One of the primary goals of an indemnity provision is to avoid a drawn-out legal process and expedite the resolution of any loss or claim. In oilfield Master Service Agreements (“MSAs”), the industry standard indemnity is known as a “knock for-knock” indemnity.  Under this scheme, each party to the MSA is responsible for injuries, losses, or claims for damages to its own people and property and will indemnify and defend the other party for these categories of claims regardless of fault. By excluding fault based liability, the specific facts for each claim and the assignment of fault or blame don’t need to be litigated in a court of law.  This resolves the claims faster and more predictably.  To ensure the enforceability of the indemnities and to add certainty that each party can fulfill its indemnity obligations, carefully crafted insurance requirements for the parties are essential in an MSA.

One often contested point is whether “regardless of fault” includes the party’s gross negligence or willful misconduct seeking indemnity. Philosophically, many companies find it hard to agree to excuse the other party from reckless, egregious, or intentionally bad behavior. More concretely, they may have exclusions in their insurance policies for gross negligence or willful misconduct, meaning they aren’t covered if they assume liability for such claims. Additionally, statutory prohibitions may make indemnities for such behavior unenforceable depending on the contract’s governing law.