Saturday, February 4, 2017

What are Indemnification Provisions?

Indemnification provisions are present in many types of contracts- service agreements, leases, insurance contracts, and employment agreements - to name just a few.

To "indemnify" someone is to promise to pay the cost of future damage, loss, or injury and therefore to protect them from future monetary damage.

Indemnity provisions are common, "boilerplate" language. This leads many careful, educated people to just blow right past the language, giving it little or no thought- until a problem occurs.

Indemnity clauses are inserted by the party who drafts the contract, and often they are written so that they benefit that party extensively and exclusively.

If you are asked to sign any type of contract indemnifying someone else, look it over carefully. Ask yourself if this is a fair and equitable request.  Are you indemnifying the other party against things that may occur due to your own behavior, or someone else's? If it is not your own behavior, how much control (if any) do you really have over the event, person or company that you are responsible to control? Is there a way to make the indemnity "mutual" so that you can be protected as well?

Mutual indemnity clauses are usually the most "fair". These clauses basically say "I'll hold you harmless for my own mistake or error and you do the same for me!"

Keep in mind that although the language is often presented as "boilerplate" ("oh, we have that provision in all our contracts- don't worry about it") or "non-negotiable" (if you don't sign it, we have nothing more to say to you), that may not be true.  You may be able to negotiate the wording in those provisions.  

If you do choose to indemnify someone, make sure that you understand exactly what you are getting into, what could happen in the future, and what the financial risks are to you and your business.  As always, don't sign anything that you don't understand and make a good investment by seeking legal advice when warranted. A lawyer can tell you about all potential risks and benefits so that you are going into the situation with knowledge.

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