What is an Indemnification Clause? | Indemnity Explained

Подписаться 32 тыс.

Просмотров 28 тыс.

50% 1

#indemnification #corporatelaw #businesslaw
Indemnification clauses are common in commercial contracts. But, what are they?
Put simply, an indemnification clause is a promise by one party to pay for the losses of another if the offending party causes the other harm.
So, let's say I'm selling your product and I want you, as the vendor, to indemnify me if a customer names me in a lawsuit (barring my own gross negligence or misrepresentation of the product to the customer). In this context, an indemnification clause makes it clear that you will be held accountable and take the responsibility should a third party sue me.
Indemnity brings in another concept called defense. Which means that not only are you held liable for damages in a potential lawsuit, but you also have to pay for the lawyer to defend me in said lawsuit and you would hold me harmless - meaning you won't come after me for this issue.
Indemnification clauses are a more fulsome, clearer representation of a shifting of risk than relying on negligence or general breach of contract.
_____________________________________________
Have questions? Book a call, and talk to Brett today:
clarity.fm/brettcenkus
_______________________________________________
You can reach Brett through:
clarity.fm/brettcenkus
/ brettcenkus
/ bcenkus
www.cenkuslaw.com
braatenwoods.com
merger-resources.com
_______________________________________________
Brett A. Cenkus has 20+ years of experience in business law, finance, and entrepreneurship. Through Cenkus Law, PC, he provides advice and services for mergers & acquisitions (M&A), securities offerings, founders’ agreements, and other general business law issues.
Through Braaten Woods, LLC, Brett helps business owners in the lower middle market ($2MM - $25MM) position themselves for sale, find buyers, negotiate, and close M&A deals.
Brett also maintains merger-resources.com, a site packed with free articles, videos, checklists, deal diagrams, template contracts, and other tools to help pass M&A knowledge to others.
Brett regularly consults with entrepreneurs and invests his own capital as an angel investor.
From 2010-2013, Brett served as Chief Legal Counsel of a publicly-traded international oilfield services company. From 2001 to 2006, he and a partner founded and built Paragon Residential Mortgage. Bridge Investments acquired Paragon in 2006.
Brett holds a Juris Doctorate from Harvard Law School and a Bachelor of Arts degree in Economics from Messiah College in Grantham, Pennsylvania.
Brett lives in Austin with his wife, Cathryn, and two children. He enjoys reading, squash, classic movies, great food and wine, and the New England Patriots.

Хобби

Опубликовано:

17 окт 2018

Ссылка:

Скачать:

Готовим ссылку...

Добавить в:

Мой плейлист

Посмотреть позже

Комментарии : 57

@vasilevavladi6473 5 лет назад

Thank you very much Brett for explaining it in such a nice way with some good examples. Studying right now for a contract law exam and I had some great issues trying to understand, what an idemnity clause is actually about... Thanks again! Keep going. :)

@BrettCenkus 5 лет назад

you're welcome, Vasileva!

@bradleyhawkes7481 2 года назад

God the first 30 seconds and I already learnt more than reading through 60+ pages, you’re very easy to listen to and keep up the great videos, now to watch the next 4:30 mins 😅

@deepthiinamdar 2 года назад

I'm glad I came across your channel. Great video. Thank you.

@ericneff9908 4 месяца назад

Lawyer-to-lawyer.....this is a really good video. And I like your shirt.

@BrettCenkus 4 месяца назад

Thank you, Eric!

@zeus3pa 2 года назад

I was looking at some contract examples for my business and was curious about the indemnification. Thanks you cleared it up

@BrettCenkus 2 года назад

You're welcome, Micah.

@carmennemrac8982 3 года назад

Thanks for a really clear, elegant explanation here!

@BrettCenkus 2 года назад

You're welcome, Carmen!

@newpractice 2 года назад

Cool, this makes a lot of sense to me. Could you explain a little bit of how this term plays into a CBA with a Union? Nice shirt too

@skgupta6424 3 года назад

Brett.....thanks for explaining it with example.

@BrettCenkus 3 года назад

You're welcome!

@coachdcwoods 4 года назад

Thank you for your clear explanation.

@BrettCenkus 4 года назад

you're welcome!

@milagrosserrano123 4 года назад

Thank you for the information. How would indemnification clauses work when a business utilizes sub-contractors? I know that there are insurance companies that state that they will cover the business' claims if work is performed by independent/sub-contractors but only if there is a contract that states that the subcontractor is indemnified by the business. What does that mean exactly? My underlying question is if the business states that they will indemnify the subcontractor 1) doesn't that leave the business open for any type of law suit 2) how would a business write an indemnity clause that satisfies their insurance providers request without entirely placing their neck on the line? Thanks in advance

@gayassusername89 4 года назад

Studying for a real estate exam, thanks for the explanation!

@BrettCenkus 4 года назад

you're welcome!

@APPLYPRESSUREMEDIAGROUP 3 месяца назад

Love this information. Thank you. Quick question if you don't mind. If my client gives me a debarment clause recognition agreement, are they basically saying I can't sue them? Thanks

@palakpatel1 Год назад

Great video. So in a contract, How does an indemnitor(the person who accepted the liability for damages and defense of other party) can transfer the risk of third party lawsuits? My concern is , I hear a lot of insurance companies have clause in there policy that if you assume liability under a contract, insurance company can deny professional liability coverage.

@nigarhajibayova3642 2 года назад

Thank you very much for explanation! I would like just to clarify for myself. Let’s imagine that Client order some kind of repair work from the Contractor. If contractor did something wrong what lead to loss of client’s equipment, under indemnity clause it means that Client will be responsible for the repair etc. correct? Or if in the contract maximum liability of Contractor is equal to cost of work, so contractor may return (if prepayment)that amount and that’s it? Thanks

@lowqualitymemes9166 2 года назад

Hi thanks for the video, I had one question, Im leaving my friend’s company/startup, I have agreed transferring my shares to her. And In the leaving contract its written “ The Benificiary(Me) saves Harmless and indemnifies the Trustee(Her) in her capacity as director and shareholder from all costs, claims, demands or damages that may be made or claimed against them in their capacity as director and/or shareholder of the company and acting in accordance with the deed” can you please explain this?

@tomvader5913 5 лет назад

Hey Brett. Great video, as usual. I was wondering, what would you say is the role of lawyers in minimizing value destruction in M&A deals? I read that courts are usually in favor of the seller, especially when the buyer is a big company, that had the opportunity to conduct due diligence. So, basically really reinforcing caveat emptor. Therefore, even with reps, warranties and indemnity clauses, there is a possibility of the buyer not having the purchase agreement enforced by courts. If this is the case, would you agree that corporate deal structuring and negotiation is more relevant, when it comes do minimizing risk, than the aforementioned clauses? Thanks in advance :)

@BrettCenkus 3 года назад

Tom, I apologize for missing your question, which is a great one and was well thought through and presented. Even though you asked it a year ago, I'll respond now. I am interested in what you have read that says courts are more in favor of the seller. I think courts are not super receptive to sophisticated parties making arguments that something other than the contract ought to apply. And since most M&A agreements leave buyers little room for protection outside of the clear wording in the agreement, which itself is typically buttoned-down well from a seller's perspective, I think buyers may not have a whole lot of room to make arguments if they later experience buyer's remorse. That said, courts will enforce the agreement, so a buyer with leverage can negotiate for more contractual openings for arguments later, a lower deductible, a higher cap, longer rep & warranty survival periods, etc. This point may be where you were headed when you asked about the significance of corporate deal structuring and negotiation. That process is inextricably linked to the wording of the agreement, or should be, at least. In my experience, even though many buyers may have more negotiating leverage, they tend to use it less, at least it feels like that. I think they get "deal heat" and overestimate how much the agreement may later matter. Of course, sellers do this, as well, although, on balance, I think they do it a whole lot less.

@laurengramann8804 6 месяцев назад

I’m confused how / if privity and indemnification are connected

@tnc7685 Год назад

Hello language wise, who indemnifies whom/or what in the sales commission example?

@idan4329 6 месяцев назад

2:45 what does he mean in this example? Why it won't serve a purpose in such case?

@user-ri7vn3vw4d Год назад

this for the info

@carlacda1993 2 года назад

So, as I understand, if I'm a contractor of IT services and the indemnity is over copy write breach by *any* company employee, and their possible injuries, among other things, I can consider it as abusive, am I right? Bc I declined to sign that but not sure how US law works

@carlacda1993 2 года назад

I mean, my logic is I decline to be liable for any other person's infringements, obviously

@iyafasade5208 4 года назад

In the case of a passenger getting injured on a city bus, and that passenger happens to be the CEO of her own LLC, and is pursuing a lawsuit pro-se, what are the steps to take? And can she sue both as an individual for injury and losses AND as a CEO on behalf of the company for losses? She's also a licensed real estate agent. The city bus' legal office says that all of their insurance is in-house and/or they have no insurance company. The state is Georgia. Thank you!

@BrettCenkus 4 года назад

Iya, this question is beyond the scope of what I'd answer in a broad Q&A forum (partly because I'd need a whole lot more information about your claims, partly because it is specific advice vs. general information). Two points that seem clear enough from your facts are 1) I wouldn't expect the individual claims to vary from the company claims (claims as CEO). If lost wages are recoverable, they'd be the lost wages from the job as CEO - same damages brought individually as in the capacity as CEO; 2) I'm pro-DIY law in the right context, although I think bringing a pro se case in any court other than small claims is an exceedingly difficult task. If it's a personal injury case, lawyers will take it on contingency if it's a good case. If no lawyer will take it on contingency, given how difficult it will be to bring that case pro se, I don't see a whole lot of upside (it's tough to imagine a good outcome for the plaintiff under those circumstances). I wish I could be more encouraging and helpful, although hopefully I've added something of value for you!

@iyafasade5208 4 года назад

@@BrettCenkus Thank you very much Brett. I totally understand .

@juliesalazar322 2 года назад

would an indemnification clause help protect contractors from abusive homeowners?

@wAv2adegree 3 года назад

Wow I'm catching on

@mariomicallef7142 2 года назад

Nice shirt.

@amandahoffman2010 3 года назад

I need help please im caught in between 2 banks. my bank is the recieving bank and money was deposited into wrong account, the bank recovered the money and is now holding the money asking for a letter of Endemnity. the sending bank wont send the letter and i cant get my money

@BrettCenkus 3 года назад

Who made the mistake, e.g., did someone send the bank an incorrect account number? Do you have a contract with whoever sent you the money? If so, it may have language that requires you to receive the payment (for the sender to get credit for it)?

@amandahoffman2010 3 года назад

I gave incorrect direct deposit information so the receiving bank had to collect the money from the wrong account that I gave the information for and now they just want to be held harmless to send the money to me the correct bank account but the sending Bank does not want to provide the letter of hold harmless or indemnity. I'm the one doing all the communication between the two.

@ximenaortega4108 2 года назад

Can you please decipher “Except to the extent paid in settlement from any applicable insurance policies, and to the extent permitted by applicable law, each Party agrees to indemnify and hold harmless the other Party, and its respective directors, shareholders, affiliates, officers, agents, employees, and permitted successors and assigns against any and all claims, losses, damages, liabilities, penalties, punitive damages, expenses, reasonable legal fees and costs of any kind or amount whatsoever, which result from or arise out of any act or omission of the indemnifying party, its respective directors, shareholders, affiliates, officers, agents, employees, and permitted successors and assigns that occurs in connection with this Agreement. This indemnification will survive the termination of this Agreement.” Thanks in advanced.

@Honkers716 2 года назад

Scenario: You're the Listing Agent. Your seller lies about the property. You as the Agent do not have to verify claims made by seller. Buyer finds out that they were lied to. Who is responsible if the Agent is indemnified to the seller and the seller made the mistake? But the Agent has no responsibility in confirming claims made by seller? Does indemnify matter here?

@kingdomcitizenship5613 3 года назад

I had a business partner sign a resignation letter, all the writing says he is out of the company. He wants an Indemenity clause added. He doesn't need it does he?

@BrettCenkus 3 года назад

Once he is legally out of the company, he doesn't have liability going forward from a legal perspective. However, there could be a lawsuit tomorrow based on yesterday's facts that would possibly implicate him. That may be his concern. And it is not uncommon for a resigning partner to look for comfort that they won't be on the hook for issues going forward even regarding future issues because it's nice to have protection contractually--to know that the company acknowledges its indemnity obligation. However, if your Operating Agreement (in an LLC) or Bylaws/Stockholders Agreement (in a corporation) provides for the company to indemnify him, which is common, he wouldn't need a separate indemnity clause in another agreement. If the indemnify is worded the way they usually are, he will already have the protection he needs. Most indemnity clauses in governing documents (e.g., Operating Agreements, Bylaws) are fairly broad and cover ex-managers/officers/directors. That said, it's not a big "give" on your part if you're basically reiterating/acknowledging a benefit he already has. Those other documents (Operating Agreement, Bylaws, etc.) would not typically call for you to personally indemnify him (i.e., they would call for the company to indemnify him). Is that what he's looking for, a separate clause somewhere with you agreeing to indemnify him? That would be a significant change vs. the typical default scenario.

@kingdomcitizenship5613 3 года назад

@@BrettCenkus Thank you! Great channel. Liked and subscribed!...You called it Brett! He signed the new resignation letter, we wrote in a waiver of liability, and indemnified him from any legal actions against taken against the company. What a relief this is over.

@BrettCenkus 3 года назад

@@kingdomcitizenship5613 I am glad for you that it's behind you!

@wAv2adegree 3 года назад

I have some questions can you contact me

@remakbar3813 3 года назад

Why would I accept obligation to indemnify you in case you suffered a loss due to your own negligence? If, for example, I am a contractor, and you, as a client, suffered a loss or claim due to your own act/omission/negligence, then I see no logic in accepting such unlimited undertaking.

@vamseeramvadlamudi5091 3 года назад

It all depends upon the carveouts the client agrees with the contractor in the contract. Generally the gross negligence and wilful misconduct items will get carvedout from the indemnity. If they are not carvedout, the contractor is a fool.

@remakbar3813 3 года назад

@@vamseeramvadlamudi5091 true..

@phillipray1442 3 года назад

I need help with this issue please.

@BrettCenkus 3 года назад

What questions do you have, Phillip?

@phillipray1442 3 года назад

My money to me from unemployment was deposited into the wrong account the bank receiving collected the money from the wrong account and will not deposit into my account which is the correct account they want a whole harm letter or letter of indemnity from the sending Bank but they will not do it. How can I as a regular person make these forms so my bank will complete the transfer into my account. Its a substantial amount of money from unemployment.

@BrettCenkus 3 года назад

@@phillipray1442 It sounds like you're issue is that the sending Bank won't sign a hold harmless letter or letter of indemnity, not that they won't prepare one. In other words, I don't think you're issue is making the forms. That said, you may be able to find examples online, either at a paid site like LegalZoom or by searching for something like "example hold harmless letter."

@phillipray1442 3 года назад

@Brett Cenkus So could I write my own letter of hold harmless letter of indemnity and email it to the receiving bank so they can deposit the money in the correct account they didn't say I could they just ask that the sending bank send the letter but since it's my money couldn't I hold them harmless. I found different examples I just don't know which one is the correct one and all of the words that need to be said for both parties myself and the receiving Bank.

@BrettCenkus 3 года назад

@@phillipray1442 I don't think the receiving bank wants the letter from you. They want the sending bank to hold them harmless. I read your question as asking how you can make the forms, although, as I said, I don't think the issue is preparing the form. I could be wrong about that, although it's not a whole lot of work for one of the banks to have their lawyers prepare a simple hold harmless letter. I suspect the sending bank doesn't want sign one of those.