What’s in Your Indemnity Provision?

The indemnity provision is one of any commercial contract’s most central and negotiated components. The purpose of indemnities is to allocate, in advance, the liability of the parties in the event of a claim, allowing a straightforward and quick resolution. Performing work without a meticulously crafted indemnity provision can lead to prolonged and costly legal disputes. The correct indemnity language can help avoid this, saving time and money.

In any Master Service Agreement (“MSA”), detailed and comprehensive indemnity provisions are essential to protect the parties and mitigate risk in unforeseen circumstances. To “indemnify” means to reimburse another party for covered losses or claims they have paid out, whereas to “release” is to give up rights or claims against another party. “Hold harmless” is a promise not to hold the other party responsible for the liabilities, claims, and costs that a party faces. “Release” and “hold harmless” language is crucial in            indemnification to absolve parties of liability, mitigate legal disputes, and safeguard interests.

The promise to “defend” is a separate responsibility to fund and direct the legal defense of the other party against a covered loss or claim. Without this assurance, an indemnifying party may reimburse the other party for the damages they have paid but argue that they have no responsibility for the litigation costs leading up to the award.

While general indemnities cover a wide range of claims, specific indemnities are designed to safeguard against risks that may arise in particular types of work. In short, with indemnity language, one size does not fit all.

In any commercial contract, each party will negotiate the indemnities’ boundaries to fit their risk tolerance, balancing the security of inclusive coverage with the reluctance to bear too much liability for their counterpart. Whether you need an advocate in negotiating an indemnity provision or want to draft the most beneficial terms for your own commercial contract, the attorneys at RR&A are here to help.

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