Faced with the complex regulations of the modern business world, operating in New York requires due diligence and an eye for detail to ensure compliance. Regulatory missteps can not only lead to significant financial and criminal consequences, but can also land businesses in a world of legal proceedings that can be costly and time-consuming. Among the key concepts that business owners must understand is indemnification - both what it is and its implications for their business.

What is Indemnification?

Indemnification is a legal agreement between two parties, in which one party (the “indemnifier”) agrees to be responsible for the potential losses, damages, and liabilities of another party (the “indemnified”).

Generally, indemnification is an agreement to shield the indemnified party from liabilities or losses which arise due to the fault of the indemnifier. The agreement may be contained within a contract, or arise as an imperative within plausibly applicable laws.

For example, some employers may be required to indemnify their employees, or at least certain employees such as directors, against liabilities and losses. Indemnification may extend beyond simply shielding employees from liability for malicious acts, and may also extend to costs and fees associated with defending those claims.

When Does Indemnity Apply in New York?

The question of when indemnity may apply generally depends on the nature of the business agreement and the law it is governed by. Generally, New York law provides broad authority to create indemnification obligations in a variety of circumstances.

In New York, the right to indemnity can arise from statute or from contract. Indemnification is recognized in many commercial contexts, such as corporate organizations, limited liability partnerships, the sale of goods, venture capital and other lending agreements, credit transactions, and salary and benefit arrangements.

Indemnity is also essential to employment contracts in New York, where employers often seek indemnity from their employees. This indemnity may include job-related responsibilities, such as liberties granted in the course of hiring personnel, or additional responsibilities which may arise in employment-related matters.

The scope of the indemnity obligations in these and other areas of agreements is often much broader in New York than in other states. Employers and other indemnifying parties should always be aware of the extent of their indemnification obligations - including both the potential liabilities that may be passed on the indemnifying party in the event of a dispute, and the scope of the indemnification agreement itself.

In addition to contract-specific indemnity, New York law also imposes a duty to indemnify for certain categories of damages - such as those resulting from malicious or intentional conduct. This may require the indemnifying party to compensate the indemnified party for losses resulted from errors or omissions, or from the indemnifier’s failure to provide proper personnel training or maintain employment policies.

Indemnity vs. Insurance

Indemnity and insurance are two terms often used interchangeably when discussing business operations. While related, the two terms serve distinct purposes.

Indemnification is an agreement between two parties, while insurance is a vehicle for contractual protection of someone from losses, damages, and liabilities. Furthermore, while indemnity requires the indemnifying party to assume responsibility for the losses of the indemnified party, insurance generally indemnifies a party against losses regardless of fault.

To summarize

Indemnity is a powerful - and sometimes misunderstood - tool which business owners in New York must familiarize themselves with. Indemnity may arise from contract or statute, and under certain circumstances can be broad in scope. It is important to consider the scope of indemnification obligations when entering into agreements, designing corporate structures, and crafting employment contracts.

Having a sound understanding of indemnification and all that is associated with it is critical to any business, particularly those operating in New York. To ensure that you are properly protected and that all your rights are respected, be sure to work with a trusted attorney versed in indemnity laws and contracts.



New York Businesses,