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In a lot of long contracts (the type people normally skim over) I often see sections about liability and indemnification. In general what are these and why are they necessary?

Can someone give a simple example of an indemnification clause and what could happen if it wasn't in the contract? Is the main idea with a indemnification clause that it specifies who is responsible if it is found something illegal was done? If there is a breach in the contract, then you go to court, and if something illegal is done, it doesn't matter what the contract says, so I don't really get the use of an indemnification clause.

How does "holding someone liable" relate to indemnification, are they synonyms?

I am building a website for someone and am thinking if I should include this in a contract.

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Here is an example:

The Author agrees to hold harmless and indemnify the Journal and The University against any legal claim or action or expense of any nature arising from any claim of infringement of copyrights or proprietary rights resulting from publication of the manuscript or claims of libel, obscenity, unlawfulness or invasion of privacy arising out of anything contained in the manuscript as furnished by the Author.

Suppose Author infringes the copyright of Jones, by copying large parts of it into Author's work. Author is now in legal trouble because he illegally copied stuff into his manuscript, but Journal is also in big (bigger) legal trouble, because it made many copies of Jones' word and sold them. Jones will now sue everybody, mostly the Journal (since Journal has money, and Author doesn't).

Thanks to the indemnity clause, when Journal gets sued, all of the costs (of litigation and judgment) have to be born by Author. The primary purpose is to protect Journal from suits by third parties. Nothing can keep you from getting sued, but such a clause (theoretically) means that the person whom your contracting with has to cover the cost of his wrong-doing (assuming that he is not a turnip).

The term "hold harmless" is there to guarantee that Author can't decide to sue Journal for publishing a libelous or infringing article. The functions are similar, but not totally the same: this and references therein could be interesting reading, by way of more details. He argues against using both terms, and instead you should use only "indemnify". In this case, the court said "When two words are used in a contract, the rule of construction is that the words have different meanings", which caused the court to assign distinct meanings to the words (which are typically used as though they mean the same thing), which doesn't seem to have been the original intent.

  • Another variant is "indemnify and defend" which means to not only a duty to compensate the protected party for losses incurred because of the triggering action, but also to provide a legal defense with a lawyer as the matter is being adjudicated before the loss is actually incurred. – ohwilleke Feb 22 '17 at 6:29
  • @ohwilleke What will it mean, in layman's terms, for a party offering their services (call it consulting services on the sale of biz) if the clients ask for an indemnification clause to be removed? Thx. – Sizzle Oct 28 at 16:46
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    @Sizzle This doesn't happen very often, but when it does, the outcomes are very mixed and pretty much track the relative economic power of the parties. For example, I had a contract recently, when one party asked for an indemnification clause to be removed and the end result was that the party was required to indemnify 50% rather than 100% of amounts otherwise subject to indemnification. When an economically weak party asks, the answer is no. When an economically strong party who is absolutely necessary for a deal asks, some limitation of some sort is common or the risk will be insured around. – ohwilleke Oct 28 at 17:27
  • @ohwilleke I am the weaker party (individual consultant) and the stronger party ($40M+ company) is asking to remove that clause. WIth them, there is no potential transaction...so they hold the cards. Is it legally crazy for me to let them strike the Indemnification clause and continue forward? – Sizzle Oct 28 at 17:32
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    @Sizzle It isn't illegal to enter into a contract without one. And, the size of the parties isn't necessarily determinative. If you're the only one who can appraise property that they need appraised in time to get the job done prior to a scheduled closing, for example, you might have lots of bargaining power. If there are five other people willing to do the same job without the clause, you don't. A party negotiating any contract term weighs the risks and benefits if particular events happen and the likelihood of them happening, and the survivability of an event like that, and acts accordingly. – ohwilleke Oct 28 at 17:37

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