Legal Brief: Indemnity and Contribution

Sept. 13, 2024
Understanding the differences may be crucial to protecting your business

This article originally appeared in the September 2024 issue of Security Business magazine. Don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter if you share it.

In the security business, sometimes bad things happen. People make mistakes. Lawsuits result. You cannot reduce the risk of litigation to zero – unless you stop doing business. So, you must have a good lawyer, train your people, deploy sound operational protocols, and shift the risk of loss or liability to your insurer and/or others as much as possible. It is this last point that is worthy of emphasis here – shifting risk or liability to others.

When a security incident occurs, blame may be alleged in multiple directions. The victim or his/her/its insurer may make claims against the security company, their monitoring provider, or other potentially responsible parties (including a possible intentional tortfeasor – sometimes a criminal).

Most claims in the security industry involve defendants (from whom contribution can be sought) and/or contractual relationships (upon which indemnity can be sought).

If a security company wants to shift the blame to others, it should, of course, assess the underlying facts and determine who is arguably at fault. If there is a basis to believe someone else is at fault, it may be able to shift the risk of liability by making a claim against the other party for indemnity and/or contribution.

Indemnity and contribution are legal doctrines, and they are often confused. Both address how financial responsibility is shared when multiple parties are involved in a legal dispute or claim, but they operate under different principles and serve distinct purposes.

It is your attorney’s job to counsel you on these doctrines and to invoke them when appropriate; however, a basic understanding of these concepts (and their differences) will help you protect your business.

What is Indemnity?

Indemnity requires a party to compensate another party (usually in full) for the losses or damages that the latter has incurred. This is typically agreed to in advance within a contract. For example, a monitoring company may agree to indemnify a security integrator for all losses flowing from monitoring mistakes. In turn, the security integrator may agree to indemnify the monitoring company for any mistakes in the sale, installation, or maintenance of the alarm system. This reciprocal indemnity can be tricky when the underlying claim alleges negligence in all directions – including those that could fit within the domain of both companies. That often leads to competing indemnity claims.

In some contracts, indemnity only flows in one direction – protecting one party against the risk the other party agrees to assume (in exchange for the financial or other benefits granted to them under the contract).

The most common form of indemnity is an insurance contract – where the insurer, in exchange for premium payments, agrees to cover (or indemnity) an insured for losses up to an agreed policy limit.

What is Contribution?

Contribution, on the other hand, deals with the allocation of financial responsibility among multiple parties who are jointly liable for a particular loss or damage. Rather than shifting the entire burden to one party – as indemnity does – contribution seeks to equitably distribute the financial responsibility among all parties involved, based on their respective degrees of fault or liability.

In that respect, it is a fact-specific doctrine and not inherently as comprehensive as indemnity.

This doctrine is particularly relevant in tort cases where multiple defendants are found liable for the same alleged injury. In such a case, a judge or jury may also determine the apportionment of fault – dictating who will pay what share of the loss.

For example, if a security integrator made a mistake in the installation of an alarm system, and that mistake can be shown to have proximately caused a loss, then the company may be liable. However, assume there was also an error made in the monitoring of the alarm and maybe even an intentional tortfeasor (again, usually a criminal), and that their collective liability was deemed consequential to the loss. Then, even if the loss was allocated to the security integrator, they can seek contribution from the others to attempt to defray their liability.

Most plaintiffs do not care who pays them – as long as they receive fair compensation for their loss. So, contribution claims are typically fought among defendants and do not directly involve the plaintiff – except perhaps where the plaintiff faces a counterclaim and seeks contribution in defense of the counterclaim.

The right to seek contribution is often provided by statutory law or common law principles. Different jurisdictions have different rules and procedures for claiming contribution among co-defendants.

Shift the Risk in Advance

While both indemnity and contribution deal with the allocation of financial responsibility, their application and implications differ significantly. Indemnity typically involves a complete shift of liability from one party to another and is commonly found in contractual agreements. Contribution, by contrast, addresses the equitable distribution of liability among multiple parties and is used frequently in joint tortfeasor situations.

Understanding these doctrines is particularly important in the security industry – as most claims involve one or more defendants (from whom contribution can be sought) and may also involve contractual relationships (upon which indemnity can be sought).

Both doctrines aim to achieve fairness and justice in the distribution of liability, but whether those goals are met is often a result of the caliber of your attorney, your financial capacity to litigate, and the facts and law applicable to your case.

Shift the risk of loss in advance – as much as possible. If not possible, seek contribution from others. Most of all, be informed.

About the Author

Timothy J. Pastore, Esq.

Timothy J. Pastore Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, he was an officer and Judge Advocate General (JAG) in the U.S. Air Force and Attorney with the DOJ. [email protected]  •  (212) 551-7707

Meet Timothy J. Pastore

Timothy J. Pastore, Esq., is the newest columnist to join the Security Business magazine family. He is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. 

Before entering private practice, Mr. Pastore was an officer and Judge Advocate General (JAG) in the U.S. Air Force and a Special Assistant U.S. Attorney with the U.S. Department of Justice. As a JAG, in particular, Mr. Pastore was legal counsel to the Air Force Security Forces and Air Force Office of Special Investigations.

Mr. Pastore has represented some of the largest companies in the security industry, including Protection One, Comcast, Charter, Cox, Altice, Mediacom, IASG, CMS and others. He regularly provides counsel on risk management, contracting, operations, licensing, sales practices, etc. Mr. Pastore also has served as lead counsel in courts throughout the country in dozens of litigation matters involving the security industry.

Among other examples, Mr. Pastore led the successful defense at trial of cable giant Comcast in a home invasion case in Seattle, Washington. The case received significant press attention and was heralded by CVN as a top-ten defense verdict.

Mr. Pastore is a graduate of Bucknell University and Boston College Law School.

Reach him at (212) 551-7707 or by e-mail at [email protected].

 

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