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15. February 2009: What is an Indemnification Clause?
Black's Law Dictionary, Sixth Edition provides that to indemnify is to restore the victim of a loss, in whole or in part, by payment, repair, or replacement. This indemnity would be set forth in a contract which contains an indemnification clause. Indemnification clauses are also referred to as Hold Harmless clauses because they save the indemnitee from harm by securing them against loss or damage. These are a mainstay of corporate transactions and are commonly seen for example in commercial lease agreements and insurance contracts.A simple indemnification clause might provide that if any legal proceedings shall be instituted or any claim asserted by any third party, the indemnitee shall give the indemnitor prompt written notice. The indemnitor shall then be entitled to assume the defense of any action, suit or claim brought against the indemnitee with respect to which the indemnitor may have indemnity liability thereunder. The indemnitor shall also be responsible for legal or other expenses incurred in connection with the defense thereof. The parties agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such proceeding or claim. Each party, without cost to the other party, shall make available to the other party and their attorneys and accountants all books and records of such party relating to such proceeding or litigation.
One should also consider using language that not only provides indemnity against loss already sustained, but also provides indemnity against loss at the time the liability arises. Indemnity against loss at the time the liability arises versus after the loss has already been sustained, is appropriate since the claim for indemnity arises upon the obligor indemnitor's default. ...More