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Indemnity clauses, also known as indemnification clauses, require one party to reimburse the other for recoverable damages from third-party claims. The indemnifying party is demanding payment. The indemnified party is required to pay.
This article further defines indemnity clauses.
There are mutual indemnification and one-side indemnification clauses. Mutual indemnity requires both parties to compensate each other while the other only needs a single, indemnified party to pay. Covered events can trigger indemnity clauses.
Here’s another article on indemnity clauses.
The purpose of indemnity clauses is to protect a party from third-party claims.
Types of indemnity clauses include the following:
Bare indemnity is when there’s no limitation on liability.
Reverse indemnity allows indemnifying parties to file claims against if the third party doesn’t pay.
Limited indemnities allow the indemnifying partying to recover losses except for negligence.
Third-party indemnities assign liability to a separate party for losses.
Financing indemnities trigger when the indemnified party doesn’t meet fiduciary obligations.
Party indemnities agree to indemnify each other if a negligence or breach of contract claim arises.
Indemnity clause examples include:
Sample 1 – Indemnification Agreement:
(a) Grant of Indemnity. (i) Subject to and upon the terms and conditions of this Agreement, the Corporation shall indemnify and hold harmless the Indemnified party in respect of any and all costs, claims, losses, damages and expenses which may be incurred or suffered by the Indemnified Party as a result of or arising out of prosecuting, defending, settling or investigating:
(1) any threatened, pending, or completed claim, demand, inquiry, investigation, action , suit or proceeding, whether formal or informal or brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, in which the Indemnified Party may be or may have been involved as a party or otherwise, arising out of the fact that the Indemnified Party is or was a director, officer, employee, independent contractor or stockholder of the Corporation or any of its “Affiliates” (as such term is defined in the rules and regulations promulgated by the Securities and Exchange Commission under the Securities Act of 1933), or served as a director, officer, employee, independent contractor or stockholder in or for any person, firm, partnership, corporation or other entity at the request of the Corporation (including without limitation service in any capacity for or in connection with any employee benefit plan maintained by the Corporation or on behalf of the Corporation’s employees);
(2) any attempt (regardless of its success) by any person to charge or cause the Indemnified Party to be charged with wrongdoing or with financial responsibility for damages arising out of or incurred in connection with the matters indemnified against in this Agreement; or
(3) any expense, interest, assessment, fine, tax, judgment or settlement payment arising out of or incident to any of the matters indemnified against in this Agreement including reasonable fees and disbursements of legal counsel, experts, accountants, consultants and investigators (before and at trial and in appellate proceedings).
(ii) The obligation of the Corporation under this Agreement is not conditioned in any way on any attempt by the Indemnified Party to collect from an insurer any amount under a liability insurance policy.
(iii) In no case shall any indemnification be provided under this Agreement to the Indemnified Party by the Corporation in:
(1) Any action or proceeding brought by or in the name or interest of the Indemnified Party against the Corporation; or
(2) Any action or proceeding brought by the Corporation against the Indemnified Party, which action is initiated at the direction of the Board of Directors of the Corporation.
Reference:
Security Exchange Commission - Edgar Database, EX-10.1 2 d533077dex101.htm INDEMNIFICATION AGREEMENT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/897429/000119312513202160/d533077dex101.htm >.
Sample 2 – Service Agreement:
(b) Tenet agrees to indemnify and hold Client harmless against any and all liability, loss, damages, costs, and expenses which Client may incur, including, but not limited to, attorneys’ fees and costs, which Client may be required to pay, directly, by reason of error or omission by Tenet which directly or indirectly results in any liability, loss and/or damages to Client.
Reference:
Security Exchange Commission - Edgar Database, EX-10.17 10 dex1017.htm SERVICES AGREEMENT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/1424217/000119312508048821/dex1017.htm >.
Sample 3 – Development Agreement:
11. Proprietary Rights Indemnity.
(a) Luna hereby provides the following limited indemnity to Customer in connection with the Products purchased hereunder:
(i) Luna shall defend or settle, at Luna’s own expense (unless Customer elects by written notice to do so itself at its own expense), any cause of action or proceeding brought against Customer by a third party that is based on a claim that the Product (including the Software) infringes any [***] patent or copyright. Luna shall indemnify and hold Customer harmless against any loss, liability or final judgment, including an award of attorney’s fees, that may be awarded by a court of competent jurisdiction against Customer to the extent resulting from such infringement; provided that Customer gives Luna prompt written notice of such cause of action or proceeding and provides Luna with reasonable cooperation and information in Customer’s possession with respect thereto. Customer shall have the right to retain counsel at its own expense in any such cause of action or proceeding defended by Luna.
(ii) In the event of a claim that the Product infringes any [***] patent or copyright, or if Luna reasonably believes that a likelihood of such a claim exists, Luna may, in Luna’s sole discretion and at its own expense, procure for Customer the right to continue using the Product, modify the Product to make it non-infringing (but still compliant with the Specifications and Binding Purchase Order), or replace the Product with non-infringing product of substantially similar capability; provided, however, if none of the foregoing is commercially reasonably available to Luna, it may remove the Product from Customer’s premises, at Luna’s expense, and Luna shall refund to Customer the purchase price less a reasonable rental for past use thereof. Luna should use its commercially reasonable best efforts to assist Customer in defending against potential claims of infringement of patents and/or copyrights outside USA and accept return of the Products and Software in case of any such infringement.
(iii) Luna shall not be liable to Customer for infringement pursuant to this Section 11 if such claim is based solely on the following (unless authorized by Luna or its User Documentation or the Binding Purchase Order):
(A) Combination of the Product or Software by someone other than Luna; or
(B) Modifications made to the Product or Software by someone other than Luna; or
(C) Modifications made to the Product or Software by Luna to meet Customer’s requirements.
(iv) Luna agrees to reasonably cooperate with Customer and assist Customer in the defense or settlement of any and all claims, whether or not such claims are within the indemnification set forth in these Agreement T&C’s, at Customer’s expense.
(v) The foregoing constitutes Luna’s entire liability to Customer for the infringement of proprietary rights by the Products purchased or sold hereunder or any portion thereof and Customer’s sole and exclusive remedy for any such infringement of any proprietary rights hereunder.
Reference:
Security Exchange Commission - Edgar Database, EX-10.1 2 d395043dex101.htm DEVELOPMENT AGREEMENT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/1239819/000119312512349697/d395043dex101.htm >.
Common contracts with indemnity clauses include the following:
Indemnity clauses in service contracts require one party to ‘hold harmless’ the other in services businesses.
Indemnity clause in employment contracts ensures employees hold a company harmless for covered events.
Indemnity clauses in development agreements protect developers from claims arising from third-party errors.
Here’s an article about indemnity clauses in commercial contracts.
Here are answers to some common indemnity clause FAQs:
You need an indemnity clause to avoid liability for actions caused by someone else.
You should sign an indemnity agreement if you understand what you’re signing. They are only enforceable with your agreement. Speak with contract lawyers to give legal advice.
