Contractual Liability & Indemnity

As a state entity, the University is limited in its ability to indemnify or hold others harmless by contract. Contractual indemnity obligates one party to pay the damages or losses sustained by another party as a result of certain future occurrences. An indemnification situation arises when a third party (not a party to the contract) is harmed and makes a claim against one or all of the parties to the contract. Indemnity is not an appropriate remedy for claims, such as breach of contract claims, involving only the parties to the contract.

In most instances, even without contractual indemnity, the law in nearly all states (including Illinois) will impose proportionate liability on the culpable party or parties. Nevertheless, parties negotiating contracts with the University often attempt to shift the financial risk of third-party liability to the University, regardless of who is at fault in causing the loss to a third party. They also may want the University to assume financial responsibility for certain types of damages, costs, and expenses that the law does not ordinarily impose on the University.

The University of Illinois Act forbids the University from assuming contingent liabilities in excess of funds in hand specifically designated to pay the liability at the time of its creation. There is no guarantee that the State will make future appropriations to cover indemnity obligations that arise long after a contract is executed. Under the Illinois Court of Claims Act, the Illinois Court of Claims has exclusive jurisdiction to hear contract and tort claims against the University. The University's liability for most tort claims is capped.

The University will not agree to indemnity provisions that attempt to shift the financial risk of third-party liabilities from the culpable party or parties and onto the University's shoulders. The University generally will not agree to pay another party's litigation defense costs.