This Clause Should Give You Pause

Beware of service contracts that shield companies and put you at risk

On my first business trip with my then 7-month-old twins, I needed child care. A nanny service with a good reputation that the hotel suggested was bonded, and the price was right. All seemed well -- until I got its contract. In a paragraph titled "indemnification and hold harmless," it said the company would not be liable for the nanny, and furthermore, I would have to indemnify the company should it get hit with any claim arising from its service.

Fortunately, I had a choice. A second service had no such terms. But what if I had signed, as many consumers do, perhaps without grasping the legal jargon?

Had there been a loss or injury to someone else, I might have found myself a defendant in a lawsuit. Or, if the injury had been to one of my children, I would have had to persuade a court to throw out the indemnification clause in order to hold the nanny service liable. The clause would, at best, have increased the cost of collecting and, at worst, made it impossible.

My experience is no anomaly. Such one-sided clauses have become more common in the last decade as Corporate America has sought to shield itself from liability. They show up in contracts for Sierra Club outings, alarm services, and even for work by the air-conditioning repairman.

Enforcing such a clause would be difficult, says Michael Greenfield, a professor at Washington University in St. Louis School of Law. But he says its very presence might intimidate consumers and make them less likely to sue or more apt to settle out of fear of how a judge would rule. Courts once cast a cold eye on consumers indemnifying corporations, says Heidi Li Feldman, a professor at Georgetown University Law Center. But they have begun to warm to the idea, letting the issue proceed further toward trial.

What should you do if you come face to face with an indemnification clause -- or any other you think is unfair? First, try striking it out. If the company refuses, look for a provider that doesn't demand the one-sided language.

If neither strategy succeeds, ask if your insurance would cover you should you find yourself liable. Most homeowners' policies exclude any liability the consumer enters into by contract, says Janet Bachman, vice-president of the American Insurance Assn. The one common exception is for contracts entered into for the maintenance of the home, such as with a heating and air-conditioning repair service. Also, auto insurance policies usually cover losses caused by anyone you permit to drive your car. But that coverage is unlikely to extend to, say, liability you're exposed to if a nanny service that you've indemnified is sued for negligence because its nanny was the driver. Bottom line: Contact your insurance agent before you sign.

AT GREATEST RISK

If your case goes to trial, the decision may vary by state, even by judge. California courts tend to be consumer-friendly; Texas courts less so. Of course, the details affect the outcome. Factors include how sophisticated the court thinks you are and whether you had any power to negotiate the terms of the contract. Also, a judge will likely be more sympathetic to someone who agreed to such a provision to get medical care than to a person who signed up for hang-gliding lessons.

How common the clause is might also be an issue. If the clause is unusual for the kind of service involved, a court might decide the consumer could not have anticipated it and rule it unenforceable; if it has become extremely common, a judge may reason the consumer had no choice. It's in the middle where the greatest risk lies, says Feldman.

As Corporate America turns to clever contracts to avoid liability, consumers need to pay extra attention to any service contracts they're asked to sign. You don't want a short babysitting job to turn into a long legal headache.

By Carol Marie Cropper

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