Tips for Drafting Indemnification Provisions

Tips for Drafting Indemnification Provisions Superior Bail Bonds

When drafting indemnification provisions, it's essential to be clear in two respects. First, the language of the indemnification agreement should make it clear who will be covered. Second, the language must explain the indemnitee's right or remedies against the Indemnitor.

Indemnity provisions are familiar tools in commercial contracts. They provide a mechanism for one party to satisfy any judgment against the other by paying the amount of the liability or guaranteeing certain claims against third parties. Drafting these provisions can be challenging as they require careful attention to detail.

Tips for Drafting Indemnification Provisions 1.Definition of Losses: The losses that an indemnitee may recover under an indemnity agreement, subject to the terms of the specific document. For Ex: fines, penalties, punitive damages, and attorney fees. Depending on which party you represent, try to include - or exclude as much as possible. Indemnity provisions tend to be strictly construed against the indemnitee.

2.Trigger Event: It is the event that gives rise to the obligation. This obligation may arise due to breach of warranty, IP infringement, or something else. Regardless of whether liability arises based on an allegation or the filing of an action, there must be a finding of infringement or wrongdoing.

3. Parties: These agreements should be negotiated with the utmost care. As an Indemnitor, I would object to indemnifying third parties over whom I have no control. It seems fair to indemnify the other party's officers, directors, and employees, but customers, distributors, and end-users?

4. Conditions: Due to the potential for a dispute, the Indemnitor will want to make its obligation dependent upon receipt of prompt notice of a claim, information and assistance, and authority to control the defense. The indemnitee will want to state those as separate obligations, not preconditions.

5. Exceptions: Indemnitors may try to exclude specific provisions of the agreement to reduce their exposure. For example, they may wish to exclude any IP indemnity obligation where the claim arises due to modifications or combinations of the products other than by the Indemnitor, or due to compliance with the indemnitee's requirements or specifications.

6. Unilateral or Bilateral: What's fair for one person is fair for another.

7. Caps and Baskets: Indemnity caps and baskets are common with product liability agreements.

It's not uncommon for a party to seek to limit potential liability to the cost of the products (a form of "cap") or, with corporate transactions, to require a certain dollar amount of damages (a "basket") before the indemnity obligation is triggered.

8. Remedial Measures: The parties agree upon remedial measures as a way to resolve an infringement, but there's always an option for the Indemnitor to continue selling products, replace the product with a non-infringing product, or issue a refund.

9. Survival Period: Terms should be clear and unambiguous, but it's surprisingly common that the obligation term is not addressed. Does it survive indefinitely, for a certain period, or - the default does it depend on the applicable statute of limitations?

10. Statutory Indemnification: Statutory indemnification is an obligation to indemnify arising out of a statute or similar law, not in the agreement.

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