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By: Robert Buckley
Many agreements between parties contain indemnification provisions. While parties often focus their negotiations on the terms controlling the ultimate requirements for performance of the contract and the terms of payment, indemnification provisions merit attention and can also be the subject of heavy negotiation. An indemnification provision is a contract term through which one party may shift responsibility for the risk of claims and liability to the other party and may state that one party agrees to hold the other party harmless for certain claims made against it.
The scope of indemnification clauses can be wide ranging. Party A might require Party B to accept responsibility for claims by third-parties (and the resulting attorneys’ fees) that arise from Party’s B’s performance of the contract. Sometimes the scope is limited to Party B being responsible for claims made against Party A resulting from Party B’s own negligence, gross negligence and/or willful misconduct. Indemnification obligations may go only in one direction or the parties may reciprocally agree to indemnify each other. Parties may limit the type of claims they are responsible for indemnifying the other party for, such as for claims pertaining to personal injury, data breach, or property damage.
These are just some possibilities regarding scope, and indemnification terms may be tailored to be appropriate to the applicable circumstances during contract negotiations. Applicable laws may impose limitations on the scope and enforceability of indemnification provisions. When a party is facing a pre-suit demand or litigation, the circumstances of the claim may involve a party it contracted with that has an obligation to indemnify and/or hold harmless the party facing the demand or litigation. Making that determination and notifying the other party could result in the party facing the claim being able to shift the costs of litigation and responsibility for paying for losses to the other party.