Business People Negotiating and Signing a Contract

What You Should Know About Negotiating Indemnification Provisions

William B. Hanley, Attorney At Law June 14, 2023

As a business owner, it is vital to understand the legal terminology commonly found in business contracts. One such term is “indemnification,” which is a clause that can have significant legal and financial implications for your business.  

Get help from a business attorney when negotiating indemnification provisions in your business contract. William B. Hanley, Attorney at Law, provides clients with professional legal assistance when drafting business contracts and negotiating the provisions and clauses. Attorney William B. Hanley, who has decades of experience in business law, serves Irvine, California, we well as Los Angeles County, Orange County, and San Diego County.   

What Are Indemnification Provisions? 

Indemnification provisions are clauses that transfer risks between the parties involved in a business contract. In essence, they require one party to financially compensate the other in the case of a legal dispute or lawsuit. According to the American Bar Association, indemnification guarantees a third-party claim against your counterparty.   

For example, if your business signs a contract with a vendor, and that vendor’s product causes harm to one of your customers, the indemnification clause could require the vendor to compensate your business for any damages or legal fees that arise as a result of the lawsuit.  

There are two main types of indemnification provisions: broad form and limited form. Broad-form indemnification provisions transfer liability from one party to another, even if the party at fault is not named. On the other hand, limited-form indemnification provisions limit the amount of liability that can be transferred between parties. Below are examples of both types of provisions: 

  1. Broad-form indemnification provision. The vendor shall indemnify and hold harmless your business and its employees, agents, and representatives from any liability, damages, or expenses arising from any claims related to the vendor’s services or products. 

  1. Limited-form indemnification provision. The vendor shall indemnify and hold harmless your business only from those claims arising from the vendor’s negligence or willful misconduct.  

With the help of legal counsel, you can ensure that any indemnification provision included in a contract is fair and reasonable and that your business’s interests are protected in the event of a legal dispute. 

Negotiating Indemnity 

The negotiation process for indemnification provisions can be tedious and time-consuming, but it is essential to ensure that you are protected in case of any claims. The first step is to understand what indemnification means in the context of your specific business contract.   

Upon understanding what indemnification entails, it is crucial to carefully review the indemnification clause in the contract. This clause should outline the scope of obligations for both parties, including any limitations and exclusions. Ensure that you fully understand the language and that it clearly outlines any responsibilities and liabilities.  

There are several things to consider when negotiating the indemnification clause in a business contract, including but not limited to:   

  • Mutual indemnification. Ensure that the indemnification provision is mutual and not one-sided. This means both parties should be responsible for their respective actions, not just one party.  

  • Limits of liability. Consider negotiating a maximum amount of indemnity you are willing to accept or a cap on how much liability a party can have. This limits both your financial risk and that of the other party.  

  • Insurance coverage. Consider negotiating an additional insurance policy to cover any liability claims.  

  • Define the circumstances. It is essential to identify the circumstances that trigger the indemnification provision in the contract.  

  • Scope. Review the scope of the indemnification provision to ensure that it does not cover too many events that are out of the control of either party.   

Reach out to a business litigation attorney to get help with negotiating indemnification provisions in your business contract.   

The Importance of Legal Counsel 

The language used in indemnification provisions can be complex and can have significant financial implications for your business. That is why it is crucial that you have legal counsel review and negotiate the terms of the indemnity clause in any contract your business signs. Legal counsel can help ensure that any indemnification provision is fair and reasonable and that it aligns with your business’s specific needs and goals.   

In addition, legal counsel can help you identify whether any other clauses, such as insurance provisions, should be included in the contract to further protect your business’s interests. Without the guidance of legal counsel, you may miss important details or accept clauses that leave your business exposed to undue risks. 

Enlist an Experienced Attorney Today 

If you need help negotiating the indemnity clause of a contract, enlist an experienced business attorney. William B. Hanley, Attorney at Law, has nearly 50 years of experience helping clients prepare and negotiate business contracts and agreements. Reach out today to get a case evaluation. He proudly serves clients in Irvine, Los Angeles County, Orange County, and San Diego County, California.