5 Things to Consider When Defining Indemnity Agreements
When it comes to legally binding business agreements, indemnity agreements are among the most important2 min read
When it comes to legally binding business agreements, indemnity agreements are among the most important. This is especially true if you're based in the United States, where states' laws and regulations generally hold an indemnifying party liable for damage or injury caused by another's acts or omissions.
As such, it's essential to understand which stipulations and conditions need to be included in an indemnity agreement. Doing so will ensure that you are able to best protect yourself and/or your business while also taking into account New York laws and regulations. Here are the five things to consider when defining one of these agreements.
1. Scope of Liability
In simple terms, the scope of liability essentially explains the maximum amount of money that an indemnity provider is legally obligated to pay in the event of a lawsuit. The scope should be clearly delineated in an indemnity clause but should also remain reasonable for both parties involved. It's important to note that New York state law forbids parties from waiving necessary liability protections.
2. Definition of Damages
The definition of damages is just as important as the scope of liability. This is because damages include both financial losses and non-financial losses, such as personal reputation or emotional distress. As such, a definition of damages should be included within an indemnity clause that takes into account any potential non-financial losses. Additionally, parties should account for court costs and legal fees in the case of prolonged litigation.
3. Management Powers
In the event of a lawsuit, it's important to know who is able to make decisions on behalf of the indemnifying party during the process. Otherwise, deliberations and negotiations can become an arduous process. To avoid this, include an indemnity agreement that stipulates which party or parties are able to make decisions related to the case.
4. Transferability
If the organization or individual providing an indemnity agreement undergoes structural or ownership changes, the agreement should be updated to account for these changes. This essentially means that the individual or organization should either be removed completely from the indemnity clause or that the clause should be rewritten to include new information. This way, the party providing the indemnity can be sure that any potential payouts, etc. are legally binding and enforceable.
5. Cancellation and Release Requirements
Finally, an indemnity agreement should include provisions that explain the requirements for canceling and releasing the agreement. This includes stipulations regarding delays in payment or filing deadlines relating to reimbursement. If an indemnifying party wishes to cancel the agreement, they must provide adequate notice with regards to the cancellation. Additionally, in the event of a filing, the defendant must meet any and all requirements for filing for a release or for changes to an existing indemnity agreement.
Agreeing to an indemnity agreement should be taken seriously. There are several specific items that parties should take into consideration, including the scope of liability, definition of damages, management powers, transferability, and cancellation and release requirements. Being mindful of these considerations within the agreement will help ensure that your business remains legally protected and gets the most out of the indemnity agreement.
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