Right to indemnity: Overview, definition, and example
What is the right to indemnity?
The right to indemnity refers to a party’s entitlement to be compensated for losses, damages, or liabilities incurred due to the actions or negligence of another party. This protection is typically outlined in contracts, ensuring that one party does not bear financial responsibility for risks that should be covered by the other.
For example, if a business hires a contractor and the contractor damages a client’s property, the contract may include an indemnity clause requiring the contractor to cover any costs or legal claims arising from the damage.
Why is the right to indemnity important?
The right to indemnity is crucial because it helps manage risk and financial exposure in contractual relationships. It ensures that parties are not unfairly burdened with costs resulting from another party’s actions, mistakes, or breaches.
For businesses, indemnity clauses protect against unexpected liabilities, including legal claims, financial losses, or third-party damages. Clearly defining indemnification rights in contracts helps prevent disputes and ensures that all parties understand their obligations.
Understanding the right to indemnity through an example
Imagine a software company licenses its product to a client. The contract includes a clause stating that the software provider will indemnify the client against any copyright infringement claims. Later, a third party sues the client, alleging that the software violates their intellectual property. Under the indemnity clause, the software company is responsible for covering legal costs and any damages awarded.
In another scenario, a logistics company hires a subcontractor to transport goods. If the subcontractor is involved in an accident that damages the cargo, the logistics company may seek indemnification from the subcontractor for the cost of lost or damaged goods.
An example of a right to indemnity clause
Here’s how a right to indemnity clause might appear in a contract:
“The Indemnifying Party agrees to indemnify, defend, and hold harmless the Indemnified Party from and against any claims, losses, damages, liabilities, costs, and expenses (including reasonable attorney’s fees) arising out of or related to the Indemnifying Party’s actions, omissions, or breach of this Agreement.”
Conclusion
The right to indemnity ensures that a party is protected from financial losses resulting from another party’s actions, mistakes, or breaches. It is a key risk management tool in contracts, helping businesses safeguard against potential liabilities.
By including a well-drafted indemnity clause, businesses can protect their financial interests, clarify responsibilities, and reduce the risk of costly disputes.
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.