Indemnity Obligation
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An Indemnity Obligation is a contract obligation of one party (the indemnitor) to compensate the loss incurred by another party (the indemnitee) due to the relevant acts of the indemnitor or any other party.
- Context:
- It can (often) be represented in an Indemnification Article, an Indemnity Clause and an Indemnity Provision.
- It can range from being a One-Sided Indemnity Obligation (where only one party must indemnify the other) to being a Two-Sided Indemnity Obligation (where both parties have reciprocal indemnity obligations).
- It can range from being a Narrow Indemnity Obligation (with limited scope, specifying the exact circumstances or types of loss covered) to being a Broad Indemnity Obligation (with a wider scope, covering a more extensive range of circumstances or types of loss).
- It can range from being a Limited Financial Cap Indemnity Obligation (where the amount of indemnification is capped at a specific financial limit) to being a Unlimited Financial Cap Indemnity Obligation (where there is no financial cap on the indemnification).
- It can have Indemenity Clause Elements, such as:
- Indemnifying Party: The party responsible for providing compensation. (Obligation removed)
- Indemnified Party: The party eligible to receive compensation. (Obligation removed)
- Indemnification Event: The circumstances that trigger the compensation obligation. (Obligation removed)
- Indemnity Scope: The types of losses covered. (Obligation removed)
- Duty to Defend: The indemnitor's duty to defend against claims. (Obligation removed)
- Indemnity Exclusions: Exceptions to the indemnification obligation. (Obligation removed)
- Assumption of Risk: Transfers risk for certain losses to the indemnifying party. (Obligation removed)
- Amount of Indemnification: The maximum compensation the indemnifying party will provide. (Obligation removed)
- Indemnity Time Limit: The deadline for the indemnifying party to fulfill its obligation. (Obligation removed)
- Indemnity Subrogation: The extent the indemnifying party can recover costs from third parties. (Obligation removed)
- Notice of Claim: The indemnitee's duty to notify the indemnitor of a claim. (Obligation removed)
- Choice of Counsel: Rules on selecting defense counsel. (Obligation removed)
- Waiver of Subrogation: Limits on the indemnitor's subrogation rights. (Obligation removed)
- Severability: Maintains validity of clause if any term is invalid. (Obligation removed)
- Term of Indemnity: How long the indemnity obligation lasts. (Obligation removed)
- ...
- Example(s):
- Simple Atomic Provision Indemnity Obligation (unilateral, narrow scope): "
The Supplier shall indemnify the Buyer against any claims, damages, or losses arising from defects in the products supplied.". - Bilateral Indemnity Clause Obligation (bilateral, broad scope): "
Each party shall indemnify and hold harmless the other party and its affiliates, officers, directors, employees, and agents from and against any and all claims, damages, liabilities, costs, and expenses (including reasonable attorneys' fees) arising out of or relating to any breach of this Agreement by the indemnifying party or its representatives.". - Limited Financial Cap Indemnity Article Obligation (unilateral, limited financial cap): "
Indemnification by the Consultant: The Consultant agrees to indemnify, defend, and hold harmless the Client, its officers, directors, employees, and agents from and against any claims, liabilities, damages, losses, costs, or expenses (including reasonable attorneys' fees) arising out of or in connection with the Consultant's negligence, willful misconduct, or breach of this Agreement. However, the Consultant's total liability under this indemnity shall not exceed the total fees paid by the Client to the Consultant under this Agreement.". - Unlimited Financial Cap Indemnity Provision Obligation (bilateral, unlimited financial cap): "
The Licensor and Licensee shall each indemnify, defend, and hold harmless the other party from and against any and all third-party claims, damages, liabilities, costs, and expenses (including reasonable attorneys' fees) arising out of or in connection with any alleged or actual infringement of intellectual property rights in connection with the use of the licensed software.". - Narrow Scope Indemnity Clause with Exclusions Obligation (unilateral, narrow scope): "
The Manufacturer shall indemnify and hold harmless the Distributor from any claims, damages, or liabilities arising solely from defects in the products manufactured by the Manufacturer, provided that such defects are not caused by the Distributor's mishandling, modification, or improper use of the products. This indemnity shall not apply to any claims, damages, or liabilities resulting from the Distributor's negligence or breach of this Agreement.". - Broad Scope Indemnity Article with Time Limit Obligation (bilateral, broad scope):
"
Mutual Indemnification:The Company shall indemnify, defend, and hold harmless the Contractor and its affiliates, officers, directors, employees, and agents from and against any claims, damages, liabilities, costs, and expenses (including reasonable attorneys' fees) arising out of or relating to the Company's breach of this Agreement or its negligence or willful misconduct.- The Contractor shall indemnify, defend, and hold harmless the Company and its affiliates, officers, directors, employees, and agents from and against any claims, damages, liabilities, costs, and expenses (including reasonable attorneys' fees) arising out of or relating to the Contractor's breach of this Agreement or its negligence or willful misconduct.
The indemnification obligations under this Article shall survive the termination of this Agreement for a period of three (3) years.".
- ...
- Simple Atomic Provision Indemnity Obligation (unilateral, narrow scope): "
- Counter-Example(s):
- See: Agency (Law), Contract Law, Party (Law), Financial Compensation, Guarantee, Default (Finance), Insurance.
References
2023
- (Wikipedia, 2023) ⇒ https://en.wikipedia.org/wiki/Indemnity Retrieved:2023-8-18.
- In contract law, an indemnity is a contractual obligation of one party (the indemnitor) to compensate the loss incurred by another party (the indemnitee) due to the relevant acts of the indemnitor or any other party. The duty to indemnify is usually, but not always, coextensive with the contractual duty to "hold harmless" or "save harmless". In contrast, a "guarantee" is an obligation of one party (the guarantor) to another party to perform the promise of a relevant other party if that other party defaults.
Indemnities form the basis of many insurance contracts; for example, a car owner may purchase different kinds of insurance as an indemnity for various kinds of loss arising from operation of the car, such as damage to the car itself, or medical expenses following an accident. In an agency context, a principal may be obligated to indemnify their agent for liabilities incurred while carrying out responsibilities under the relationship. While the events giving rise to an indemnity may be specified by contract, the actions that must be taken to compensate the injured party are largely unpredictable, and the maximum compensation is often expressly limited.
- In contract law, an indemnity is a contractual obligation of one party (the indemnitor) to compensate the loss incurred by another party (the indemnitee) due to the relevant acts of the indemnitor or any other party. The duty to indemnify is usually, but not always, coextensive with the contractual duty to "hold harmless" or "save harmless". In contrast, a "guarantee" is an obligation of one party (the guarantor) to another party to perform the promise of a relevant other party if that other party defaults.