If the indemnification clause is being used in a warranty, you should make sure that indemnity is limited by limiting the warranty. For instance, if the clause includes language about defending against claims, you need to be sure whether this means you will be defended from all claims or just reasonable claims. First and foremost, you need to read the clause so that you can be certain that you fully understand its language. If you're considering entering into a contract that contains an indemnification clause, there are a few tips that you should follow to make sure you are legally protected. The time periods when the party may bring a claim.The maximum amount of liability that can be covered.If this is the case, the clause should also define how a claim can be brought, including:
In some cases, the clause may state that it is the only solution for the damaged party to be compensated for their losses. However, the party that is indemnified will often have responsibilities that they must fulfill. With one-way indemnification, only one party is indemnified, meaning only their losses would be covered. For instance, if your contract includes a mutual indemnification clause, it means that both contracted parties have agreed to cover losses that result from a breach of contract. There are different types of indemnification clauses that can be inserted into a contract. Therefore, the primary purpose of indemnification clauses is shifting the expense of defending one party from third-party lawsuits. When the contracted party suffers a loss due to the actions of the other party, they can still pursue damages under the tort or breach of contract legal theories. However, many indemnified parties request that this word is left out so that they retain the right to defend themselves. If the word "defend" is included in an indemnification clause, it means that the contracted party that caused the harm is responsible for defending the indemnified party from lawsuits. This protection is important because damaged parties are still able to pursue compensation for their losses even if this clause isn't in the contract. The most important part of an indemnification clause is that it protects the indemnified party from lawsuits filed by third parties. You will have the option of absorbing these losses yourself or providing direct compensation to the person that was harmed by your action.
The benefit of this is that it prevents the damaged party from seeking compensation in a lawsuit. When you indemnify another person, you are covering their losses that you have caused. Essentially, hold harmless and indemnify mean the exact same thing. The words defend, hold harmless, and indemnify must be included in an indemnification clause. For example, they may commit an action that results in you being sued by a third-party. 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. In most cases, these clauses are used to make sure that a potential loss will be compensated.
When an indemnification clause is inserted into a contract, it is meant to transfer risk between the contracted parties. Updated July 21, 2020: What Is Indemnification?
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