Indemnification Clause (Pro-Customer)
In a pro-customer agreement, the indemnification provision is unilateral, in favor of the customer. You, the customer, should expect the service provider to seek a similar indemnification obligation covering your breach of the agreement, but you can argue that your only obligation is payment, which is adequately covered by an action for monetary damages.
When drafting a unilateral provision, you should consider broadening the scope of the service provider’s indemnity, for example, by:
- Defining losses broadly to include all losses incurred by the indemnified party, not limited to:
- judicial awards generally; or
- final, non-appealable judgments.
- Including the broader “relating to” nexus phrase.
- Qualifying certain provisions, for example, by using reasonableness to qualify attorneys’ fees.
- Including the bracketed language to limit payment to losses that are finally adjudicated.
- Narrowing the definition of “Indemnified Party.”
- Limiting the indemnity obligation to losses and liabilities that are not covered by: insurance proceeds received by the indemnified party; and tax benefits received by the indemnified party.
- Replacing the broad nexus phrase “relating to” with a narrower nexus phrase such as “caused by” or “solely resulting from.”
- Limiting the scope of third-party claims to those caused by actual breaches and not merely those caused by alleged breaches. This may eliminate the obligation to defend (and reimburse or pay attorneys’ fees) for third-party claims adjudicated in favor of the indemnified party.
- Limiting the scope of liability to those caused by the service provider’s gross negligence, intentional acts, or material breaches of the Agreement.
- Including exceptions and liability limitations such as a liability cap
Sample Clause
Indemnification.
Service Provider shall indemnify, defend, and hold harmless Customer and its officers, directors, employees, agents, affiliates, successors, and permitted assigns (collectively, ”Indemnified Party”) against any and all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including reasonable attorneys’ fees, fees and the costs of enforcing any right to indemnification under this Agreement, and the cost of pursuing any insurance providers, incurred by Indemnified Party/awarded against Indemnified Party in a final judgment (collectively, “Losses”), relating to/arising out of or resulting from any claim of a third party or Customer arising out of or occurring in connection with Service Provider’s negligence, willful misconduct, or breach of this Agreement. Service Provider shall not enter into any settlement without Customer’s or Indemnified Party’s prior written consent.