INDEMNIFICATION PROVISIONS IN CONTRACTS
Businesses enter into contracts with customers, other businesses, vendors, and suppliers every day. Often indemnification provisions are included within these contracts. Typically, an indemnification provision means that one party is required to pay for the other party’s loss upon the occurrence of certain events. For example, a software company vendor may ask a business to defend and to indemnify it in the event that the software company is sued by the business’s customer if the software fails. In this example, the business would be responsible for paying the cost of defense and any judgment entered against the software vendor arising from the lawsuit. Sometimes the business’s indemnification of others is appropriate. At other times, the business’s indemnification of others is not. As a first step, the indemnification provision should be reviewed by your insurance agent to determine what, if any, insurance coverage is available to cover the indemnified loss. Furthermore, you may wish to ask your attorney to review the indemnification provision so that you understand the risk that your business is being asked to assume. Finally, even though businesses are often asked to include indemnification provisions within contracts, the scope of the provision is often negotiable. Accordingly, if you determine that the risk is too great, or that insurance coverage is not available to you, you may be able to limit the scope of the indemnification or remove the provision all together.