What does it mean to provide indemnification?

To indemnify another party is to compensate that party for losses that that party has incurred or will incur as related to a specified incident.

What is indemnity in simple words?

The word indemnity means security or protection against a financial liability. It typically occurs in the form of a contractual agreement made between parties in which one party agrees to pay for losses or damages suffered by the other party.

What is an example of an indemnity?

Indemnity is compensation paid by one party to another to cover damages, injury or losses. … An example of an indemnity would be an insurance contract, where the insurer agrees to compensate for any damages that the entity protected by the insurer experiences.

What does an indemnification clause do?

Indemnification clauses are clauses in contracts that set out to protect one party from liability if a third-party or third entity is harmed in any way. It’s a clause that contractually obligates one party to compensate another party for losses or damages that have occurred or could occur in the future. … indemnify.

How do you write an indemnification clause?

“[Company/Business/Individual Name] shall fully indemnify, hold harmless and defend _______ and its directors, officers, employees, agents, stockholders and Affiliates from and against all claims, demands, actions, suits, damages, liabilities, losses, settlements, judgments, costs and expenses (including but not …

What is a contract indemnity?

A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity. … This is a contract of indemnity.

What does mutual indemnification mean?

In a mutual indemnification, both parties agree to compensate the other party for losses arising out of the agreement to the extent those losses are caused by the indemnifying party’s breach of the contract. In a one-way indemnification, only one party provides this indemnity in favor of the other party.

What happens if there is no indemnification clause?

If there is no indemnification clause, then the parties will not be entitled to any contractual indemnification. This does not mean that a party may not be held liable towards another party in a court of law, it just means that contractually a party cannot claim compensation for specific damages or expenses.

Are indemnity forms legal?

Generally, an indemnity agreement is enforceable if a person freely and voluntarily agreed to it, except if it is against public policy. Public policy states a person may not contract out of gross negligence or wrongful misconduct.

Can indemnification be capped?

Capped Indemnity clause. … Hence, parties are likely to be able to claim far more through a capped indemnity clause compared to a liquidated damage clause.

Is indemnification only for third party claims?

Indemnification is only for Third Party Claims Unless Clause Expressly States it applies to First Party Damages. An indemnification clause will only apply to liability for claims brought by third parties. It will not apply to claims between the contracting parties.

Should indemnification clause be mutual?

The Risk Managed in an Indemnity Clause Must be Mutual and Balanced. … The second way, is if the indemnity clause doesn’t mention a specific party and instead can apply to either party. Such an indemnity clause will use words like “indemnified” and “indemnifying” party, for example.

What is uncapped indemnification?

Indemnification: By contrast, indemnification, for third party claims, are typically uncapped. … Indemnification typically comes into play when a 3rd party is somehow involved. This is no longer an issue solely between the two parties directly involved with the agreement.

How do you limit an indemnification clause?

You should look to limit indemnification clauses by narrowing their scope, putting in caps on damages, and clearly defining the indemnifiable acts (i.e. the representations and warranties in the example above). Also consider purchasing insurance as a means to limit your financial risk.

Does indemnification clause survive termination?

Many contracts include indemnification language. … However, most indemnification provisions cover tort claims or allocate risk for third-party claims. Since a party might not become aware of these claims until after the contract termination, those indemnification provisions should survive termination.

What is a basket amount?

Finance, “basket” is business jargon for a maximum dollar amount for a specific exception to a covenant restriction in a financing agreement. For example, a loan agreement may limit the borrower’s ability to incur debt but permit it to incur up to $5 million in letters of credit.

What does tipping basket mean?

A tipping basket is a threshold set so that when the buyer’s losses exceed it, the seller is liable for the total number of the losses. This requires the buyer to meet an insurance-like deductible before the seller would be required to make the buyer whole.

What is indemnification basket?

Indemnification basket refers to the amount that damages or losses must exceed before a seller is liable for any indemnification payments. An indemnity basket requires the buyer to incur a certain amount of loss before it can seek indemnification from the seller.

What is a sandbagging clause?

Simply stated, a “sandbagging” or “pro‑sandbagging” provision provides that a buyer’s remedies against the seller under the governing agreement are not impacted regardless of whether the buyer had knowledge, at or prior to closing, of the facts or circumstances giving rise to an indemnification claim.

What is indemnification escrow?

An indemnification escrow account is a separate fund that the parties can establish at the closing of a transaction for the payment of indemnification obligations. The indemnification escrow is funded from the buyer’s purchase price. … In these instances, the escrow works like a cap on the sellers’ damages.

What is materiality scrape?

A “materiality scrape” is a provision sometimes contained in a purchase agreement (such as a stock purchase agreement, merger agreement, or asset purchase agreement) that effectively eliminates, for indemnification purposes, any materiality qualifiers in a representation and warranty (or covenant) when determining …

What is a 10b 5 rep?

A target’s or seller’s representation and warranty in a purchase agreement that the information provided by it is complete and correct in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement not misleading.