Contracts Series: Indemnity Clauses
We’re continuing our series of articles focusing on the essential features of a commercial contract. Last week we looked at the importance of naming the right parties. This week, we’re jumping ahead to indemnifications.
A simple indemnification clause might look like this:
The Consultant agrees to indemnify and hold harmless the Company of and from any and all claims, demand, losses, causes of action, damage, lawsuits, judgments, including reasonable attorneys’ fees and costs, arising out of or relating to any breach by the Consultant of this Agreement.
Let’s unpack this to understand why indemnification clauses are so important in a commercial contract.
When would this clause come into play?
Let’s say you’re a company that has engaged a consultant for services. You put together an agreement that you both signed, saying what the Consultant can and can’t do while working for you. What if the Consultant did something he wasn’t supposed to, and that action got you sued by a third party? Without such an indemnification clause, you would be liable for damages to that third party. Doesn’t seem fair does it? After all, it was the consultant’s breach of the agreement that got you sued!
The indemnification clause above would allow you to recover your resulting losses from the consultant.
This is a huge protective right!
And it doesn’t stop here. Indemnification clauses can be customized and expanded well beyond the simple example above. And those customizations should reflect the commercial realities of your relationship with the other party.
So what does a lawyer think about when customizing this clause for you?
Well, we think about all of the ways that you could run into trouble with third parties as a result of your relationship with the contracting party. For instance:
- If the other party is providing you with a right to use their intellectual property, you want protection against any liability that might arise if that other party gives you material that infringes someone else’s rights.
- If the other party is doing PR work for you, you want protection against any damages you may incur as a result of their misrepresenting the Company and brand.
- If the other party is doing work in your store, and their work causes an injury to one of your guests, you want that contracting party to bear the weight of liability resulting from the injury.
There is an endless number of ways that your indemnification clause can be crafted, and that’s why it’s so important that you speak with a lawyer about your commercial arrangement. To get the most out of this particular protective provision, make sure you paper properly!
Every contract is unique and should reflect the commercial realities of your business. To discuss your contractual arrangements with a business lawyer, contact one of the article’s co-authors: Geoff Dittrich or Marius Adomnica.