Getting It In Writing — Making Sure Your Retail or Hospitality Company Has Defense & Indemnity and Additional Insured Agreements with Your Vendors

On a very frequent basis, our retail and hospitality clients are sued for something they didn’t do. Stated more clearly, while accidents may have occurred on their properties or guests might have been injured by products sold at their locations, our clients weren’t directly responsible for the alleged damages incurred by the claimants bringing suit. Instead, vendors doing business with our clients are the true culpable parties. It is something they either did (or didn’t do) that triggered the litigation.

When defending a claim such as a slip and fall or a food adulteration allegation for our retail and hospitality clients, it is our general practice to evaluate whether there is a third party to whom the claim can be tendered. Accordingly, one of the first inquires we make is whether there is vendor that contracted to provide a service or product, which is basis of the suit. If the claimant slipped and fell on an improperly waxed floor, did our client contract with a vendor to maintain the floors? If the claimant broke a tooth on a bone in a hamburger, where did our client buy the meat? If the claimant fell down allegedly ill-constructed stairs, then who was the architect and contractor on the project?

When the vendor arguably responsible for the claim is located, our next question is: Was there a vendor agreement and/or an endorsement on the vendor’s insurance policy in favor of our client? The existence of either one is extremely helpful when attempting to tender a claim to a vendor.

A vendor agreement is one typically signed between the principal (e.g., hotel, restaurant, club, etc.) and the vendor. This agreement lays out each party’s duties and responsibilities to the other. A term often found in these agreements is a “defense and indemnification” clause. Such a clause protects the principal from the claims created by the tortious acts of the vendor by entitling the principal to a legal defense at the vendor’s expense in the event of suit and requiring the vendor to pay the costs associated with a settlement or judgment. Your business should always have such an agreement with any vendor that provides goods or services to you.

In addition to a “defense and indemnity clause,” retailers and hospitality-related entities should obtain an express agreement with their vendors, which makes them “additional insureds” on their vendors’ insurance policies. Further, such an agreement mandate the vendor’s policy is primary with the principal’s policy remaining secondary or excess.

This agreement should require the vendor obtain coverage for not only general liability, but also workers’ compensation and automobile liability. Moreover, your organization is well served by ensuring the vendor provides you with proof of insurance – better safe than sorry. Finally, in the event the vendor or its insurance carrier refuses to honor this agreement, your organization may possess a bad faith claim against the carrier.

“Defense and indemnification” agreements, as well as “additional insured” agreements are valuable tools in the arsenal of a retail or hospitality entity defending a claim for the tortious acts of a vendor. Your organization should review its files to ensure such agreements with its various vendors are in place. If they are not, it should work to do so.