Indemnification: Definition, Example and Related Terms
What is Indemnification ?
For example, in a construction contract, the contractor might agree to indemnify the property owner for any damages caused by construction activities. If a third party gets injured on the property due to the construction work, the contractor would be responsible for covering any resulting costs or legal claims.
Indemnification clauses are crucial in many commercial agreements as they provide clarity on who bears the risk related to specific events. They can include caps on the amount of indemnification, exclusions for certain types of harm, or requirements for prompt notification of any claims.
It's important for both parties to carefully review and negotiate indemnification clauses to ensure that they are fair and reasonable. They need to understand the scope of indemnification, including any limitations or exclusions, to protect their interests effectively.
Example(s)
Scenario Description A software development company signs a contract to create custom software for a client. The software development company agrees to indemnify the client for any losses resulting from a breach of confidentiality. If the software company accidentally leaks sensitive client data, they would be responsible for compensating the client for any resulting damages. A marketing agency enters into a contract with a retailer for an advertising campaign. The marketing agency agrees to indemnify the retailer for any claims arising from copyrighted material used in ads. If a third party sues the retailer for copyright infringement, the marketing agency would cover the costs and any legal liabilities. A property management company signs a contract to manage a residential building. The property management company agrees to indemnify the building owner for any tenant disputes arising from their management practices. If a tenant sues the building owner for negligence, the property management company would be liable for covering the associated costs.