One of the most important reasons businesses and independent contractors enter into legal agreements prior to engaging in work is to protect themselves. Making assumptions about how a business relationship will unfold can lead to serious problems and expensive litigation. A written legal agreement can nip many potential issues in the bud, including those related to liability.
That’s where the indemnity clause comes in. As a key provision in the Client Services Agreement (CSA), the indemnity, or indemnification, clause is written with the purpose of protecting you from unforeseen liability, harm or loss.
How an Indemnity Clause Protects You From Liability
An indemnity clause’s primary purpose is to shift liability away from one party and place it on the other “indemnifying” party. If damages or loss occurs, the contractual clause may obligate one party to compensate the other for those losses. The definition of “indemnify” is to compensate someone for harm or loss, or to secure someone against legal liability for their actions.
These clauses use language such as “indemnify,” “hold harmless” and/or “defend.” The specific ways in which each contract is written should be unique to the nature of the business and the relationship. Not surprisingly, the indemnified party (the one to receive compensation) generally wants to broaden the scope of indemnity, whereas the indemnifying party (the one to pay compensation) prefers to narrow the scope of indemnity.
Indemnification clauses are often an area of negotiation prior to signing the contract, and because the specific terms and language can be nuanced from contract to contract, it’s highly advisable to work with a corporate lawyer to draft and review any CSA you intend to enter into.
If you have questions or concerns about what an indemnification clause is or how to protect your business from liability, please get in touch with us at the Law Offices of Alex D. Sirulnik, P.A.