What is an Indemnification Clause Negotiation?
An indemnification clause is a contract provision that states one party in a working relationship agrees to pay the other party for losses or damages if certain things go wrong. It identifies risk responsibility and ensures that there’s clarity to prevent disputes.
If you’ve had an indemnification clause drafted, you’ll want to check it thoroughly and potentially negotiate it if any of its terms aren’t in your best interests or fair to both parties.
Here’s what to know about common terms to negotiate in an indemnification clause, how to approach and prepare for the negotiation process, and how a qualified lawyer can assist you.
What are Common Terms to Negotiate in an Indemnification Clause?
An indemnification clause usually contains the following information that you should review and potentially negotiate, depending on how it’s presented in your specific agreement.
- Scope. This explains what triggers the compensation and must be detailed.
- Duty to defend. This means that one party should step in and pay for the legal defense of the other party if a third party sues them. It triggers an immediate duty that should be negotiated, such as by ensuring you don’t pay for a third party’s legal defense for an unproven lawsuit.
- Claims. If it’s unclear what protection covers, this should be clarified with the other party to prevent situations in which you think certain disputes will be covered when they're not.
- Exclusions. Linked to the previous point, check and discuss what events are not included, such as gross negligence.
- Caps. It’s important to set a liability limit to restrict financial exposure.
- Procedure. There should be clarity about how claims are investigated and settled.
How Do You Negotiate an Indemnification Clause?
When negotiating an indemnification clause, it’s important to consider the following things.
Narrow the Scope
It can be useful to restrict the paying party’s indemnity to third-party claims instead of claims between parties, as well as checking that there is no broad or vague phrasing about trigger events that can be open to misinterpretation.
There must be reasonable liability, such as by ensuring that it matches the paying party’s fault, instead of covering losses related to the other party’s mistakes, which can make the agreement one-sided.
Limit Financial Risks
A liability cap should be negotiated so that it restricts payouts to fixed amounts. Any consequential damages such as a loss of profits should be excluded.
Check for Insurance
If injury and damage claims from third parties cover risks beyond the scope of standard general liability insurance policies, this can put you at risk of paying for them out of pocket. Always check that risks you agree to indemnify are covered by your insurance policy so you aren’t personally responsible for them.
Keep the Indemnity Reciprocal
One-sided indemnity obligations can feel unfair. If so, they should be revised. Before negotiating them, you should consider if there are specific protections that you would like from the other party. This can help to balance the agreement and ensure both parties are protected.
Get a Legal Review
If you’re unsure of how comprehensive and fair your indemnification clause or agreement is, it’s worth getting it reviewed by a professional lawyer. They have experience in contract review and will notice hidden risks to protect your interests. If you need to hire a lawyer, ContractsCounsel makes it easy to do online.
ContractsCounsel is one of the largest online legal marketplaces that connects clients to vetted lawyers. To request that a lawyer reviews your indemnification clause or agreement, here are the easy steps to follow:
- Go to the ContractsCounsel marketplace, where it’s free to post a request for a contract review.
- Select ‘One-time project’ and ‘Contract review.’
- Post your project, with some details of what you need. If you only need the specific indemnification clause in an agreement reviewed, mention this.
- Wait for bids. Lawyers directly on the platform will send you multiple bids on your project.
- Review their information. Go through the lawyer data provided by the platform, such as their location, expertise, credentials, and client ratings.
- Select a lawyer based on their profile information. Hire them to review your indemnification clause or agreement for a flat fee.
Do You Need a Lawyer for an Indemnification Clause Negotiation?
A lawyer can do various tasks to help you achieve a successful negotiation with the other party. They’ll:
- Thoroughly review the indemnification clause and identify potential risks to discuss with the other party.
- Negotiate the scope of indemnity and covered claims.
- Clarify which party is responsible for third-party claims, damages, and losses.
- Discuss liability caps and exclusions to protect your financial interests.
- Address and explain claims processes.
- Review all insurance requirements and check how they interact with indemnities.
- Formulate a strong negotiation strategy. A lawyer has experience to know when to negotiate and when to accept terms, while protecting the working relationship between parties.
- Put all terms agreed on during negotiations into the final agreement. This ensures you don’t rely on verbal promises and feel confident to sign the contract.
Where to Find a Lawyer to Negotiate an Indemnification Clause
If you’d like a lawyer to help you negotiate information in an indemnification clause, you can easily connect with a vetted, experienced lawyer on the ContractsCounsel platform.
It’s advisable to request a contract review and negotiation, as this will ensure that the lawyer understands what the clause and its relevant contract contains before they can develop a negotiation strategy for you.
All lawyers on the platform have the expertise and experience to help you negotiate terms in your indemnification clause or agreement to protect your interests and ensure a successful working relationship.