Property and Liability Insurance and Indemnities in Real Estate Transactions

By: Leona M. Hammill (Co-speaker)
State Bar of Texas: 21st Annual Advanced Real Estate Drafting Course
March 4-5, 2010

I. Indemnity and Waiver Provisions.

A. Indemnity and Waiver Defined. An “indemnity” is an undertaking by one party to a contract (a) to protect the other party against hurt, loss, or damage and (b) to compensate the other party if the hurt, loss, or damage actually occurs. An indemnity is an affirmative obligation in the sense that an indemnity creates a cause of action against the indemnitor. A “waiver” is an agreement by one party to a contract not to hold the other party responsible as to certain types of liability arising out of the transaction. A waiver is negative in nature in the sense that it operates to bar any cause of action on the released matter.

B. Reasons for Using Indemnities or Waivers. Both indemnities and waivers shift financial responsibility for losses from the parties that normally would or might be financially responsible for the losses to other parties. Among the reasons for using an indemnity or a waiver are the following:

• the other party may be in a better position to finance the risk or control the exposure;
• one party wants to protect and hold down the overall cost of its insurance program or is not insured (i.e., wants the other party’s insurance program to answer or, at a minimum, to answer first);
• the risk is customarily allocated to one of the parties within an industry; or
• the bargaining position of one party is strong enough to enable it to shift the responsibility for the loss to the other party.

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