An indemnification clause in a contract protects parties from liability for certain types of loss or damage, but its enforceability depends on the specific case and laws. Clarity is necessary for a binding clause, and illegal matters cannot be indemnified. They are commonly used in business contracts but must be reviewed carefully.
An indemnification clause is a section of a contract that protects one or more parties to the contract from liability for a certain type of loss or damage arising under the contract. Any agreement may include an indemnification clause, also known as an indemnity clause, but whether such a clause will be enforceable depends on the relevant facts of the particular case and the laws of the governmental jurisdiction. In some cases, an indemnification provision will be unenforceable because of the way it is written or because it conflicts with other aspects of the contract. Other times, an indemnification provision will be unenforceable because it attempts to indemnify against types of damages from which you are prohibited from being protected. For example, in the United States, you cannot indemnify for death or personal injury.
Indemnification clauses are commonly used in business as a risk management tool. Indeed, they are often considered essential to good corporate governance. As a result, they exist in many contracts, including the standard language of consumer agreements. As with any contract or provision within a contract, attorneys and other legal professionals recommend that anyone preparing to sign a contract carefully review the entire contract, including any indemnification provisions.
In general, for an indemnification clause to be binding, it must meet several legal requirements. Clarity is the primary requirement. The clause should include unique language that identifies the rights and obligations of each party to the contract. This is also helpful in preventing potential litigation or future civil claims. Limits and unprotected exceptions, if any, must also be clearly described.
While any type of agreement, from a rental agreement to an agreement to purchase a product or service, may include an indemnification provision, whether or not it is binding depends on the laws of the applicable jurisdiction. A court may render an indemnification provision unenforceable or limit its interpretation for a variety of reasons, including lack of clarity or specificity, and unreasonableness.
Indemnification provisions are generally unenforceable if they concern illegal matters. Some jurisdictions prohibit the indemnification of certain types of losses. In the United States, you cannot indemnify for death or personal injury. That is, Party A cannot agree to indemnify Party B if Party A suffers personal injury or death as a result of the contract activity. Some jurisdictions also prohibit indemnification provisions that protect you from damages that result from your own negligent or grossly negligent acts.
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