Managing risk should be a key focus for all businesses. One important strategy that companies can use to protect themselves is to implement effective indemnification provisions. Such provisions can be instrumental in easing the financial burden of a lawsuit against your company. Rather, you can obligate your business partners to pay for the legal costs.
Before you enter into any business contracts, you should consult with an experienced startup attorney in Los Angeles to draft an effective, and legal, indemnification clause for your company.
What is Indemnification?
An indemnification clause is a promise by the other party to cover your losses if they do something to harm you, or if they cause a third party to sue you. They key words are “indemnify,” “hold harmless,” or “defend.” In essence, it means to make whole again after causing a loss.
Specifically, Section 2772 of the California Civil Code defines “indemnity,” as “a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or of some other person.”
Indemnification clauses are sometimes closely tied to representations or warranties, which are promises that certain things are a certain way. Specifically, if a company doing business with you breached its warranty, you could invoke the indemnification clause if a third party were to sue you in relation to the breach.
How to Indemnify your Business
First, you need to identify the specific types of liability that your business needs to be indemnified from. You need to consider what risks could your company be exposed to by the errors of business partners.
Next, you need to consider in what context you need to negotiate and obtain indemnification from other companies. Indemnification provisions must be specifically-tailored to effectively meet the needs of the nature of individual transactions. The more generic an indemnification provision is, the less likely it will be able to provide the necessary protection.
An experienced business attorney in Los Angeles who is familiar with the specific needs of your business will be able to craft properly tailored provisions to provide wide-ranging protection for your business. Without such provisions, your business can be forced to cover the risk of loss.
So long as your indemnification clause is reasonable and legal, there should be no concern of scaring off the other party. Essentially, all the clause represents is a promise by that party to pay for the losses they have caused.
As the receiver of the indemnity, the indemnitee, you should seek the broadest coverage possible. This can be achieved by:
- Seeking protection from any harm arising out of, or connected to, any part of the agreement or relationship;
- Ensuring that you have covered all the most likely ways you could be harmed;
- Including “pay as you go” language so that the indemnifying party must pay as expenses are incurred by the other party, and not at some unspecified future time.
To learn more on how to affectively protect your business please contact the highly experienced business lawyer in Los Angeles Afshin Hakim of Hakim Law Group at 310.993.2203 or visit www.HakimLawGroup.com for further information.