Indemnification: a provision only a lawyer can love. I can hear you asking already “What the hell is indemnification?” Let’s look at it through an example.
Suppose Client hires Agency to develop the front end of Client’s website. Where the design calls for photography, someone at Agency populates the page with images from a Google search rather than licensing stock photography. Agency completes the site and Client pays the bill.
Six months later Client calls and is irritated. Client just received a cease and desist letter from a photographer regarding unlicensed use of the photographer’s photos in Client’s website. The photographer demands $5,000 as a licensing fee to use the photos in the site.
Wanting to avoid further trouble, Client pays the photographer but now wants reimbursement from you.
This is where indemnification comes in. In its simplest sense, indemnification is the right to be reimbursed for amounts expended in fixing a problem caused by someone else. In this case, if the contract has a typical indemnification clause, the Client can demand that Agency reimburse the $5,000 Client paid to the photographer. And if Agency doesn’t pay, Client can sue the Agency for breach of contract.
This is a simple example but a good one to keep in mind when thinking about indemnity clauses. Next, let’s look at a typical indemnity clause and break it down
A typical indemnification clause looks like this:
<aside> 📑 Indemnification by Agency. Agency hereby releases and will defend, hold harmless, and indemnify Client, and/or its subsidiaries, affiliates, directors, officers, employees, agents, successors and assigns, from and against any allegation or claim based on, or any loss, damage, settlement, cost, expense and any other liability (including but not limited to reasonable attorneys’), arising from (a) Agency’s breach or alleged breach of this Agreement or (b) any allegation or claim of negligence, strict liability, misconduct or fraud by Agency or its personnel, or (c) any claim that the Deliverables infringe the copyright, trademark, patent, trade secret, or other intellectual property rights of any third party.
</aside>
An impenetrable mess, right? Well don’t fret. Let’s break the clause down into chunks. There are five key elements to a typical indemnity clause:
Let’s look at the same clause with these elements labeled by color:
<aside> 📑 Indemnification by Agency. Agency hereby releases and will defend, hold harmless, and indemnify Client, and/or its subsidiaries, affiliates, directors, officers, employees, agents, successors and assigns, from and against any allegation or claim based on, or any loss, damage, settlement, cost, expense and any other liability (including but not limited to reasonable attorneys’), arising from (a) Agency’s breach or alleged breach of this Agreement or (b) any allegation or claim of negligence, strict liability, misconduct or fraud by Agency or its personnel, or (c) any claim that the Deliverables infringe the copyright, trademark, patent, trade secret, or other intellectual property rights of any third party.
</aside>
So here you can see it: