Contracts - This One Simple Word may save you Hundreds of Thousands Of Dollars
Indemnification Clauses- What are they ? Well ,here is a standard "IC" Clause you might expect to see in any variety of contracts; "
"Seller; Agrees to indemnify , compensate Buyer for all expenses and hold Buyer harmless from and against any and all claims,liabilities,losses.and/or expenses including Attorney's fees made suffered and/or incurred by any person,entity, governmental body not a party to this agreement and asserted against Buyer or its associates, employees or agents , warranty or covenant or the performance or non performance of Buyer's obligations under this contract"
Looks Pretty Good Right ? Let's Look again and take this Language to its Logical conclusion. You Buy a product , you use it , it is defective and you are sued for the use of this . What do you do next ? Isn't the Seller supposed to indemnify you ? Of Course he is but first you must have damages , there must be a judgement against you and then you may seek your costs against the Seller. Suppose you win your case and there is No judgement against you ?
The problem is that before this happens you will have had to retain Counsel at a average Rate of , say , $300 per hour, answered Pleadings to the Original Complaint , conducted discovery, sent & received interrogatories, requests for admissions, designation of any Expert witnesses (*$1,000 per day) and the next thing you know you have expended enormous amounts of time of your resources, paid the Attorneys , Gone to Court for consistent Docket settings, etc..... Whew ! How could we have avoided all of this expenditures and Attorney's Fees ? Look , I know you're busy so here's the answer : "One Word- Defend"
So Let's back up - you see in the indemnification Clause where is says to "hold you harmless and indemnify you" ? Well, what about including one simple word: "Defend" and while you're at it go ahead and add the words "by Counsel of Buyer's Choice"
This one word could have obligated the Seller to reimburse you, day one for all out of Pocket costs which can be very significant because some cases can take a minimum of 8 months and may easily go on for a year or longer. So, can you now say "a Hundred Thousand Dollars" ? Of course you can or if you cannot ask someone who has had this experience. Or, if YOU are the one that has to agree to indemnify then make good use of this language and "cap" your exposure to this by adding the wording:
"Seller agrees to indemnify Buyer But Only to the extent and up to the amount of the actual contract costs"
Good , so now you are an expert on Indemnification Clauses and be on the alert for other similar wording for as the Old Law School Contracts Professor once told us :