course.Rohn K. Robbins is an attorney licensed before the bars of Colorado and California who practices in the Vail Valley. He is a member of the Colorado State Bar Association Legal Ethics Committee and is a former adjunct professor of law. He may be heard on Wednesday nights at 7 p.m. on KZYR radio (97.7 FM) as host of Community Focus. Robbins may be reached at 970-926-4461 or at his e-mail address:

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