Continuation of indemnity: Overview, definition, and example
What is continuation of indemnity?
Continuation of indemnity refers to the ongoing obligation of one party (the indemnitor) to provide financial protection or compensation to another party (the indemnitee) for losses or damages incurred, even after the initial indemnification agreement or contract has been signed. This provision ensures that the indemnitee continues to be protected from liabilities that may arise after the original indemnity agreement is in place, including any claims, lawsuits, or damages that come up during the term of the agreement or in connection with specific events covered by the indemnity.
For example, in a business contract, the seller may indemnify the buyer for any legal claims that arise after the sale, ensuring the buyer is protected from future liabilities related to the seller's past actions.
Why is continuation of indemnity important?
Continuation of indemnity is important because it ensures that one party remains protected from unforeseen risks and liabilities that may emerge after the initial agreement. Without this provision, a party could be exposed to financial loss or legal risk long after the contract has been executed. By including a continuation of indemnity clause, businesses, individuals, and organizations can provide long-term protection and minimize their risk exposure. This is particularly important in contracts involving ongoing operations, such as long-term leases, mergers and acquisitions, or any agreements with extended post-contractual responsibilities.
For both businesses and individuals, continuation of indemnity gives peace of mind, ensuring that they are not left vulnerable to potential future claims or disputes that could arise after the agreement is signed.
Understanding continuation of indemnity through an example
Imagine a company that sells its intellectual property rights to another company. The sale agreement includes a continuation of indemnity clause, where the seller agrees to protect the buyer from any future legal claims related to intellectual property infringement that may arise from actions taken by the seller before the sale. Even though the transaction is completed, the seller’s indemnity obligation remains in effect if a lawsuit regarding past use of the intellectual property is filed after the sale.
In another example, a contractor agrees to indemnify a property owner in the event that third parties file claims due to the contractor’s work. If a worker is injured on the site after the project is completed, the contractor’s indemnity continues to apply, meaning the contractor will be responsible for covering the property owner's legal costs and damages even after the job is done.
An example of a continuation of indemnity clause
Here’s how a continuation of indemnity clause might appear in a contract:
“The Indemnitor agrees to continue indemnifying the Indemnitee for any claims, damages, losses, or liabilities arising from actions or omissions that occurred during the term of this Agreement, even if such claims are made after the Agreement has ended. This indemnity obligation will remain in effect for [specified period] after the termination of the Agreement.”
Conclusion
Continuation of indemnity ensures that one party remains protected from liabilities that may arise even after the original agreement has been completed. It offers ongoing financial protection for the indemnitee, covering any future claims or damages that relate to the scope of the indemnity. For businesses, individuals, and organizations, this provision is essential for managing risk and ensuring long-term security against unforeseen claims or legal challenges that may emerge after the contract has been executed.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.