CASUAL LEGAL: Navigating Indemnity Clauses in Municipal Contracts

Attention: AMSC Members – Please distribute to all appropriate personnel

Navigating Indemnity Clauses in Municipal Contracts

By Tamara Korassa

Reynolds Mirth Richards Farmer LLP

AMSC Casual Legal Service Provider

An indemnity is a contractual agreement where one party agrees to make good a loss that is suffered by another party. Indemnity provisions are common in a wide range of contracts a municipality may enter into. Beyond confirming that the contract has an indemnity provision where a municipality is seeking to limit its risk exposure, a municipality will want to give careful thought to the wording of the indemnity provision – which can sometimes be tedious or intimidating due to the legal language used to draft indemnity clauses. However, a municipality that understands indemnity provisions are drafted according to a formula will be in a better position to look at the components of the indemnity to determine if the provision will protect the municipality as intended. The basic formula of an indemnity is as follows:

INDEMNIFIER indemnifies INDEMNIFIED PARTY from LOSS

caused by TRIGGER/EVENT subject to LIMITS/EXCLUSIONS.

The Indemnifier and the Indemnified Party are the “who” (generally the parties to the contract) and should be clearly identified. However, the Indemnified Party may be expanded to include the party’s directors, officers, elected officials, employees, consultants, volunteers etc. The Loss is the “what” the Municipality might experience as a result of the Trigger/Event. The list of Losses should comprehensively covers any potential loss or damage the municipality foresees. By way of example, the list of losses could include claims, losses, debts, dues, costs, damages, solicitor and client costs, interest, penalties, GST but each situation will vary. The Trigger/Event is the “why” and determines if and when the indemnity is called into effect. A municipality should consider, based on the nature of the contract, whether they want to be indemnified for a breach of contract, a misrepresentation of the Indemnifier, a specific act or omission of the Indemnifier or otherwise. An indemnity provision can also include Limits/Exclusions (the “but”) which could be a monetary limit or the exclusion of loss that is contributed to by another party.

For example: To apply the formula to the circumstance where a municipality (Indemnified Party) is leasing land to a tenant (Indemnifier), the municipality will want to be indemnified for any environmental claims, actions, fess or liability (Loss) arising due to the tenant's operations on the land or caused by the tenant bringing hazardous substances on to the land (the Trigger/Events). The indemnity could exclude any liability or loss that is a result of the condition of the land prior to the tenant taking possession (Limit/Exclusion).

To access AMSC’s Casual Legal Helpline, AUMA members can call toll-free to 1-800-661-7673 or email casuallegal [at] amsc.ca and reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please contact riskcontrol [at] auma.ca, or call 310-AUMA (2862) to speak to AUMA’s Risk Management staff. Any Regular or Associate member of the AUMA can access the Casual Legal Service.

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.