Indemnification Clauses

Most contracts contain indemnification clauses, but few parties take the time to read them or fully understand what they mean. Although the language used may appear to be “boiler plate” or standard contract language, an indemnity clause can be a significant part of the agreement that you want to negotiate for your benefit.

An indemnification clause imposes an obligation on one party (or both parties in certain circumstances) to compensate the other party for any loss or damages outlined in the provision. The compensation provided for in an indemnification clause is separate from other contractual damages. A common form of damages provided for in an indemnification clause is the loss associated with one party having to defend a lawsuit filed by a third-party.

By way of example, if Car Seller enters a contract with Part Maker, Car Seller may seek to be indemnified by Part Maker if the part is found to be defective. Thus, if Car Seller is sued by a driver that was injured by the defective part, Part Maker could be held liable for Car Seller’s reasonable attorney’s fees and costs incurred in defending the lawsuit.

Indemnification clauses can be written very narrowly so the indemnification obligation only arises under specific circumstances, or it can be written more broadly so the indemnification obligation arises for any loss that results out of an event resulting from the agreement. Additionally, the parties covered by the indemnification clause can be narrowly or broadly defined. It may state that only the entity is indemnified, or it may include the entity’s officers, directors, trustees, employees, agents and affiliates. Finally, the indemnity may set forth a higher standard of “gross negligence” instead of “negligence.”

There are numerous factors to be considered in indemnity clauses. Don’t assume the clause protects you because it appears to be standard language. Contact Leslie S. Marell to discuss indemnification and to ensure that you are protected before you sign a contract.