When running a business, you may find yourself in situations where you need to indemnify someone or something. To do this, you’ll need an Indemnity Agreement. An Indemnity Agreement is a legally binding contract between two parties, usually a company and an individual, that provides the former with protection from claims or losses brought against them. When drafting an Indemnity Agreement, there are several key considerations that must be taken into account. Chicago businesses, in particular, may wish to ensure their agreements and contracts are drafted in compliance with local law. Here, we discuss the top 5 things to consider when drafting an Indemnity Agreement in Chicago.

1. Define the Parties Involved

The first step in drafting an Indemnity Agreement is to identify and clearly define the parties that will be involved in the agreement. Generally, there are two parties involved in an Indemnity Agreement: the indemnitor, and the indemnitee. The indemnitor is usually the company that is assuming the risk of potential losses. The indemnitee is the individual or entity that is the recipient of the indemnification and benefit of any contractual terms. The agreement should clearly specify the roles of each party, so that it is clearly understood who’s involved and which party is responsible for what.

2. State the Scope of the Agreement

Once the parties are identified, the exact scope of the agreement must be outlined. This means you must clearly specify which claims or risks will be covered in the agreement. Items to consider here include whether the indemnification relates only to specific events or activities, or whether it covers all potential activities, and in particular the range and type of losses that can be indemnified.

3. Address Tax and Financial Consequences

Tax and financial consequences must also be taken into account when drafting an Indemnity Agreement. This is an important consideration, as it will determine whether the parties must pay income tax or capital gains tax on any payments received under the agreement. Additionally, financial implications should be considered in the context of the indemnitor’s total liability; depending on the depth of the agreement language, the indemnitor may become liable to reimburse the indemnitee for all or a portion of its financial losses, even if the indemnitee’s losses are more in value than the indemnitor’s own.

4. Define Terms for Indemnification

The Indemnity Agreement should also specify the terms under which indemnification will be provided. This means that the agreement must clearly outline the circumstances under which the indemnitor will be liable for any losses incurred by the indemnitee. The terms for indemnification should also serve to limit the indemnitor’s liability. This means that the indemnitor might be liable only for certain losses (such as those caused by their negligence), and that their liability is limited to the amount specified in the agreement.

5. Comply with Local Laws

Finally, it’s important to ensure that any Indemnity Agreement being drafted is done so in compliance with local laws. In the case of Chicago, Illinois, local laws stipulate that certain provisions in the agreement must be included in order for the document to be enforceable. For instance, agreements must include a statement of the indemnitor’s liability, including any restrictions or limitations, a parties’ duty to indemnify each other, and a provision that addresses the indemnification of expenses, including legal fees and costs related to defending against a third-party claim.

In summary, a well-drafted Indemnity Agreement can be an invaluable tool for businesses looking to protect themselves and their interests. However, its important to understand that Indemnity Agreements must be carefully reviewed, including consideration of the parties involved, the scope and terms of the agreement, any potential financial or tax implications, and local laws. With the help of experienced counsel that understand the local law of Chicago, businesses can be certain that their indemnity agreements are fair and legally binding.


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