Indemnification by Other Parties

 

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Selecting the types and levels of insurance is vitally important to a small business owner seeking to avoid day-to-day liability risks. So an owner should follow some general insurance guidelines if he or she wants to take full advantage of the protections purchased.

If a small business owner is relying on another party's insurance in a business arrangement, the owner should consider a requirement that the other party indemnify the owner. This indemnification, or "hold harmless" provision as it is frequently called, requires that the other party reimburse the small business owner for any loss he suffers in the transaction or relationship. In this way, the small business owner adds an extra layer of protection.

An indemnification clause may seem to be superfluous given the insurance protection. However, insurance policies, of course, have many exclusions from coverage. The indemnification clause will apply when the insurance does not cover the liability.

Risk managers for large corporations and municipalities, for example, typically require both insurance coverage and indemnification.