Party A will not be liable to Party B by reason of the actions of
Party A in the conduct of the business of Party B except for
Party A’s gross negligence, fraud or willful misconduct.
In such circumstances, A is only liable to B for gross negligence, fraud or willful misconduct but not for ordinary negligence. Fraud and willful misconduct are intentional acts. A simple mistake, whether intentional or not, could be considered to be ordinary negligence, but gross negligence results only from an unintentional act. The difference between ordinary negligence and gross negligence, therefore, has real consequences in many business relationships. Unfortunately, the distinction between the two is not often clear.
Liability for both ordinary negligence and gross negligence requires a plaintiff to prove the same elements: that the defendant owed the plaintiff a duty; the duty was breached; the breach was the cause of the plaintiff’s loss; and plaintiff suffered actual damages. The difference lies in the degree of care taken by the defendant to prevent the loss from occurring. In a case of ordinary negligence, the plaintiff must prove that the defendant did not exercise reasonable care to prevent the injury. Gross negligence, in Illinois, requires the plaintiff to prove that the defendant acted recklessly. Thus, similar acts with identical consequences can have drastically different outcomes with regard to liability.
For example, and with reference to the above indemnification provision, if B contracts with A to install equipment in B’s facility and during the installation A severs a power cable causing a significant loss of production and monetary damage to B, the deciding question to determine liability will rest on the reasonableness of A’s actions. If severing the cable was a mistake, but one which a person exercising reasonable care would make, there would be no negligence. If severing the cable could have been prevented by A’s exercise of the care of a reasonable person, A would be guilty of ordinary negligence, but not liable by operation of the indemnification provision. Finally, if A’s action in severing the cable was reckless, i.e., A realized there was a high probability of harm but did not take any precaution to prevent it, he may be liable for gross negligence and, therefore, liable to B under the terms of the indemnification provision.
Liability varies greatly depending upon the circumstances. If you are the indemnifying party in a contract, you will want to be insulated from the consequences of your simple mistakes, your ordinary negligence, so you will want to be certain that your indemnification obligation extends only to “gross” negligence.