The indemnification clause is among the most frequently used and misunderstood in various contract types.
The allocation of liability risk among contracting parties is the goal of indemnification clauses. Typically, the indemnifying party promises to defend or compensate the indemnified party for damages caused by third-party claimants’ claims against the indemnified party.
Many indemnification clauses will also include a duty to defend and/or to reimburse to protect the indemnified party. An indemnifying party’s obligation to provide an attorney for the indemnified party to defend against contract-related claims is known as a duty to protect. A duty to reimburse means that the indemnified party must first pay for their defense attorney but will eventually be reimbursed by the indemnifying party.
The obligation to protect includes the repaying party paying for the safeguard expenses and costs of the reimbursing party or the reimbursing party taking command over the repaid party’s guard in court. The indemnifying party will be required to defend the indemnified party regardless of whether damages are assessed against the indemnifying party; however, the duty to reimburse can only be triggered if damages or a judgment is entered against the indemnified party. As a result, the duty to defend is more comprehensive than the duty to reimburse.
Typically, indemnification clauses are negotiated as part of the contracting process. As a result, the parties can develop a clause that meets their requirements and concerns. These clauses may restrict damages to specific types and third-party claims, such as damages for bodily harm caused by negligence or economic damages caused by a contract breach.
These clauses can also set a maximum amount for damages or go so far as to cover the indemnified party’s legal fees. In addition, indemnification clauses can exclude specific claims and injuries, such as those based on willful or reckless misconduct.
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