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Indemnification Clauses – What are they? Well, here is a standard “IC” Clause you might expect to see in any variety of contracts;
“Seller; Agrees to indemnify, compensate Buyer for all expenses and hold Buyer harmless from and against any and all claims, liabilities, losses and/or expenses including Attorney’s fees made suffered and/or incurred by any person, entity, governmental body (Yawn) not a party to this agreement and asserted against Buyer or its associates, employees or agents, warranty or covenant or the performance or non-performance of Buyer’s obligations under this contract”:
Looks Pretty Good Right? Let’s Look again and take this Language to its Logical conclusion.
You Buy a product, you use it, it is defective and you are sued for the use of this. What do you do next? You are covered, right? Isn’t the Seller supposed to indemnify you?
Of course, they are but no so Fast here grasshopper. Let’s review the language again:
“Hold Buyer harmless from and against any and all claims, liabilities, losses”
Think for a second; this says that they will compensate you for any Liabilities OR losses. But how can you have any liabilities or losses without going to Court? Short answer; You can’t. Let me explain.
You see, first, you must have damages, there must be a judgment against you and then you may seek your costs against the Seller. But, suppose you win your case and there is No judgment against you? You are still out of pocket all costs although sometimes the Court will award all costs to the Prevailing Party (and that’s another Clause you should have in there but that’s a topic for another discussion).
The problem is that before this happens you will have had to retain Counsel at an average Rate of, say, $300 per hour, answered Pleadings to the Original Complaint, conducted discovery, sent & received interrogatories, requests for admissions, designation of any Expert witnesses (*$1,000 per day) and the next thing you know you have expended enormous amounts of time of your resources, paid the Attorneys, Gone to Court for consistent Docket settings, etc… Whew! (*I could have kept going ya know but I think you get the point)
In other words, the Seller does Not have to indemnify you until AFTER all of these things have occurred. So, how could we have avoided all of this expenditures and Attorney’s Fees? Look, I know you’re busy so here’s the answer: “One Word – Defend.”
So Let’s back up – you see in the indemnification Clause where is says to “hold you harmless and indemnify you”? Well, what about including one simple word: “Defend” and while you’re at it go ahead and add the words “by Counsel of Buyer’s Choice” so that way you also get to choose the Attorney you want to defend your case… So, instead, the Indemnification clause should have read like this:
“Seller agrees to hold Buyer harmless from, indemnify and Defend, by Counsel of Buyers against any and all claims, liabilities, losses.”
This one word could have obligated the Seller to reimburse you, day one for all out of Pocket costs which can be very significant because some cases can take a minimum of 8 months and may easily go on for two years or longer.
So, can you now say “a Hundred Thousand Dollars”? Of course, you can or if you cannot ask someone who has had this experience. Or, if YOU are the one that has to agree to indemnify then make good use of this language and “cap” your exposure to this by adding the wording:
“Seller agrees to indemnify Buyer But Only to the extent and up to the amount of the actual contract costs”
Good, so now you are an expert on Indemnification Clauses and be on the alert for other similar wording for as the Old Law School Contracts Professor once told us:
“What The Large Print Giveth the Small Print Taketh Away”
Thanks for reading, see ya next time!
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*Legal Advice Disclaimer – © 2017 Precocious Life. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from the publisher.
This Article is NOT to be construed as legal advice in a professional representation regard or capacity in any way.
This is the general law as it applies across many States but it is possible that this portion of the law (Contract Indemnification) may indeed have been altered or amended, in whole or in part by State case law, the UCC or other superseding bodies of law.
We make this disclaimer to avoid any reliance on this and/or to your detriment. This is not a Legal Treatise and should it have been the same language here would apply – be aware, note the issue and bring it to the attention of your Counsel. Nothing takes the place of solid local Counsel.
It is intended ONLY to make you aware that indemnification is a significant element that needs attention. So, to be certain seek local Counsel of your choice.
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