The Limits To Indemnification

Indemnity is a hotly negotiated aspect of commercial contracts. The goal of indemnity is to place various risks with the party best equipped to respond to it. These risks can be transactional costs or those associated with third-party claims, but there are limits in place that protect indemnifiers.

Negligence or Gross Negligence

While indemnification includes certain liability protections, these primarily require that the indemnified party take appropriate care. In a legal sense, this means it must take every step to minimize accidents in carrying out its duties according to the terms of the contract. Taking proper care is a necessity in contractual relationships, and if a party does not take those steps, it cannot maintain its indemnity. If an indemnitor is aware of evidence indicating that an indemnified party abjectly failed to properly abide by its contractual duty, that indemnitor may have a remedy at law against the indemnified party.