Indemnification is a type of agreement wherein one party agrees not to hold another party liable for legal causes of action in the future. Usually, only one party “indemnifies” the other party. It is somewhat similar to a liability waiver, but may be more specific.
An example of this is where one party rents heavy equipment from another and agrees not to hold the other party liable for any injuries sustained during the rental period. The indemnification agreement may be a separate agreement, or it can be embedded in a contract (such as an equipment rental agreement).
It may contain language such as: “The renter agrees to hold the Rental Company harmless in the event of any injuries or losses sustained from the use of the equipment during the rental period”. In that case, the rental company is protected in the event that the renter attempts to file a lawsuit against them.
Thus, indemnification clauses or indemnification provisions are very powerful agreements, because one party basically surrenders their legal right to sue the other party. Most indemnification clauses will only apply one way- that is, only one party gives up their right to sue the other.
Also, the indemnification provision may only apply under very specific stated conditions. In our rental example above, the renter might only be giving up their right to sue based on injuries. However, that doesn’t necessarily mean that they give up their right to sue if the rental company fails to deliver the equipment on time.
Thus, indemnification clauses can be very detailed and somewhat tricky- they often require the assistance of a lawyer in order to help with the finalizing of the specific details and considerations.
Indemnification provisions are generally governed by principals of contract law. That is, a court will first look to any existing written contracts or indemnification provisions in a contract before considering any other evidence. As such, it’s important that an indemnification provision be finalized in writing, as this will help when the court analyzes evidence if there’s a dispute over the contract.
If the indemnification provision is found to be valid, this usually means that the party has surrendered their right to damages in a lawsuit. However, if the indemnification provision actually wasn’t valid, then a lawsuit can actually be filed against the other party. Again, this can get very tricky, especially if multiple parties are involved, and if the contract has any ambiguous or unclear provisions.
In order to avoid contractual disputes, it’s best if the parties spell out exactly how they want the indemnification provision to work under their business arrangement with one another. They might also want to state whether the agreement can be modified in the future, and under which circumstances the agreement can be voided.
As you can see, indemnification provisions need to be thought-out very carefully. You could be giving up your right to sue on some important issues, so be sure that fully understand the consequences of signing such a clause. You may wish to hire a business lawyer if you need help drafting, reviewing or editing an indemnification clause. Your lawyer can advise you on whether such clauses will be beneficial for you; also, your lawyer can represent you in the event that you need to file a claim.