{"id":174034,"date":"2022-08-09T05:28:30","date_gmt":"2022-08-09T04:28:30","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=174034"},"modified":"2024-05-22T02:53:05","modified_gmt":"2024-05-22T01:53:05","slug":"indemnification-provision","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/commercial-contracts\/indemnification-provision\/","title":{"rendered":"Benefits of Including Indemnification Provisions in Commercial Contracts"},"content":{"rendered":"\n<p>You must include an indemnification provision in your business contracts to <a href=\"https:\/\/legalvision.co.uk\/commercial-contracts\/confidentiality-indemnity-protect-business\/\">protect your commercial interests<\/a>. If problems in a commercial agreement cause your business to suffer loss, you can rely on this provision. An indemnification clause establishes what the other party is liable for if their breach causes loss to your company. However, it may be unenforceable if the clause is unclear or uncertain. Alternatively, your business may be unable to claim the total compensation you deserve. This article will explore indemnification clauses and how they can benefit your business.\u00a0\u00a0\u00a0\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is an Indemnification Clause?<\/h2>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p>An indemnification clause aims to ensure that another organisation provides you with financial compensation when they cause your business harm in certain specific circumstances.<\/p>\n<\/div>\n\n\n\n<p>Two common types of indemnification clauses include:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>third-party indemnity clauses that protect your business from any loss or damage from parties outside the contract; and<\/li>\n\n\n\n<li>inter-party <a href=\"https:\/\/legalvision.co.uk\/commercial-contracts\/warranties-and-indemnities\/\">indemnity<\/a> clauses that protect your business from loss or damage from the other party breaching the contract itself.<\/li>\n<\/ul>\n\n\n\n<p>Inter-party indemnity clauses are the most common type. Therefore, this article will focus on this indemnity clause.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Example<\/h2>\n\n\n\n<p>Suppose you establish a law firm in early 2020, at the beginning of the COVID-19 pandemic. Accordingly, you set it up as a \u2018virtual only\u2019 law firm. All meetings and conferences are by telephone or video call, and all lawyers work from home (not from an office). Consequently, you enter an expensive contract with a software provider to run and maintain a wholly online, cloud-based file management system.<\/p>\n\n\n\n<p>In June 2021, the entire file management system goes down and is inaccessible. This is because the service provider suffers issues with the server that hosts your website and file management system. As a result, your business suffers three continuous weeks of your website being down (thereby losing new customers). Furthermore, your lawyers cannot log into their email or access documents, and your clients become increasingly angry due to a lack of response.<\/p>\n\n\n\n<p>The impact is understandably huge, and your business loses money directly, through client loss, and indirectly through reputational damage and employee resignations. Your agreement with the service provider states that they are to provide and maintain services on an ongoing basis. Therefore, the system failure represents a breach of contract.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Importance of Wording<\/h3>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p>The wording of an indemnification clause will determine what financial loss your business can claim and the parameters of \u2018loss\u2019. This can largely depend on negotiations with the indemnifying party and how far they agree on liability for any future breach of contract. Naturally, a business desperate for your contract may agree to a stricter (wider) indemnity provision than one that could reasonably survive without the deal with your business.<\/p>\n<\/div>\n\n\n\n<p>Therefore, the wording of these contracts is crucial. Using the above example, you could foreseeably end up in any of the following situations:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>the clause is poorly drafted and <a href=\"https:\/\/legalvision.co.uk\/commercial-contracts\/heads-of-agreement-enforceable\/\">unenforceable<\/a> so your business receives no financial compensation upon suing the other party;<\/li>\n\n\n\n<li>the clause only permits direct and provable economic damage so you can only claim for loss of fees from departing clients who explicitly state the\u00a0 system outage in their termination letter; or<\/li>\n\n\n\n<li>the clause is strong and wide enough to cover both direct and indirect loss so your business can also claim for the recruitment costs of replacing employees who left within six months of the lengthy system outage and, also, for predicted loss of new business during the outage.<\/li>\n<\/ul>\n\n\n\n<p>Thus, the various possible outcomes reflect the importance of the wording in an indemnity provision.<\/p>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+448081968584\" class=\"not-prose\">0808 196 8584<\/a> for urgent assistance.\n                <br>\n                Otherwise, complete this form, and we will contact you within one business day.\n                    <\/span>\n    <\/div>\n\n    \n\n<div class=\"not-prose flex justify-center text-left gform_input_bg_white    \">\n    <script>\nvar 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So, for example, a business selling goods cannot have customers sign an indemnification clause that they will be liable for lost profits if they complain about the product quality on social media.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Key Takeaways<\/h2>\n\n\n\n<p>On the whole, indemnification clauses are some of the most highly negotiated clauses within commercial agreements. A poorly worded clause may restrict your business from claiming reasonable sums upon breach of contract by the other party. Conversely, a strongly worded clause could effectively compensate your company for any financial losses you incur.<\/p>\n\n\n\n<p>If you need help with indemnification clauses, our experienced <a href=\"https:\/\/legalvision.co.uk\/contract-lawyers-lp\/\">contract lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <a href=\"https:\/\/legalvision.co.uk\/membership\/\">membership page<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions<\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1660017636081\"><strong class=\"schema-faq-question\"><strong>Could an indemnification clause have exceptions?<\/strong><\/strong> <p class=\"schema-faq-answer\">Yes. A common exception is where prior actions of your business partly or wholly cause the breach of contract. For example, if the other party does not provide the usual monthly instalment on time because your company failed to send the standard form by the expected date.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1660017651139\"><strong class=\"schema-faq-question\"><strong>Can an indemnification clause cover more than lost profit?<\/strong><\/strong> <p class=\"schema-faq-answer\">Yes. Many clauses also cover linked expenses and legal costs spent enforcing the indemnification clause.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/174034\" \/>            <input value=\"https:\/\/legalvision.co.uk\/commercial-contracts\/indemnification-provision\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Benefits of Including Indemnification Provisions in Commercial Contracts\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>You must include an indemnification provision in your business contracts to protect your commercial interests. If problems in a commercial agreement cause your business to suffer loss, you can rely on this provision. An indemnification clause establishes what the other party is liable for if their breach causes loss to your company. However, it may<a href=\"https:\/\/legalvision.co.uk\/commercial-contracts\/indemnification-provision\/\">Continue reading <span class=\"sr-only\">&#8220;Benefits of Including Indemnification Provisions in Commercial Contracts&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13349,"featured_media":3107,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"173046,1191,2821,173867,2080,2419","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[37],"tags":[20,21,360,559,743],"class_list":["post-174034","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commercial-contracts","tag-small-business","tag-medium-business","tag-commercial-contract","tag-indemnities","tag-commercial-agreement"],"acf":[],"yoast_head":"<!-- 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