Adjusters: Why the Indemnification Clause Should Stay Top of Mind

The clause appears across commercial files of every kind. In construction claims, it carries particular weight. Most adjusters notice it, but few stop long enough to analyze it. That gap between noticing and analyzing is where the problem begins. It materializes months later, when the claims professional finally evaluates the clause and finds the carrier absorbing defense costs it was never obligated to pay or honoring indemnification demands that were never enforceable.

Construction accounted for roughly one-in-five workplace deaths in the United States in 2024, with 1,032 fatalities recordedm according to the Bureau of Labor Statistics Census of Fatal Occupational Injuries. That volume of serious incidents is what drives the litigation and the indemnification disputes that follow. On files with that level of exposure, the indemnification clause is not a background document.

I have handled construction and industrial claims as an adjuster and now review those same files as an attorney assisting carriers on coverage and indemnification issues. As an adjuster, the most common oversight was straightforward: the clause gets noticed but not evaluated. Experience has shown that the best approach is a mechanical one. Treat the indemnification clause as an open item from the moment it appears in the file until it has been fully evaluated.

A contractual indemnification agreement is a promise by one party to hold another harmless against loss and absorb liability that would otherwise fall on the protected party. Most construction indemnification clauses also include a defense obligation, though the two are distinct. The commercial general liability policy backs that promise through the insured contract provision. The contract between the parties creates the obligation. The policy is what makes it the carrier’s problem. If the policy does not respond, or the contract falls outside the definition of an insured contract, the clause is just a private agreement with no insurance dollars behind it.

The indemnification obligation does not expand what the policy covers. It identifies who may be responsible for a loss the policy must independently address. On a construction liability file with a contract in play, the indemnification clause deserves the same attention as the policy itself. A misstep at the front end has consequences that compound quickly.

Is the Indemnification Clause Valid?

Not all indemnification clauses do the same thing. The scope of the obligation depends on how the clause is drafted, and that language varies across contracts.

A broad indemnification clause may cover losses arising out of the indemnifying party’s work regardless of fault. A more limited clause may cover only losses caused by that party’s negligence. Some clauses attempt to shift liability even for the indemnitee’s own negligence. That approach is enforceable in some states and void in others.

Many states have enacted anti-indemnity statutes, primarily in the construction context, to prevent parties with greater bargaining power from shifting liability for negligence that is not theirs. Texas, for example, enacted the Anti-Indemnity Act in 2011, codified at Texas Insurance Code Section 151.101, which bars enforcement of clauses requiring a subcontractor to indemnify an upstream party for that party’s own negligence on construction projects. As with most statutory schemes, exceptions apply, and the analysis is fact specific.

A demand based on a void clause may not need to be honored. Beyond anti-indemnity statutes, some jurisdictions impose a common law layer of review that the clause must satisfy before it will be enforced.

The applicable state law must be identified, and the scope of the obligation must be understood before the file can move forward with any confidence. A resource for adjusters worth bookmarking is the national anti-indemnity statute survey maintained by Saxe Doernberger and Vita, which tracks the current state of the law jurisdiction by jurisdiction.

The Cost of Missing or Misinterpreting

The most immediate cost of overlooking an indemnification clause is misdirected defense costs and a diminished ability to correct the oversight. When an indemnifying party has a contractual obligation to assume the defense and that tender never goes out, the carrier absorbs costs that were never its obligation to pay. By the time the oversight is identified, often well into litigation, those costs have accumulated and the window for an efficient tender has narrowed considerably.

That pattern is common on construction files. A general contractor is named in a suit arising out of a subcontractor’s scope of work. The subcontract contains an indemnification clause requiring the subcontractor to defend and hold harmless the general contractor for claims arising out of its work. The contract is never thoroughly reviewed or evaluated. The general contractor’s carrier picks up the defense, assigns panel counsel and the file moves forward. Eight months in, with defense costs approaching six figures, a claims manager or auditor identifies that the subcontractor carried a defense obligation from the outset. By then, litigation strategy is in full motion, a late tender draws an immediate prejudice argument, and the carrier faces a dispute over whether the defense costs it has already absorbed can be recovered at all.

In Coastal Refining and Marketing, Inc. v. United States Fidelity and Guaranty Co., Texas courts evaluating that issue looked at whether the delay deprived the indemnifying party of the ability to investigate, control the defense or participate in settlement. The Fifth Circuit reached a similar conclusion, finding that an inability to control the defense constitutes prejudice as a matter of law in Moreno v. Sentinel Insurance Co. When the file has progressed without the indemnifying party at the table, the tender that should have gone out on day one becomes a dispute of its own.

By the time coverage counsel is involved on a file like that, the work is damage control. The contract and indemnification clause are reviewed against the specific facts and circumstances of the loss to assess whether the obligation was triggered and whether the clause is enforceable under applicable state law. Prompt written notice goes out to the indemnifying party and its carrier identifying the claim, asserting the tender, and making clear that indemnification, defense and reimbursement of defense costs incurred to date are being sought. That correspondence also establishes that exposure continues to accumulate and that delay in accepting the tender only increases the amount at issue. The goal at that stage is to get the right parties engaged and on notice before the file moves further in the wrong direction.

Conversely, an adjuster should not accept a tender of indemnification without first evaluating the validity of the clause. At the very least, any acceptance of tender should be made under a detailed reservation of rights. Accepting without that analysis risks indemnifying and potentially defending a claim the carrier had no obligation to take on in the first place.

Spot the Indemnification Clause

Adjusters do not need to be contract attorneys or coverage counsel to handle an indemnification clause competently. What the job requires, more than anything, is identifying whether an agreement exists, whether it contains an indemnification clause, understanding its basic mechanics and recognizing when the file demands a closer look. What is not acceptable under any circumstance is ignoring the clause or allowing the analysis to sit unaddressed while the file moves forward.

For an independent adjuster assisting carriers or examiners, that means knowing what you are looking at when the language appears, understanding the mechanics well enough to flag it accurately and communicating what you found with enough context to drive a decision.

The IA’s job on an indemnification issue is identification and escalation. A clear note in the report that the contract contains a broad indemnification clause, identifies the parties, and connects it to the facts of the loss gives the examiner something to work with.

The examiner’s job is to take that flag and move it forward. On a routine file with a straightforward clause and limited exposure, foundational knowledge may be enough to determine next steps. On a file with higher exposure, the calculus changes. A misread clause can mean honoring a demand that was never valid. A missed clause can mean absorbing defense costs that belonged to another party entirely. At that level, the file warrants a closer look, and the examiner carries the responsibility of making that call before costs accumulate and options narrow.

Determining whether the clause is enforceable under state law, whether it applies to the specific loss, and whether a tender obligation has been triggered is coverage counsel territory. On files with higher exposure, getting counsel involved early is not a sign the file is out of control. It is how the file stays in control.

The Bottom Line

The gaps in document collection, clause review, and timely tender are where construction liability files absorb costs that likely belonged elsewhere.

Indemnification done right is rarely a solo effort. The independent adjuster identifies it early, the examiner evaluates it against the file and policy, and coverage counsel addresses the legal questions. Claim outcomes are shaped by how well that process is executed, and indemnification is one of the clearest examples of why.

Herrera is an attorney and founder of Herrera PLLC, a Houston-based civil litigation firm focused on insurance disputes, serious injury, and construction matters. Before becoming an attorney, he worked as a general insurance adjuster for over a decade.