Like many contractual provisions, contract indemnities come in all shapes and sizes.
Indemnity Clauses in Contracts
Indemnity clauses provide for financial recovery if a specific or named risk or event in the contract comes to pass.
The event might lead to special risk or exposure that justifies special attention. The extent of the risk might be unknown, and not even be capped by an exclusion of liability in the contract.
Example: Third Party Indemnity Clause
The parties to a contract might agree that damage to a third party should be indemnified.
The service provider shall indemnify the customer against all actions, claims, losses and expenses in respect of loss or damage to third party property arising from the services supplied by the service provider.
Example: Intellectual Property Indemnification Clause
Intellectual property rights such as copyright can form the underlying basis for a contract, such as in
- software licence agreements
- data licensing agreements
- licensing of photography
In those cases, the party receiving the benefit of the intellectual property rights may wish to safeguard themselves.
The licensor may not actually own or have the right to license the intellectual property rights which are being paid for under the contract (the purchaser or the licensee).
In that case, the purchaser or licensee may want to have an express financial remedy against the seller or licensor if the purchaser or licensee gets sued by the true owner of the intellectual property rights.
The service provider shall indemnify the customer from any and all claims, causes of action, suits, damages or demands, arising out of any infringement of intellectual property rights used by the service provider in the course of delivering the services.
Example: Mutual Indemnification Clause
Rather than agreeing one party indemnifies the other, the indemnification might be agreed to run both ways: mutual indemnification.
Each party shall indemnify the other party from any and all claims, causes of action, suits, damages or demands whatsoever, arising out of any breach of this agreement by the indemnifying party.
Example: Indemnify and Hold Harmless Clause
The word "indemnity is often supplemented with the word "hold harmless". The case law suggests that hold harmless does to add much to the word indemnity, because in the English language, indemnity means hold harmless.
The interpretation of the meaning of hold harmless will depend on the other provisions in the contract, because indemnities, like all other clauses, are interpreted within the context of the entire contract, not just as standalone provisions.
The supplier agrees to indemnify and hold harmless the customer against all claims arising in respect of any injury, death, sickness or ill-health caused to or suffered by the customer and its personnel as a result of performance or non-performance of this Agreement.
Example: Subcontractor’s Indemnity for Employees
When contractors hire out labour to other businesses, client businesses often request indemnities to cater for the risks that employees of the subcontractor may look to make against the client business. Client businesses do so because:
- they engage the contractor to avoid the consequences that subcontracting can bring, and
- the consequences of employment law.
They can get quite lengthy.
- The subcontractor shall indemnify the company from and against all and any liability, loss, damage, costs and expenses incurred or suffered by the company arising from the subcontractor's breach of its obligations under this agreement including but not limited to:
- any claim by or on behalf of any employee of the subcontractor against the company;
- in respect of employment of an employee of the subcontractor, including termination, redundancy, and resulting from the Transfer of Undertakings (Protection of Employment) Regulations 2006
- any PAYE, income tax, national insurance contributions, interest and/or penalties not paid by the subcontractor in respect of any employee of the subcontractor which the company is liable to pay to HMRC;
- any unauthorised act, omission, or any negligence, wilful default or breach of any kind by the subcontractor;
- any errors, defects or malfunctions in any code, media, data, software or other materials supplied by the subcontractor;
- negligent or wilful acts or omissions of the subcontractor;
- any claims by a third party for infringement of their intellectual property rights arising out of the company’s services.
Indemnities in Business Contracts
Indemnities are used in everyday commercial and business contracts to create an additional contractual right to recover compensation. To claim under the indemnity doesn't require a breach of contract.
They provide a means to recover higher compensation than what would be available under the common law of damages, and avoid limiting issues which complicate matters such as causation of loss, remoteness of loss and mitigation of loss.
Need advice from a Lawyer on an Indemnity Clause?
Need help interpreting the legal effect of an indemnity and what it could mean to you?
Indemnification imposes serious risk on a contracting party. If you don't know what they mean in the context of the contract, you can be exposing your business to serious risk.
Contact us for legal advice on indemnities on +44 20 7036 9282 or email@example.com to speak to an expert contract solicitor.