poetic, but a company's contract language
still expresses or reveals how that
company carries itself as a business. A
lawyer reviewing a customer's contract
for a client gets a feeling for the way the
customer approaches its business activity;
a lawyer drafting a contract on behalf of a
client is documenting the client's specific
posture toward its business relationships.
In this article, I will focus on the
indemnification provision in commercial
contracts. Indemnification can create
significant shifts in liability between the
parties. Just as you can tell a dog's health
feel for a company's business culture by
reading its indemnification language. Not
to put too fine a point on it, the business
imbalances in many indemnification
provisions are unreasonable, inexplicable
and unexamined. The points below are
meant to facilitate a reevaluation of our
indemnification boilerplate.
This article assumes the "Buyer" is
the indemnitee, and the "Vendor," the
indemnitor.
provision creates a contractual
obligation in one party (the
indemnitor) to pay the other (the
indemnitee) for damages resulting
from certain occurrences, regardless
of other theories of liability.
Indemnification is an independent,
contractual form of liability for
the indemnitor.
be the starting point for evaluating
an indemnification provision what
kind of damages would arise from
the indemnitor's simple breach of the
contract? What are the foreseeable
consequences arising from such
breach?
bypass traditional defenses offered
by contract doctrine and create
liability for remote or consequential
damages that would not have existed
otherwise. In order to collect under a
breach of contract theory, the Buyer
has to prove the elements of contract
damages existence of a contract,
have contract defenses remoteness,
unforeseeability, unconscionability,
and the like. The indemnification
provision gives the Buyer an
alternative avenue of recovery for the
same damages (and potentially much
more), under an analysis contained in
the indemnification provision itself,
without the defenses that the Vendor
might otherwise have in a breach of
contract claim.
a double liability for the same harm
and, all things being equal, should
be removed. The Buyer has sufficient
recourse for simple breach in a direct
action for breach why compound
Vendor's liability by adding an
obligation to indemnify as well?
around indemnification provisions:
(a) the gap between regular contract
damages and the indemnification
obligation; and (b) the gap between
the indemnification obligation and
Vendor's insurance coverage.
of liability that waives consequential
damages, but (b) the limitation
contains a carve-out excepting
indemnification obligations from the
consequential damages waiver, and
(c) the indemnification provision
requires the Vendor to indemnify
for breach of contract, then the
indemnitor will end up with liability
for consequential damages under
and consulting, licensing, partnership and LLC
matters, and mergers and acquisitions. He
enjoys working with clients to understand their
businesses and developing clear, appropriate
contracts that address their particular concerns.
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