Indemnity is a boilerplate clause in any of the agreements. The contractual clause generally begins as “Vendor shall indemnify, defend and hold harmless the Customer, its Affiliates, their respective directors, officers, employees, sublicensees, agents, attorneys, customers, successors or assigns (collectively, the “Indemnified Parties”) against and from any and all claims, liabilities, damages, costs, expenses, suits, actions, government procedures, taxes, penalties or interest (“Claim”), and shall pay all related damages, settlements and associated legal expenses, including attorneys’ or court fees that may be incurred by, imposed on or asserted against or any Indemnified Party.
Indemnify, defend and hold harmless are three distinct concepts. Indemnity is an obligation to indemnify, defend is a duty to defend and hold harmless is an obligation to hold the other party harmless.
Indemnity- The obligation to indemnify a party is to accept the responsibility for all the losses arising or resulting from or related to certain acts, omissions or occurrences. This is an affirmative obligation to compensate, pay or reimburse Indemnified Party for the Claims. Indemnity can be defined as protection against financial liabilities against any loss or risk. The indemnity clause is an agreement to transfer the risk to the other party.
Exceptions to Indemnification. Exceptions generally relate to circumstances where the indemnified party’s actions either contribute or cause the harm that triggers indemnification. An indemnification provision may exclude indemnification for losses or claims that arise out of the indemnified party’s:
- Gross negligence or negligence
- Improper use of the products/services
- Failure to comply with its obligations as per the agreement
Defend- a duty to defend is to accept a duty to defend Indemnified Party from Claims. This is an affirmative duty to provide a defence to Indemnified Party. This includes filing of action or proceedings or suit. This duty to defend force the Indemnifying Party to step into the Indemnified Party’s shoes and be responsible for defending them even in a situation where Indemnifying Party is or is not required to be a party to the suit or the suit is against the Indemnifying Party. This includes taking expert advice, legal opinions, hiring attorneys, and taking other obligations associated with the claim to be defended. A duty to defend includes an obligation to suffer the costs of defense such as attorneys’ fees, expert witness fees, electronic discovery fees, court fees, and the like.
Hold-Harmless- It’s a wider acceptance in nature. Obligation to hold harmless assumes all liability, associated risks, losses and damages, specifically a covenant not to sue or seek to impose any liability on the Indemnified Party and releases the Indemnified Party from liability resulting from certain defined acts and circumstances. So, in clear language, a party granting a hold harmless not only shifts the risk to Indemnifying Party by taking responsibility for Indemnified Party’s losses associated with that risk but also assumes the risk directly and agrees not to shift it to the Indemnified Party’s even if the Indemnified Party’s is ultimately responsible for the losses.
Indemnifying, defending and holding harmless is a tool to transfer the risk. Hence while negotiating the same, one should be mindful of the product, contractual obligations, risks that may arise and mitigation strategies.
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Shilpi Kulshrestha
