Wednesday, November 9, 2011

Business Attorneys Are a Form of Indemnification

How many times do you agree to a company’s terms of service or sign an agreement without actually reading what you’re signing? While you may be willing to simply click the button and agree to the terms of service to create your account with Amazon and watch that movie you’re anxious to stream, the same attitude can cost your business more than you could imagine.

One of the most important aspects of owning your own business is protecting yourself from damages caused by other people. An experienced business attorney can help you protect your business and assets, creating a shield through carefully constructed language.

Let’s say you own a hotel and you’re having a contractor come in to do some work on the lobby and the contractor’s ladder falls, taking out a chandelier and injuring a guest. The contractor would be responsible for the damages, right?

That all depends on what kind of indemnification clause you agreed to in the contract you signed. I don't know how many times I have had clients come to me with contracts they’d signed without reading or understanding them, leaving them open to significant loss caused by the negligible hands of others.

In the hotel example, let’s say the contractor’s contract indemnified him, his employees and his company so that any damage done by his crew was the responsibility of the hotel. A contract constructed this way basically gave the contractor a get out jail free card with the hotel. The hotel would not only be responsible for the damages but liable for any civil suit brought by the guest. Without proper indemnification, you can be liable not only for the damage caused by the contractor, but also medical bills and other provisions if anyone is injured.

Properly constructed contracts that provide clearly spelled out indemnification protect you and your business from other people's mistakes. I recently negotiated a very favorable contract for a company that leases trucks for film productions. The contract is worded in such a way that if anything happens to that vehicle that is not the sole fault of my client, the film company pays 100 percent of the damages.

Should the film company that negotiated the lease with my client have negotiated for better terms? Yes. Did they? No. I was able to get a very positive provision in my client’s contract that shields his company from risk. Indemnification and contract negotiation require the skill of an experienced attorney. It's important as a business owner to make sure your rights and interests are properly represented and protected.

The law is a complex animal, and too often people try to take on legal contracts and negotiations themselves without the help of lawyers. This leaves them open to costly mistakes and manipulation by others who have the legal knowledge. Indemnification is only one aspect of contract negotiation, but it is an important one. Think twice before creating a contract yourself (or signing one you don’t understand), because it could lead to significant costs down the line.

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