Signing an Employment Agreement

We all know that it is wise to read the "fine print." Knowing what to expect of a product or service has become something of an inalienable right, whether it is the ingredients of a bag of potato chips or the conditions of a credit application. Yet, despite our better judgment, we do not always take the time to carefully read and analyze such information.

As a prerequisite to receiving appraisal assignments, a client may ask you to sign an employment agreement or contract. It is very important that you thoroughly review this document. At first glance, it may appear fairly unobjectionable, as most of the document outlines what services the appraiser is to perform in return for an agreed upon compensation. However, in the "fine print" there may be clauses which could seriously impact your liability exposure.

Most of the contracts we have reviewed contain an indemnity or hold harmless provision. By consenting to this provision, you may be agreeing to pay any and all losses, costs and expenses incurred by your client if sued by a third party due to your negligence or willful misconduct as an appraiser. You would be held personally liable for these obligations, since your Errors & Omissions insurance does not provide coverage for any of your clients and does not reimburse you for additional expenses assumed by your acceptance of an indemnity or hold harmless provision.

The reasons your E&O insurance would not provide coverage in this situation are twofold. Firstly, coverage is afforded to only those individuals or persons in your company`s employ who fall within the definition of "Insured" found in the policy. Your clients are not included in the definition of "Insured". In addition, the Exclusions section of the policy clearly states the insurance does not apply:

"...for based upon, or arising from the liability of others assumed by the Insured under any contract or agreement, unless such liability would have attached to the Insured even in the absence of such contract or agreement;..."

Agreeing to an indemnity or hold harmless provision in an employment contract will not, in and of itself, jeopardize your own E&O insurance coverage should you also be named as a defendant in the same lawsuit. If all other coverage conditions are satisfied, the insurance company would protect you as an "Insured." However, the insurer would not pay for your client`s attorney or pay any settlement or judgment entered against your client. That would be your sole responsibility.

Of even greater concern in employment agreements is a clause regarding possession and control of your appraisal report. By accepting this provision, you agree that any appraisal report or other material that you prepare for this client becomes their property and they may disseminate copies to any third parties of their own choosing. These third parties could then claim a right to rely on your appraisal because your original client was given permission to distribute it.

Even in the absence of such a provision, the matter of whether or not a third party has a right to rely on an appraisal is highly controversial. Court decisions are in part based on whether it was foreseeable that the report would be given to a third party. Your signature on an agreement containing the above property clause would be irrefutable evidence that you were aware the appraisal report could be disseminated.

We cannot recommend that you sign an employment agreement or contract which contains an indemnity/hold harmless and/or property proviso. Doing so could greatly expand your liability exposure. On the other hand, we realize that by refusing to sign you may stand to lose the client. Ultimately, it is a question of economics that you must consider. Is it worth accepting the additional risks and potential costs to keep receiving assignments from this client? Only you can make that decision.

If you are ever asked by a client to sign an employment agreement, please take the time to read all the "fine print." While we have focused on those provisions which could most seriously affect your liability exposure, you may find other clauses contained within the contract to be objectionable. It would be wise to consult with your own attorney for a full understanding of the ramifications created by entering into such an agreement.

Copyright 1994. LIA Administrators and Insurance Services. All rights reserved.