A Practical Guide To Software License Agreements: General Indemnities

Software license agreements often include a provision – known as a general indemnity – that requires a party (usually the customer, but sometimes also the software vendor) to protect the other party against certain kinds of third party claims and liabilities. Customers should understand the burdens and benefits of general indemnity provisions and consider managing risk through insurance.

PURPOSE OF INDEMNITY

A general indemnity is a means of contractually allocating the risk of claims by persons who are not parties to the contract (known as "third parties") against the contracting parties. The risk allocation can be based on fault (e.g. risk is allocated to the contracting party whose acts or omissions caused the third party claim), efficiency (e.g. risk is allocated to the contracting party who is best able to manage or control the risk of the third party claim) or other considerations (e.g. risk is allocated based on the financial benefit of agreement).