The vast majority of States have adopted anti-compensation legislation for works contracts. Some state laws specifically address agreements that require one party to defend another party as unenforceable with respect to certain claims. However, most laws do not deal specifically with the duty to defend and rather only concern agreements that require a party to maintain another party without damage or complaint with respect to certain losses. In these jurisdictions, courts have often been asked to decide whether the anti-compensation law of equal force applies to both defence and indemnification obligations. In some States, courts have focused on the concept that the duty to defend is different from the duty to indemnification and have decided that it is possible to survive the duty to defend, even if a compensation agreement is withdrew in violation of an anti-compensation law. A central element of any contract is risk allocation. Most agreements contain risk-sharing clauses such as limitation of liability, exclusion of liability, insurance obligations and indemnification obligations. A contractual exemption often begins with the assertion that a party must “indemnify, defend and keep indemnified” one or more other parties for losses, damages, etc., arising out of or in connection with particular acts, omissions or events. There are three distinct and different approaches in this sentence – an obligation to compensate, an obligation to defend and an obligation to remain unharmed. Should they always be used together? Or are there circumstances in which only one or two should be used or used separately? Understanding what each of these concepts means and how to use them strategically (in whole or in part) is essential to ensuring that an agreement involves the right allocation of risk. In legal systems which recognise a difference between the obligation of a contractual taxable person to defend compensation and the obligation to defend an insurer, unequal treatment is generally justified on grounds of public policy.
The purpose of an insurance contract is to spread the risk of loss among a large group. As a rule, these contracts are not negotiated, so any ambiguity is interpreted in favor of the insured. On the other hand, an exemption clause contained in a non-insurance contract is interpreted against coverage, since the agreement creates obligations different from or beyond those of the general principles of law. These clauses are generally guarantees or ancillary clauses for a contract with a primary purpose other than the transfer of risk. Given these differences, some courts will not automatically apply the insurance rules to the duty of defense in a non-insurance contract. Therefore, in order to properly analyse whether the duty to defend was triggered on a case-by-case basis, you must always confirm whether the legislation in force weighs in favour or against the finding that the duty to defend has been triggered. Damage is an agreement entered into by one party to assume responsibility for the damages and not to make the other party liable for the occurrence of specific acts, circumstances or events. In practice, exemption from detention and compensation are functionally equivalent, as they both oblige one party to assume responsibility for losses suffered by another party in connection with certain acts and circumstances.
Some argue that while compensation defers losses, safety pushes back both losses and liability. However, the transfer of responsibility is often not realistic or feasible. There is no way to take responsibility for negative and reasonable intangible liabilities such as reputational damage, bad press, public court record, injunction or performance requirement, etc. to take charge; one party may compensate the other party only monetaryly for such intangible debts. . . .