Overview

An Indemnification clause acts an inter-party insurance policy, shifting risk and liability between the parties. It does so by creating the obligation that one party (the Indemnitor) will pay for losses the other party becomes liable for (the Indemnitee), either for any losses related to the agreement, or for losses from certain types of claims.

A separate obligation, but also commonly included in the Indemnification clause, is Defense, where the Indemnitor will not only pay the losses of the Indemnitee, but will defend (hire a lawyer to defend) the Indemnitee against the claim in court. 

Indemnity can be limited not only to losses only from certain types of claims, but also to certain amounts of losses.

Finally, the common indemnification obligation is to indemnify the Indemnitee against Third-Party Claims, claims brought by someone other than the parties to the agreement. However, less common is the trend of some parties to indemnify each other against inter-party claims, also known as Direct Claims, claims that one party to the agreement brings against the other. The usefulness of Direct Claim indemnification is limited, and is typically meant to indemnify against claims relating to the representations and warranties made between the two parties. 

Our base clause is the simplest indemnification obligation. It is appropriate for simple, low-risk, and low-money value agreements. Including complex indemnification clauses can add signification negotiation and transaction costs, which may not be necessary for smaller, simpler agreements. Our variants add limits and exclusions to the Indemnification Obligation, indemnification procedures, and defense obligations, and are build in modules so as to be easily customizable by the user. They also enumerate what types of claims can be indemnified, including an option for the parties to specify their own specific covered claims they would like to indemnify against. The parties should decide together which of the enumerated covered claims they want to include, and whether to use the option of defining their own specific covered claim.

For more, see the Discussion below.

For more alternatives on scope of the core indemnification obligation, including variants tailored specifically to third party claims or direct claims, see our Indemnification Obligation clause.