General Indemnity Clause

A "general indemnity clause" in contracts obligates one party to compensate and protect the other from specified losses, damages, or liabilities arising from contractual breaches, third-party claims, or unforeseen events. It serves to shift financial responsibility and provide security in contractual relationships.

Key elements of a general indemnity clause in a commercial contract include:

  1. Clear identification of indemnitor (party giving indemnity) and indemnitee (party receiving indemnity).
  2. Comprehensive definition of covered losses - including direct damages, indirect/consequential damages, regulatory fines/penalties, litigation costs/fees.
  3. Defined scope of indemnified claims - breach of agreement, negligence, willful misconduct, violation of laws, IP infringement, etc.
  4. Indemnification procedures - prompt notice, indemnitor's right to control defense, indemnitee's obligation to reasonably assist.
  5. Causation standard for triggering indemnity - "arising from", "to the extent relating to", etc.
  6. Treatment of comparative fault through carve-outs or proportional reduction in indemnity obligation.
  7. Interplay with other clauses - liability caps, insurance requirements, duty to mitigate damages.
  8. Survival clause specifying indemnity obligations persist post-termination.

Examples of general indemnity clauses in a commercial contract include:

  • IP Licenses:"Licensor shall indemnify, defend and hold harmless Licensee from any losses, damages or expenses arising from any third party claim that Licensee's use of the Licensed Materials infringes such third party's IP rights."
  • Services Agreements:"Service Provider shall indemnify and hold harmless Client from any liabilities, costs or expenses relating to bodily injury or property damage arising from Service Provider's negligent performance of the Services."
  • Product Supply Agreements:"Seller shall indemnify and hold harmless Buyer from any third party claims, liabilities and associated costs/fees to the extent arising from allegations that the Products failed to meet the specified safety standards."
  • Real Estate Transactions:"Landlord hereby indemnifies and agrees to hold Tenant harmless from any claims, judgments or costs (including attorneys' fees) arising from the presence of Hazardous Materials on the Premises not caused by Tenant."

Critical considerations for drafters are:

  • Ensure scope of covered claims is appropriate given risk allocation.
  • Clearly delineate procedural requirements to ensure indemnity rights.
  • Coordinate with liability caps and insurance requirements.
  • Account for anti-indemnity statutes limiting certain indemnities.
  • Use clear causal language - proximate cause vs. remote causation.
  • Reciprocal indemnities may be appropriate in some contracts.

The general indemnity clause is a cornerstone in risk allocation, providing a mechanism for financial protection in contracts. By clearly defining scope, obligations, notice requirements, and indemnity limits, it promotes transparency and helps safeguard parties against unforeseen liabilities and risks.

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