Can You Indemnify Yourself? Understanding Indemnification Clauses in Commercial Contracts

Indemnification clauses appear in nearly all commercial agreements. They are an essential risk allocation tool between the parties and are one of the most commonly negotiated provisions in a contract.

What is Indemnification?

Indemnification is a legal term that refers to the act of compensating someone for a loss or damage they have suffered. In the context of commercial contracts, indemnification clauses are provisions that allocate the risk and expense of certain events or actions between the parties involved.

Why are Indemnification Provisions Important?

Indemnification provisions are important because they provide a means for parties to protect themselves against potential losses or liabilities that may arise from the contractual relationship. By including indemnification clauses in contracts, parties can allocate the risk and responsibility for certain events or actions.

What are the Components of a Typical Indemnification Clause?

A typical indemnification clause consists of several components:

• Obligation to indemnify: This component outlines the party's obligation to compensate the other party for losses or liabilities.
• Obligation to defend: This component outlines the party's obligation to defend the other party against claims or lawsuits.
• “Hold harmless” provisions: These provisions protect the indemnified party from liability.

What are the Common Limitations on the Indemnifying Party's Obligation to Indemnify?

While indemnification clauses are a powerful risk allocation tool, there are common limitations on the indemnifying party's obligation to indemnify. Some common limitations include:

• Covered events: The indemnification clause may specify the events or actions for which indemnification is required.
• Recoverable damages: The indemnification clause may specify the types of damages that are recoverable.
• Nexus phrases: The indemnification clause may require a causal connection or nexus between the indemnifying party's actions and the losses or liabilities.

What are the Common Exceptions to Indemnification?

While indemnification clauses are designed to allocate risk and responsibility, there are common exceptions to indemnification. Some common exceptions include:

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Conclusion

Indemnification clauses are an essential tool in commercial contracts. By understanding the components and limitations of these clauses, you can better protect yourself and your business from potential losses and liabilities. It is important to consult with a business attorney to ensure that your indemnification clauses are properly drafted and enforceable.