Risk management

 

Non-insurance clause information

 

Indemnification or hold harmless clauses are a type of non-insurance transfer of liability to another party. These clauses are common in personal or professional service contracts with independent contractors. Their purpose assures that the contractor retains liability for its wrongs and protects, defends and reimburses the state of any claim directed against it due to the contractor's actions. These clauses are an important tool in protecting the state from wrongs done by people who, for payment, offer their services as competent experts in their field.

Do not indemnify an independent contractor. The state is subject to the Oregon Tort Claims Act (OTCA), ORS 30.260 to .300.  The OTCA limits the state´s liability exposure. Independent contractors have unlimited liability. Indemnifying an independent contractor may make the state subject to unlimited liability.

​Consult with your AG Counsel for additional indemnification clauses, or prior to changing template indemnity clauses.

 

Clause

"The state of Oregon agrees to be responsible for any damage or any third party liability which may arise from its (list the specific activity) subject to the limitations and conditions of the Oregon Tort Claims Act, ORS 30.260 to .300, and the Oregon Constitution Article XI, Section 7, to the extent of liability arising out of the negligence of the State. The state shall not be required to indemnify or defend the Contractor for any liability arising out of the wrongful acts of employees or agents of the Contractor."

DAS RM recommends using indemnification clauses in the state’s favor as approved by the Department of Justice. The clauses transfer the responsibility or liability of any claim arising out of contracted services to the contractor. Decisions not to use the clauses may be made by the contracting agency as approved by the Department of Administrative Services or Department of Justice. However, DAS RM should assist agencies with options and the potential financial impacts.  Examples of several indemnity clauses can be seen in various template contracts (from services and goods to IT) on the Templates webpage within the Department of Administrative Services Procurement website. These indemnity clauses have been developed and vetted by the Department of Justice in order to protect the state.

When do they apply?

  • Can be added upon request of Contractor. May require the approval of your legal counsel. 

Notes

  • Because of a constitutional limitation, a reciprocal indemnity clause from the state is not possible. However, if a Contractor requests an indemnity/hold harmless clause from the state, the State of Oregon Responsibility clause may be added.

Clause

"Federal agency shall perform the services under this contract as an Independent Contractor. Federal agency shall be responsible to the extent permitted by the Federal Tort Claims Act, only for the acts, omissions or negligence of its own officers, employees or agents. The Oregon agency shall be responsible to the extent permitted by the Oregon Tort Claims Act ORS 30.260 to .300, only for the acts, omissions or negligence of its own officers, employees or agents." 

When do they apply?

  • Standard clause for contracts involving the federal government. These clauses add provisions that apply to almost all insurance. Change the clauses only if your legal counsel approves.
Notes
  • The federal government is subject to its own tort claims act, not the State of Oregon’s act. Like the State of Oregon, the Federal government is self-funded for most of its risks.

Clause

"The agencies are each insured with respect to tort liability by the state of Oregon Insurance Fund, a statutory system of self-insurance established by ORS 278 and subject to the Oregon Tort Claims Act ORS 30.260 to .300. Each agency agrees to accept the coverage as adequate insurance of the other party with respect to personal injury and property damage." 

Self-Insurance Loss Allocation. The agencies agree that any tort liability claim, suit, or loss resulting from or arising out of the parties’ performance of and activities under this contract shall be allocated, as between the state agencies, in accordance with law by DAS RM for purposes of their respective loss experiences and subsequent allocation of self-insurance assessments under ORS 278.435. Each party to this contract agrees to notify DAS RM and the other agency in the event it receives notice or knowledge of any claims arising out of the performance of, or the agencies’ activities under this contract.

When do they apply?

  • Standard clauses for interagency agreements involving another Oregon state agency.

Notes

  • We are all part of one happy family and cannot sue each other (even if you want to).

When a state of Oregon agency is contracting with an Oregon Public Body, other than a state agency, who will be subcontracting, the agency should be advised to utilize the indemnification by subcontractors’ clause within the Intergovernmental Agreement (IGA). In addition to using the indemnification language within the IGA, subcontractor insurance requirements language needs to be recommended for consideration/use as well.  

If an agency wants to exclude an indemnification clause, DAS RM should assist agencies with options and potential financial and legal impacts. This option is seldom used but can be useful in rare circumstances for high risk services when no other options or resources are available. When this option is used, tort cap limits apply. In the absence of an indemnification clause, likely chain of events can include:

A.    The contractor or the state will be sued for the contractor’s wrongdoing.

B.    DAS RM will cover the state’s loss

C.   DAS RM will seek recovery from the contractor to recover the state’s loss

Note: Roughly the same result can occur as when the appropriate indemnity clause is included, but the process is more protracted when the contractor’s obligation is not spelled out.

Do not indemnify an independent contractor.

The state is subject to the Oregon Tort Claims Act (OTCA) ORS 30.260 to .300, which limits the state’s liability exposure. Independent contractors have an unlimited liability exposure. Indemnifying an independent contractor may make the state subject to unlimited liability. Therefore, DAS RM should advise any agency that it is not recommended to indemnify a contractor. Claims against the state due to an agency’s decision to indemnify an independent contractor may not be covered under the state’s Liability Self-Insurance Policy Manual 125-7-201 and per ORS 278.405. However, if a contractor requests an indemnity/hold harmless clause from the state, the state may agree to it, but the State of Oregon responsibility clause must be utilized (rather than the contractors’ indemnity language) and it may require the approval of the agency’s legal counsel.

This option will eliminate state protection under ORS 30.260 to .300. The wording must be approved by the Department of Justice and must be very carefully followed. Even then, it may not be done without DAS RM’s approval since it constitutes the state insuring someone other than the state. This choice may be suitable when an essential function of the agency cannot be achieved without it. Again, DAS RM should assist agencies with options and potential financial and legal impacts.