Broad Form Indemnity Agreement

Indemnification provisions include a party`s promise to protect another party from a third party`s claims for compensation. The purpose of an exemption regime is to transfer the risk of third-party claims to the most appropriate party to bear the risk. The text of the LMA Directive not approved by default offers broad compensation coverage. Although the CGL covers the broadest form of compensation, not all compensation obligations are covered by insurance. While contractual liability insurance has advantages in CGL policies, two specific coverage issues often arise. Coverage may not be available, (1) if the indemnification agreement is not valid and (2) if the directive is approved to exclude indemnification agreements. More and more legislators are banning broad-form and intermediate-form compensation agreements. Where a contract contains an opt-out clause that may or may not be prohibited by law, the opt-out clause no longer falls within the definition of “insured contract”. This means that insurance coverage is no longer directly available for the indemnification agreement. Two endorsements, A.C. 21-39 and A.C.24-26, remove or limit coverage.

The first simply removes the coverage of indemnification agreements by removing indemnification agreements from the list of “insured contracts”. The other, A.C. 24-26, essentially removes coverage for large-scale indemnification agreements. While the net result may be the same between the two recovery pathways, the legal mechanisms are totally different. It is possible to have a situation where the net result is different between the two recovery possibilities. This normally happens when a restricted compensation scheme is used, but the upstream part is added as an additional insured, with a confirmation offering full coverage to the additional insured. This situation is generally referred to by insurance bodies as an “additional insured loophole”. Insurance companies are frowning at such a situation and have insisted that statutes be put in place to remedy this discrepancy. Currently, six States prevent a party from claiming coverage as an additional insured in excess of the amount the carrier would have to pay for the insured`s indemnification obligation.

That`s why it`s important to know the extent of coverage provided under each additional insured confirmation form. In the case of skydiving, it is the parties who participate in a compensation agreement: slight changes in the wording can have a significant impact. There are different types of compensation agreements: compensation in a broad form, compensation in intermediate form, compensation in limited form, comparison, implicit, etc. . . .