What is Indemnification? -- Part 1
When the topic of "indemnification" is reached during contract negotiations, the principals often grow silent and wait for their lawyers to speak. The topic seems taboo, mysterious, off grounds to any but the intrepid legal specialist.
But this is wrong, for indemnification is simply a promise by one person to make good certain losses that may be suffered by another person. It is akin to a policy of insurance. It is given where one person wants to back up or support an assurance made to another person. The word itself -- indemnification -- has the ring of insurance. In fact, real insurance companies, like The National Indemnity Company, use a form of the word in their names. I will discuss here the section of a business contract (usually near the end) in which one party, or both, agree to provide indemnification.
To illustrate this discussion, assume that a website developer has been hired to create a new website. The customer wants and receives written assurances that the website will not infringe any copyright, and that the website will function according to specifications. The contract contains these assurances, along with the following simple, mutual indemnification clause:
“Each party shall indemnify, defend and hold harmless the other party (including such other party’s affiliates, partners, officers, directors, employees, agents, and representatives) against any claims and/or liabilities of any nature, including reasonable attorneys’ fees, arising out of or relating to any breach of the warranties made by such party in this Agreement.”
As I mentioned above, indemnification is simply a promise by one person to make good certain losses that may be suffered by another person. To those like me who love bullet points, indemnification is:
- a promise
- by one person
- to make good
- certain losses
- suffered by another person
In my next post, I will discuss each of these elements in detail.
Related Posts: What is Indemnification? -- Part 2
