PART 2 OF 4: The Clauses That Allocate Risk

Indemnification, liability limits, and insurance, where the real exposure lives.

If the clauses that define the deal describe the good times, the clauses that allocate risk govern the bad ones. These provisions decide who bears the cost when something goes wrong, and they are frequently the most consequential and least understood terms in the agreement. This part addresses the risk-allocation clauses.

Indemnification

An indemnification clause determines who covers losses, claims, and damages arising from the relationship, and who defends whom if a third party sues. These clauses can shift substantial risk from one party to the other, and their scope, which claims are covered, which are excluded, and any limits, deserves close reading. A one-sided indemnity can quietly place most of the risk on you.

Limitation of liability

A limitation of liability clause caps how much one party can recover from the other, and often excludes certain kinds of damages entirely. These clauses can dramatically reduce your recourse if the other side fails to perform:

• A cap that limits total recoverable damages, sometimes to the fees paid.
• Exclusions of consequential, indirect, or lost-profit damages.
• Whether the limits apply mutually or only to one side.

Insurance requirements

The insurance clause requires one or both parties to carry specified coverage, which is what makes an indemnity meaningful. An indemnification promise is only as good as the indemnifying party's ability to pay, so the agreement should require adequate insurance, appropriate to the services, and proof that it is in place.

Allocating risk fairly

Risk-allocation clauses work together, and they should reflect which party is best positioned to bear and insure against a given risk. An agreement that loads all the risk onto one side is not only unfair but can be impractical, since the party bearing the risk may be unable to actually cover it. The goal is a sensible, insurable allocation.

Reading these clauses before you need them

Risk-allocation clauses are invisible until something goes wrong, and by then they cannot be changed. Reading and negotiating them at signing, when they feel abstract, is what determines whether you are protected when a real problem arises. These are the clauses most worth slowing down for.

How West Coast Health Law Can Help

We help healthcare businesses understand and negotiate the indemnification, liability, and insurance clauses that decide who bears the cost when a service relationship goes wrong.

West Coast Health Law offers a FREE consultation which you may schedule by clicking the button on our website.

This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Laws change and every agreement is different; consult a qualified attorney about your specific situation.