Indemnity clause

Indemnity clause - the provision contained in the contract stating that one side of the contract is obliged to compensate for the other party liability, loss or loss resulting from a previously signed contract.

Characteristics

Compensation clauses have important meaning in contracts. These clauses require that one contract entity undertakes to cover damage that may have been suffered by one of the parties. Many countries have decided to annul the contract if damage caused by entity B (for example by negligence) is to be covered by entity A, which did not fail.

Indemnity clauses can often be expensive, especially when the contract is formulated in general way, and the clause requires payment for all claims (no matter what values of them are). Such indemnifying is strictly related to guarantees and declarations.

Indemnity clause should be:

• fair
• balanced
• mutual
• within entity's control
• limited

It is fair if both parties to the contract agree to protect the other party for harm related to:

• their breach of the contract
• their negligence
• their tortious conduct

It is unfair if one of the parties requests compensation for:

• lost profits
• conduct within their control
• damages which are not linked to the contract
• harms or liability that could have been avoided
• third-party infringement actions, when they are under control of the intellectual property

Checklist

Indemnity clauses of subcontractors are often very long and difficult to understand, they have many shapes and sizes. Indemnity clause checklist contains:

• the scope of compensation and its types
• whether indemnity clause restricted to damages that arise as a result of the death or injury of a person at any time
• whether damages that are covered by compensation go beyond boody injury or material damage
• whether secondary damages and lawyer's fees are covered by compensation
• whether compensation covers only the contractor or also other parties
• how wide the protected class is
• whether the indemnity obligation undertakes relates only to damages caused by the subcontractor
• whether the subcontractor bears a partial liability for damage when a liability obligation arises
• availability of insurance
• public policy limits
• collection rights,

and also whether exclusion is included in the compensation clause<ref>(Glass D.(2013), p. 68)

Footnotes

Indemnity clause — recommended articles

Contractual liability — Insured contract — First party insurance — Discharge of contract — Indemnity principle — Subrogation waiver — Assignment clause — Indemnity bond — Consideration clause

References

• Adoranti F. (2006) The Managers Guide to Understanding Indemnity Clauses, Global Professional Publishing, p. 1
• Glass D.(2013) Freight Forwarding and Multi Modal Transport Contracts, Taylor & Francis, p. 68
• Kelleher T.J. and others (2014)Smith, Currie and Hancock's Common Sense Construction Law: A Practical Guide for the Construction Professional, John Wiley & Sons, p. 271-273
• Loulakis M. C. (2013) and others State Anti-indemnity Statutes Keep Powerful Parties from Overreaching., Civil Engineering, Vol. 83, p. 88
• Weir T. (2012) Subrogation and indemnity, Cambridge Law Journal, Vol. 71, p. 3-6.

Author: Monika Sojka