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Indemnity Approval Process

Vancouver Island University is mandated to have insurance coverage under the University, College and Institute Protection Program (UCIPP). This coverage is provided to all institutions against liability and loss; it also provides for identification and management of risks that may lead to loss or damage to property or harm to individuals. Coverage is provided under the Ministry of Advanced Education and includes universities, colleges and institutes in British Columbia.

UCIPP is primarily designed to protect the institution and all its employees while performing approved duties against liability claims.

Institutions are required under the Financial Administration Act to have prior written approval of any indemnity clause in contracts by the government’s Risk Management branch. Please contact the Office of the Vice-President, Administration and Finance, for further information.

What is an Indemnity?

An indemnity is a common risk transfer mechanism between parties in a commercial contract, allocating who will pay for certain types or causes of loss.  A good indemnity is reasonable, fair, and places the risk of loss on the party most able to manage the risks and it returns the indemnified party to the financial position it was in before the loss occurred.  

For example, most general service agreements require that the contractor indemnify the University, College or Institute (an “Institution”) for any losses that the Institution may suffer as a result of acts or omissions of the contractor in delivering the services under the agreement.  This is considered a “common law” style of indemnity in that the contractor is simply agreeing to be responsible for those things required to deliver the services.

There are times when an Institution agrees to grant this kind of common law indemnity to another party against loss the other party may suffer arising out of activities carried out by, or on behalf of, the Institution.  Normally, the other party to the contract would agree to similar language regarding their responsibilities. Typical agreements that contain a common law indemnity are leases, licenses to occupy and agreements where the Institution is delivering the service.  

Sometimes the Institution is asked to grant an indemnity for the actions of others or take on risks in a contractual setting that would not normally reside with the Institution.  These indemnities go beyond “common law” and must be carefully vetted to ensure risks are allocated appropriately before approval is granted.

Indemnities in Practice

All standard Institution contracts, agreements, or permits should contain a pre-approved indemnification clause allocating liability for the contractor’s actions to the contractor, obligating the contractor to make good on any losses the Institution sustains because of something the contractor did or did not do in fulfilling its obligations under the agreement.  Approval is not required for indemnities where they are being granted to and not by the Institution, or where the indemnity language has been pre-approved.  

Here’s an example of an indemnity clause, from the province’s General Services Agreement:

The Contractor must indemnify and save harmless the Province and the Province’s employees and agents from any losses, claims, damages, actions, causes of action, costs and expenses that the Province or any of the Province’s employees or agents may sustain, incur, suffer or be put to at any time, either before or after this Agreement ends, including any claim of infringement of third-party intellectual property rights, where the same or any of them are based upon, arise out of or occur, directly or indirectly, by reason of any act or omission by the Contractor or by any of the Contractor’s agents, employees, officers, directors or Subcontractors in connection with this Agreement, excepting always liability arising out of the independent acts or omissions of the Province and the Province’s employees and agents.

An indemnity clause does not have to use the word “indemnify” to be a promise to make whole.  An indemnity obligation may be present if the language appears to indicate a promise to pay the other party after loss or damage has occurred.  Indemnities may be created in wording such as:

• “hold harmless”

• “accept responsibility for costs”

• “reimburse”

• “defend and pay”

• “obligation to repair or repay for repairs”

• “pay for damage”

• “pay all financial obligations, loss or claims”

• “assume liability”

• “compensate for losses or damages”

Alternatively, not every clause with the word “indemnify” or any of the terms above is truly an indemnity.  A payment obligation that forms part of the terms of the business deal (e.g. fees, expenses, liquidated damages, incentive payments, rate increases, etc.) might use terms often associated with indemnities, but that obligation is not an indemnity in the sense of making whole for unforeseen circumstances.  

Some agreements do not consolidate all indemnity obligations together in one or two paragraphs therefore it is particularly important to read very carefully every contract to ensure that every indemnity obligation has been identified, reviewed and approved.

Indemnity Approval Process

UCIPP facilitates the indemnity approval process for VIU.  It is necessary to, where an indemnity is expected, to involve UCIPP as early as possible in negotiations so we can provide feedback on the acceptability of early drafts.  UCIPP’s early review of proposed indemnity language can help ensure that when you are ready to seek formal approval of the indemnity the agreement has received all the necessary amendments to make it acceptable and there will be no delay in approval of the indemnity by the Executive Director of Risk Management Branch.

To obtain indemnity approval, send the complete, unsigned, final draft of the agreement in which the indemnity appears along with any supporting documentation to Janette.Polson@viu.ca,

The Risk Management Branch conducts a careful review of every submission and maintains complete records of indemnities that have been approved in accordance with the Financial Administration Act.  However approval is not automatic: language must meet the review criteria.

Review Criteria

Approval must be sought prior to signing the agreement that grants the indemnity.

The indemnity is limited to claims arising out of the Institution’s own acts or omissions.

The indemnity deals with accidental or unplanned (fortuitous) happenings that may occur in the future.

The liability assumed by the Institution is not greater than the liability that would be imposed on the Institution in the absence of the indemnity and it does not expose the Institution to costs it would otherwise not be liable to pay (such as for the liability of other parties).  This includes the common law liability the Institution assumes in carrying out its programs.

If both parties bring some element of risk to each other, the indemnity provisions are reciprocal and balanced between each.

The Institution controls the risks that they are being asked to assume by virtue of the indemnity.

The indemnity is required for the successful completion of an approved Institution program and the liability assumed under the indemnity is reasonable for that activity or program.