Indemnification Agreements - The Basics

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Indemnification agreements create an express contractual obligations for one party to protect another party from loss or injury.  41 Am. Jur. 2d Indemnity § 1.  In these agreements, one party (the indemnitor) promises to protect another (the indemnitee) against claims arising from the contract.  Id.  Frequently, these agreements will protect the indemnitee against lawsuits brought by a third-person who is not a party to the contract, but who may have a related claim.  14 Tex. Jur. Contribution and Indemnification § 17.  In this way, indemnification agreements serve as powerful risk-shifting tools that can be utilized in a myriad of circumstances, ranging from personal injury to patent infringement and other intellectual property issues such as copyright indemnity and trademark indemnity.

Language Required for Indemnification Agreements

While parties have great freedom to allocate risk in their contract, they should do so with clear, unequivocal language, as indemnity agreements are strictly construed in favor of the indemnitor.  Id.  The burden of proof in an action to enforce an indemnification agreement lies with the party seeking to enforce it, the indemnitee.  Indemnification agreements, 2 Jones on Evidence § 10:15.10 (7th ed.).  This party must prove that they suffered an  injury which was subject to indemnification under the contract, and that the indemnitor has not provided reimbursement for this loss.  Id.  Courts will likely not hold an indemnitor liable for loss suffered if it is beyond the scope of a reasonable construction of the contractual terms.  14 Tex. Jur. Contribution and Indemnification § 17.  Thus, it is important for parties to use clear and specific language so that they may fully understand their rights and obligations under an indemnification agreement.

Public Policy Considerations for Indemnification Agreements

In addition to these interpretation issues, indemnity agreements may be unenforceable if they violate public policy, such as a waiver of liability for gross negligence or recklessness. States may provide further guidance on indemnification public policy by passing specific legislation, which is especially useful when contracting within a particular industry.  57A Am. Jur. 2d Negligence § 48.

In short, indemnification agreements can be potent tools for allocating risk between parties. But to ensure these agreements are enforceable as intended, parties should draft the language with precision.

About the firm:

Klemchuk LLP is an Intellectual Property Law, Litigation, and Transactions law firm located in Dallas, Texas.  The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights.  The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution.  

The firm publishes the following blogs: Intellectual Property Law, Conversations with Innovators (interviews with thought leaders), Leaders in Law (discussions on timely law topics), and Culture Counts (thoughts on law firm culture and the business of the practice of law).