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. 1375 East Ninth Street, 9th floor Cleveland, Ohio 44114 216.696.7303 Fax sssb-law.com |