The Importance of Indemnity Clauses
May 3, 2023
Anytime you enter into a contract with another party, whether by yourself or as a representative of your business, you need to ensure that the contract language is legally binding and covers all eventualities should either party fail to uphold their obligations. Because most people aren’t trained in the specifics of contract law, it can be incredibly helpful to work with a local business attorney who can evaluate your unique needs and make sure your contract accurately reflects the agreement you’ve made with the other party.
Indemnity clauses can be complicated. For individuals and businesses in the Stafford, Texas area, including Sugar Land and Fort Bend County, contact The Parzivand Law Firm, PLLC to meet with an attorney to protect your interests.
Understanding Indemnity Clauses
What are they?
An indemnity provision (also called a “hold harmless” clause) is a legal concept used in many contracts by both individuals and businesses. Essentially, it allows each party to stipulate the level of risk they’re willing to take and be responsible for, and protects them against certain damages or losses for liability and potential lawsuits. This can be either a mutual indemnification where both parties in a contract offer protections and compensation to the other for specific losses and not for others, or a one-way indemnification where only one party sets out these provisions. Indemnity clauses can often be the target of disputes and litigation when issues do arise.
Examples of indemnity clauses
Indemnity clauses are used in the majority of contracts and are often included in contract templates you can find online. However, to get the full benefit from an indemnity provision, the language should be specifically tailored to your contract agreement. For example, if you’ve contracted with a supplier to provide windows and doors for a construction project, you’ll want to include specific language that limits your liability should those windows and doors prove to be faulty or defective. In this case, the supplier would be the one who would take on more of the financial responsibility for any potential damages and you would want to limit your own liability. If a future tenant raised a claim citing one of these defective windows, you could then turn the liability over to the original supplier depending on the language that was used in your indemnity clause.
When drafting your contract, it’s essential that you clearly define the scope of the indemnity provision. You’ll want to work with all parties and your attorney to ensure the language is adequately broad or narrow enough that it’s clear who holds responsibility for any damages. For example, you may only want to be responsible for damages that occur due to your own mistakes, not simply any actions. Clauses like this can also list other costs that will or will not be included in damages such as attorney or legal fees. This is often a heavily-negotiated portion of a contract because each party naturally wants to protect their own interests.
There are two main types of indemnity: express and implied. Most indemnity provisions will be express, meaning the contract and clauses are in writing. An implied indemnity refers to any agreements that are not written out in a contract form, yet nevertheless, are implicitly agreed upon by both parties. Within an indemnity clause, you can also have different levels of protection ranging from broad to intermediate to limited.
Why Indemnity Clauses Are Important
Any language you include in a contract is important and should be drafted and reviewed by an experienced business attorney whenever possible. However, an indemnity provision is particularly important because it can shield you from having to pay future damages should the contract be breached in some way. They can also be essential evidence used in a commercial litigation lawsuit when each party is fighting to protect their own interests. In almost all contract disputes, the ultimate determination will come down to the interpretation of the exact language that was used and agreed upon by both parties.
Enforcing an Indemnity Clause
Unless an indemnity clause uses legally binding language, it will most likely not be enforceable at the court level should the dispute result in litigation. Again, many of these issues can be addressed preemptively by hiring a lawyer who can help you set up your contract. This isn’t to say that any attorney can (or should) promise you that your contract will keep you free from litigation; rather, by investing the time and money upfront making your contract as air-tight as possible, you’ll be in a better position down the road.
Understand Your Options
Strong legal guidance is key when it comes to your business. If you’re located in Stafford or anywhere else in Texas and have questions about drawing up a contract and including an indemnity provision, reach out to The Parzivand Law Firm, PLLC to schedule a consultation.