Indemnity Agreements in Illinois

Indemnity agreements often require precise language in order to specifically define the agreement’s parameters and avoid additional litigation of avoidable ambiguities or imprecisions within the agreements.  An indemnity agreement is a contract that transfers risk from one party to another, and is mostly used in business or insurance contracts.  In an indemnity agreement one party (the indemnitor) promises to indemnify (hold harmless) another party (the indemnitee) in the event of certain damages.

In Illinois, indemnity provisions are typically construed against the indemnitee, although the court will still evaluate the precise language of the contract and facts surrounding it.  In nearly all indemnity agreements, indemnitees require an indemnitor to indemnify claims by third-parties against the indemnitee.   However, questions often arise when an indemnitee suffers a loss of its own including whether the loss is covered under the agreement.  Illinois follows the general rule that unless the agreement explicitly excludes first-party losses, then they fall within the agreement.  See, i.e., Water Tower Realty Co. v. Fordham 25 E. Superior, LLC, 404 Ill.App.3d 658 (1st Dist. 2010).

Another important part of an indemnity agreement is whether the indemnitor must pay the indemnitee’s attorneys’ fees and costs.  Illinois requires the agreement explicitly state as much or else there is no obligation to pay defense costs in that case.

Another issue often overlooked in indemnity agreements is whether they should be capped.  The general rule in other jurisdictions is that parties are free to limit the scope of indemnity, a.k.a. put a dollar cap on it.  Although there technically isn’t an Illinois case directly on point, it seems that Illinois would allow parties to cap indemnity agreements as long as the indemnity cap is commensurate with the risks and size of the underlying commercial transaction.  All in all, Rock, Fusco & Connelly can provide you with attorneys who have the knowledge and ability required to precisely draft indemnity agreements and negotiate indemnity provisions in accordance with the law.

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