Indemnification clauses protect people and entities from liability if an individual or property sustains harm during an arrangement because of the careless actions of a third party. An indemnification clause contractually obligates the named party to cover damages and compensate the injured party for losses that could occur in the future while the structure exists. The provisions allow parties to the agreement to customize the maximum risk they will take during the transaction, with others agreeing by signing the clause. Indemnification clauses are excellent tools to help you avoid liability or pay damages for lawsuits related to a third party’s negligence. It can include contractors, vendors, or any party that could expose your business to significant risk and liabilities. Schedule to meet a skilled construction contacts lawyer at Harrison Law, PLLC, at 480-320-2310 for help drafting customized indemnification clauses to protect your business future.
What Is the Purpose of an Indemnification Clause?
In most cases, indemnification clauses are contract provisions but sometimes it can be a stand-alone agreement. The agreement identifies specific parties and transfers liability for damages from one party to another. The clauses are enforceable in state and federal courts, but there are some exceptions to be aware of to protect a business from avoidable blind spots or vulnerabilities. Some also refer to the clauses as the following:
- Indemnity Agreement
- Indemnity and hold harmless agreement
- Hold harmless agreement
- Indemnity clause
- Indemnification provisions
According to the Arizona Department of Revenue, an indemnity agreement will hold the indemnifying party financially accountable for claims and other losses the other party could sustain by delivering goods or services as per the agreement of the clause.
Examples of Indemnification Clauses in Business
Some examples of indemnification clauses in business include the following:
- Digital marketing agency contracts
- Online retailer contracts
- General contracting contracts
- Snow removal service contracts
Many organizations rely on outside agencies and third parties for daily business operations. Therefore, agreements to protect themselves from the liabilities of the other parties are essential.
What does Indemnifying Someone Mean?
Indemnifying someone is a term meaning to compensate that party for their damages and losses. It is an agreement to shift liability from one party to the indemnifying party. The clause provides the indemnifying party with compensation for harm arising because of another party’s negligent actions or the other party’s failure to act to avoid the damage. They agree to pay or provide a promise to pay a specific coverage amount in return for payment or a premium. One example is an insurance provider agreeing to cover losses covered by the policy in the event that damage occurs.
Indemnification Clauses are Crucial for Protecting Businesses from Liability for Damages by Other Entities
Indemnity clauses protect organizations from civil liability and lawsuits when there is a risk of harm or losses out of one party’s control. A contractor working within a building with the business or outside vendors handling tasks for payment could be examples of parties to an indemnity clause.
If a contractor makes mistakes or causes an unreasonably unsafe condition and a visitor sustains injuries, the business owner could be indemnified by the contractor, making them liable for paying the judgment. Business owners should consider using an indemnification clause in the following circumstances:
- Protection from third-party liability for damages owed to a client
- To customize the amount of risk a business is willing to take in an arrangement
- To collect damages from the at-fault party for indemnification clause violations
- Absolving a company of potential risks and future liabilities
- To improve reputation and work with other reputable organizations
According to Indemnification Under Public Law 85-804, Indemnification clause protection only applies to damages and losses resulting from risks defined explicitly in the contract. The clause does not provide compensation or protect parties from sustaining financial harm when financial injuries arise due to unusually hazardous conditions or if the parties did not agree to specific terms before executing and finalizing the legally binding contractual agreement. A knowledgeable Arizona business attorney at Harrison Law, PLLC could help ensure that your legal rights are protected, draft the contract, and protect your business’s legal interests.
Valid Reasons to Limit Indemnity Clauses
Companies must limit indemnity clauses to circumstances they can control. The provision must contain verbiage detailing every part of the agreement to ensure an error does not leave them vulnerable to lawsuits outside the scope of their work.
An example is leaving off verbiage regarding work after the business passes it on to another party. If that party damages it before the customer receives it, the original company could be liable for damages without a contract, including the legal jargon and circumstances of the agreement.
Preparing, Enforcement, and Collection of Indemnity
Creating an indemnification clause on a do-it-yourself or DIY legal document website may be tempting to save money. When people draft their own legal documents, it leaves them open to interpretation of statute guideline errors or forgetting verbiage that could invalidate the contract. An experienced attorney at Harrison Law, PLLC could prepare the indemnification clauses and represent the business if there are disputes over the clause and liability.
The law firm could help business owners protect their assets while the individual focuses on running the organization and building client relationships. The agreements give companies the power to safeguard and protect themselves from damages resulting from lawsuits that the counterparty unnecessarily created.
Meet With an Experienced Arizona Business Lawyer Today
Running all types businesses means taking risks. Therefore, finding tools, including legally binding contracts, to ensure your organization has protection from liability resulting from the negligence of other parties is essential. An Arizona business lawyer can research the background of all parties and draft indemnity clauses to enforce agreements and, if necessary, collect damages from a negligent party. These contract provisions are vital for business operations involving multiple parties and entities. They ensure involved parties are satisfied with the outcome of projects and, if needed, allow you to hold the at-fault party accountable. Schedule a consultation with a seasoned attorney at Harrison Law, PLLC, at 480-320-2310 for help drafting customized indemnification clauses to protect your business’s assets and future.
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This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
