Contract indemnification clause

Can any agreement include an indemnification clause? What does that indemnification clause mean in your contract? What is an indemnity clause in a construction contract? Such clauses may allow for mutual indemnification, wherein both parties will compensate the other if losses occur due to one party’s negligence, as well as one-way indemnification, wherein only one party will be indemnified from negligence. An indemnification provision, also known as a hold harmless provision, is a clause used in contracts to shift potential costs from one party to the other.

In a mutual indemnification , both parties agree to compensate the other party for losses arising out of the agreement to the extent those losses are caused by the indemnifying partys breach of the contract.

In a one-way indemnification , only one party provides this indemnity in favor of the other party. The primary benefit of an indemnification provision is to protect the indemnified party against losses from third party claims related to the contract. They are typically used in agreements where the risks associated with a partys non-performance, breach, or misconduct are high. Indemnification provisions are generally heavily negotiated (and often heavily litigated) clauses. For example, agreements that involve the sale of intellectual property rights often include an indemnification by the seller in order to protect the buyer against the potentially large liability associated with an infringement lawsuit by a third party.

See full list on nolo. The following is an example of a basic mutual indemnification provision. Remember, any indemnity must be tailored to your specific needs.

Lets say you commission a writer to prepare a speech for you on a work-for-hire basis.

Instead of delivering an original speech as promised under the contract , the writer incorporates passages from a speech by another person who then sues you for copyright infringement, claiming that his intellectual property was exploited without his consent. Your agreement with the writer includes a representation and warranty that the work product provided under the contract is original. It also has a standard indemnification provision that promises to hold you harmless from any losses or damages, including attorney fees, incurred as a result of any breach of the agreement. Pursuant to the indemnity, the writer would be obligated to handle the legal defense related to the other writers intellectual property infringement lawsuit against you and cover all of the losses and expenses you incur as a result of the infringement claim.

You would want to include additional language depending on your circumstances. For example, an indemnification can be limited to specific third party claims (such as those related to a breach of warranty), or restricted to only those situations where a lawsuit has been filed or a final judgment has been rendered. If you are the party providing the indemnification , you will want to make sure the clause is as narrowly tailored as possible to protect against the specific risk it is intended to protect against.

There are certain exceptions however. Certain states also prohibit indemnification provisions that provide for punitive damages. Check all applicable laws before drafting an indemnity. Additionally, courts have commonly held that a plaintiff may not recover damages under an indemnity clause to the extent that the damages are an unforeseeable and improbable outcome of the other partys breach, negligence, or misconduct (unless it can be shown that the indemnifying party had knowledge of the relevant circumstances). They should be broad enough to sufficiently address the parties concerns, yet reasonable and equitable in all respects so that their enforceability is not called into question.

These provisions require one party to assume responsibility for third party claims made against the other party, and they’re very commonly used in construction contracts. In fact, indemnification clauses are a major player in the ever-waging war over managing risk. In most cases, these clauses are used to make sure that a potential loss will be compensated.

If you are the party covered by this clause, it means that the other contractual party is promising to compensate you if their actions cause you to suffer a loss. This Risk Note addresses the indemnification clause while another risk note addresses insurance clauses and sample wordings. HIROC recommends subscribers have their corporate counsel (and privacy officer if personal health information is involved) review all contracts.

Refer to related Risk Notes for further details: 1. Hold Harmless– the hold harmless provision of the indemnification clause absolves the second party of any blame for any loss caused by the first party’s negligence, after the loss has been determined by litigation, arbitration or settlement. Contracts – Important Clauses 2. Defend – The indemnifier agrees to pay the other party’s legal expenses as it. If the provider of goods and services reneges on the contractual obligations, and the other party suffers a loss, the provider of the goods or services can be obligate by the indemnity clause , to make good on the promise or compensate the other party for subsequent losses. The indemnity clause should clearly identify the party responsible for the payment of a loss. If the parties have purchased insurance, they transfer the responsibility of indemnifying the aggr.

An indemnity agreement reduces your construction risks and could be a factor in controlling your total legal expenses. It is essential that the agreement itself describes the types of losses being covere including legal fees. This language is included in cases where there is a possibility of loss or damage to one party during the term of, or arising from the circumstances of, the contract. The Warrant Agent shall be liable hereunder only for its own gross negligence, willful misconduct or bad faith.

The Company agrees to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted by the Warrant Agent in the execution of this Agreement, except as a result of the Warrant Agent’s gross negligence, willful misconduct or bad faith. Fill Out Fields For Indemnity. Register and Subscribe now to work with legal documents online. Another Party Liable for Risk. Liabilities, Claims, or Damages.

Legally defined as, “to make reimbursement to one of a loss already incurred by him,” an indemnity clause states that one party agrees to “indemnify the other party,” or absorb the losses. Indemnity clauses provide for financial recovery if a specific or named risk or event in the contract comes to pass. The event might lead to special risk or exposure that justifies special attention. The extent of the risk might be unknown, and not even be capped by an exclusion of liability in the contract. Last week we looked at the importance of naming the right parties.

This week, we’re jumping ahead to indemnifications. Many indemnification clauses address this problem by including language specifying that the indemnity covers losses “to the extent” caused by or resulting from the actions of the indemnifying party. This is certainly helpful, but a more explicit statement of the intent of the parties can avoid any doubt on the issue. An Indemnity agreement includes the name and address of the parties that enter into indemnity agreement , agreement ’s effective date, and period of the agreement. They frame various clauses which help to define the indemnity agreement terms and conditions effectively.

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