Master Service Agreements: knock-for-knock indemnity.

• Author: Waller, Jeff
• Position: Legal Speak

A business acquaintance recently mentioned that her company was considering entering into a Master Service Agreement (MSA), which included a "knock-for-knock" provision. The unfamiliar clause made her wonder if something was missing from the agreement.

A company uses an MSA to create a blanket contract to cover an entire operation. The MSA sets forth how the two entities will function collectively. Like any contract, an MSA typically defines services, responsibilities, obligations and rates. The MSA may also limit or expand liability beyond what is typical in other contracts.

The MSA allows parties to conduct future business by setting forth the general terms between the parties. This provides a framework where the parties can undertake various future transactions without the need to define the general provisions addressing services, billing, invoicing, termination, breach, or penalties because these are spelled out in the MSA. These agreements are used in a variety of fields, including government contracts, the communications industry, maritime, mining, and the oil and gas industry.

RECIPROCAL INDEMNITY CLAUSE

For a company that has never entered an MSA or has rarely been a party to such an agreement, the contract may seem overwhelming. MSAs are rarely shorter than a dozen pages of single-spaced type and can easily include more than 70 provisions. But where these contracts can differ greatly from a standard form contract is the use of a reciprocal indemnity clause--commonly known as the knock-for-knock provision.

A knock-for-knock provision provides that each party to the agreement agrees to indemnify the other (and their respective contractors) for claims arising from their own company's employees, regardless of who is at fault. In simple terms, that means your company is contractually liable for any claim your employee may have from an injury caused by the other company or one of its contractors. This is true even if the other company's contractor injures your employee and your company was not at fault in any manner. Your company bears the risk and pays for any damages because you promised to indemnify the other company.

Reciprocal indemnity clauses are commonly used because the provision can reduce costs by eliminating legal disputes between the companies when a claim is made. Additionally, each company to the contract is aware it is taking on the obligation and receiving the same benefit and can budget accordingly.

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