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Indemnification Clause Defined
Indemnification clauses, also known as hold harmless agreements, transfer the liability of one party’s action away from the other. They can include mutual indemnification clauses and one-sided indemnification clauses.
They can also define specific terms such as:
- Indemnity caps
- Covered events
- Claims terms
- Reimbursement terms
- Recoverable damages
Contract lawyers in your state can help you write and execute an agreement that makes sense for your specific situation.
Indemnification Clause Explained
Several industries and entities use indemnification clauses. They help individuals and businesses establish the terms surrounding the responsibility of another’s activities.
Indemnification Clauses in Construction
Indemnification clauses in construction are prevalent, especially since there’s heavy use of contractors and subcontractors. One party won’t get blamed for another’s craftsmanship or warranty. Read more about indemnity clauses in construction here.
Here is an article on Construction Lawyers and how they help their clients.
Indemnification Clauses in Partnerships
Indemnification clauses in partnerships prevent the personal actions of one partner from affecting the other. This insulation applies to financial and legal decisions while allowing the business to continue operations.
Indemnification Clauses in Insurance
Insurance policies are a common example of one party indemnifying another. When you purchase an insurance policy, the company essentially agrees to indemnify the policy holder, or another party, against any damages that may occur.
Purpose of Indemnification Clause
The entire purpose of an indemnification clause is to protect one party from the other’s liabilities. Although indemnification clauses are used by and between business associates, there are still limitations regarding how much responsibility one should take for another. Indemnification clauses set these limits.
Here is an article that goes further into indemnity clauses.
Indemnification Clause Examples
Indemnification clauses are used frequently in the real world. Below are some examples as to when an indemnity clause would be used in a contract or situation to protect the party beng indemnified:
- Example 1: A service provider asking their customer to indemnify them to protect against misuse of their work product.
- Example 2: A rental car company, as the rightful owner of the car, having their customer indemnify them from any damage caused by the customer during the course of the retnal.
- Example 3: A homeowner having a subcontractor sign an indemnity clause in case the subcontractor hurts themselves at the home.
Indemnification Clause Samples
Sample 1 – From Master Services Agreement:
Operator Indemnification. To the fullest extent permitted by Law, but subject to the limitations set forth in Sections 20.1 and 20.3, Operator shall defend, indemnify and hold Owner and its Indemnitees harmless from and against any and all claims, actions, damages, expenses (including reasonable attorneys’ fees), losses or liabilities incurred by or asserted against Owner or any of its Indemnitees for injury (including death) to persons or damage or destruction to property and any and all fees, costs or penalties incurred by Owner or any of its Indemnitees, to the extent that such claims, actions, damages, expenses, losses, liabilities, fees, costs or penalties are caused by or arise out of Operator’s Misperformance; provided that Operator shall not be required to indemnify Owner or any of its Indemnitees for any loss or claim to the extent such loss or claim is due to the negligence or willful misconduct of Owner or any of its Indemnitees.
Security Exchange Commission - Edgar Database, EX-10.21 9 d173853dex1021.htm MASTER SERVICES AGREEMENT, Viewed March 31, 2021, <https://www.sec.gov/Archives/edgar/data/1471443/000119312512105282/d173853dex1021.htm>.
Sample 2 – Employment Agreement
Indemnification. The Company shall indemnify and hold Employee harmless to the fullest extent permitted by the laws of the Company’s state of incorporation in effect at the time against and in respect of any and all actions, suits, proceedings, claims, demands, judgments, costs, expenses (including advancement of reasonable attorney’s fees), losses, and damages resulting from Employee’s good faith performance of Employee’s duties and obligations with the Company. Executive will be entitled to be covered, both during and, while potential liability exists, by any insurance policies the Company may elect to maintain generally for the benefit of officers and directors of the Company against all costs, charges and expenses incurred in connection with any action, suit or proceeding to which Employee may be made a party by reason of being an officer or director of the Company, or any subsidiary or affiliate, in the same amount and to the same extent as the Company covers its other officers and directors. These obligations shall survive the termination of Executive’s employment with the Company.
Security Exchange Commission - Edgar Database, EX-10.281 4 d226725dex10281.htm EMPLOYMENT AGREEMENT, Viewed March 31, 2021, < https://www.sec.gov/Archives/edgar/data/1003124/000119312511292827/d226725dex10281.htm >.
Sample 3 - From Software and Service Agreement:
By TRX. TRX agrees to defend, indemnify, and hold harmless Client, and its directors, officers, employees, and agents from and against any and all third-party claims, demands, and liabilities, including reasonable attorneys fees, resulting from or arising out of: (i) the Services provided under this Agreement actually or allegedly infringing or violating any patents, copyrights, trade secrets, licenses, or other intellectual property rights of a third-party; (ii) any breach of TRX’s representations and warranties in this Agreement; or (iii) TRX’s failure to comply with TRX’s obligations under any and all laws, rules or regulations applicable to TRX or the Services provided under this Agreement.
By Client. Client agrees to defend, indemnify, and hold harmless TRX, TRX Affiliates, and each of their respective directors, officers, employees, and agents from and against any and all third-party claims, demands, and liabilities, including reasonable attorneys fees, resulting from or arising out of: (i) any breach of Client’s representations and warranties in this Agreement; or (ii) Client’s failure to comply with Client’s obligations under any and all laws, rules or regulations applicable to Client under this Agreement, except to the extent such violation arises out of TRX’s failure to comply with TRX’s obligations hereunder.
Procedure. A party seeking indemnification (the “Indemnified Party”) shall promptly notify the other party (the “Indemnifying Party”) in writing of any claim for indemnification, provided, that failure to give such notice shall not relieve the Indemnifying Party of any liability hereunder (except to the extent the Indemnifying Party has suffered actual material prejudice by such failure). The Indemnified Party shall tender sole defense and control of such claim to the Indemnifying Party. The Indemnified Party shall, if requested by the Indemnifying Party, give reasonable assistance to the Indemnifying Party in defense of any claim. The Indemnifying Party shall reimburse the
Indemnified Party for any reasonable legal expenses directly incurred from providing such assistance as such expenses are incurred. The Indemnifying Party shall have the right to consent to the entry of judgment with respect to, or otherwise settle, an indemnified claim only with the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld; provided, however, that the Indemnified Party may withhold its consent if any such judgment or settlement imposes an unreimbursed monetary or continuing non-monetary obligation on such Party or does not include an unconditional release of that Party and its Affiliates from all liability in respect of claims that are the subject matter of the indemnified claim.
Security Exchange Commission - Edgar Database, EX-10.4 5 dex104.htm SOFTWARE AND SERVICE AGREEMENT, Viewed March 31, 2021, < https://www.sec.gov/Archives/edgar/data/1103025/000119312510258839/dex104.htm>.
Sample 4 - From Construction Contract:
7.4 Indemnity. CONTRACTOR SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS OWNER, ITS LENDERS, PARENT COMPANIES AND AFFILIATES, AND THE DIRECTORS, OFFICERS, SHAREHOLDERS, AGENTS, EMPLOYEES AND REPRESENTATIVES OF EACH OF THEM (INDIVIDUALLY, “INDEMNITEE” AND COLLECTIVELY, THE “INDEMNITEES”) FROM AND AGAINST ANY AND ALL THIRD-PARTY (INCLUDING, WITHOUT LIMITATION, THOSE BY EMPLOYEES AND AGENTS OF CONTRACTOR AND/OR SUBCONTRACTORS OF CONTRACTOR) SUITS, ACTIONS, LEGAL OR ADMINISTRATIVE PROCEEDINGS, CLAIMS, DEMANDS, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, COURT COSTS AND ATTORNEYS’ FEES) OF ANY NATURE FOR BODILY INJURY OR DEATH OR PHYSICAL DAMAGE TO PROPERTY OF ANY OF THE INDEMNITEES OR THIRD PARTIES ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OF THE WORK. THE INDEMNITY PROVIDED FOR IN THIS PARAGRAPH SHALL HAVE NO APPLICATION, HOWEVER, TO ANY SUIT, ACTION, PROCEEDING, CLAIM, DEMAND, COST OR EXPENSE WHERE SUCH INJURY, DEATH, OR DAMAGE RESULTS FROM THE NEGLIGENCE, EITHER ACTIVE OR PASSIVE, AND/OR SOLE OR CONTRIBUTORY, OR THE WILLFUL MISCONDUCT OF OWNER.
7.5 CONTRACTOR SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS OWNER FROM AND AGAINST ALL CLAIMS, DEMANDS AND LIABILITIES ARISING FROM HAZARDOUS SUBSTANCES, INCLUDING CONTROL AND REMOVAL THEREOF, CAUSED BY CONTRACTOR’S DIRECT NEGLIGENT ACT IN PERFORMING CONTRACTOR’S OBLIGATIONS HEREUNDER.
7.6 CONTRACTOR SHALL NOT BE LIABLE TO OWNER FOR SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF USE.
Security Exchange Commission - Edgar Database, EX-10.52 2 dex1052.htm COST PLUS INCENTIVE CONSTRUCTION CONTRACT, Viewed March 31, 2021, < https://www.sec.gov/Archives/edgar/data/1178336/000119312507245541/dex1052.htm>.
Common Contracts with Indemnification Clauses
Every contract is a good candidate for an indemnification clause. Common contracts with indemnification clauses include:
- Termination agreements
- Vendor agreements
- Noncompete agreements
- Sub-contractor agreements
- Employment contracts
- Construction contracts
- Partnership agreements
A contract lawyer will explain which contract is suitable for your needs and draft a customized solution for the given transaction.
Indemnification Clause FAQs
Numerous questions surround clauses in commercial contracts. They are enforceable if they meet contract laws and obligations in your state.
Should I sign an indemnification clause?
Signing an indemnification clause is common practice. However, you should only sign an indemnification clause if you understand your rights and obligations completely. Contract attorneys can help you make a legal decision.
What happens if there is no indemnification clause?
If there is no indemnification clause, both parties are at a higher risk of liability when a dispute arises. The harmed party may not only incur liability, but they may also face unexpected third-party claims.
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