When entering into any type of agreement, it is a good idea to have an indemnification clause. Likewise, if there already is one in a contract offered to you, pay special attention to it. While they often are inserted somewhere in the middle or near the boilerplate language of agreements, they can be quite important and, therefore, should not be glossed over.
Indemnification (or indemnity) clauses state that one party to an agreement will indemnify, defend and/or hold the other party harmless for losses, claims, damages or liabilities caused by the party, arising out of performance of the contract, or otherwise. In other words, the indemnifying party will become financially responsible for the indemnified party for the instances specified in the indemnity clause.
This could mean that an employer becomes liable for its employee, that a tenant becomes responsible for its landlord, that an artist has to protect and defend its record label, and so forth.
One approach that many feel is both fair and reasonable is the use of a mutual indemnification clause, although it may not always be applicable. These say that each party agrees to indemnify the other party for its own acts, negligence or omissions. Additionally, many indemnity clauses have certain limitations whereby the one party does not indemnify the other party for that party’s own negligence or conduct. However, be aware of certain qualifiers, such as “gross” negligence, “material” liabilities, or “willful” misconduct, as these have certain legal significance and can have an effect on your liability.
Even though indemnification clauses are quite common in written agreements, particular attention should be paid to them when entering into any agreement. Similarly, make sure that your legal counsel includes one in the agreements that he or she drafts for you.