- Hello, everyone. My name is John Snow, and I'm doing the presentation today on indemnification provisions in business contracts. I'm an attorney in Utah, I'm also licensed in Nevada. And what I do for a living is general commercial litigation. And as a result, from a litigation perspective, I run into indemnification provisions on a semi-regular basis or a regular basis. And as a result, I see indemnification provisions and how they work and how they don't work in the context of litigation. And as a result, some of the biased, or my biased anyway will be from the litigation perspective and what I see wrong with indemnification provisions. Of course, I've also done independent research to address some of the issues that arise with indemnification provisions. So, a little background, the law firm I'm with is Parsons Behle & Latimer. We have offices in Utah and Nevada, Idaho, and Montana. And as I indicated, I do commercial litigation. So, first of all, what is an indemnification provision? Well, it has a history of definitions in the case law. And you see frequently "Black's Law Dictionary" cited as the source, which is the source of all information. And it defines indemnification as, "A duty to make good any loss, damage, or liability incurred by another. It defines indemnification as the action of compensating for loss or damage sustained." And I'm signing from the case of Peoples Gas versus Posen Construction, which is a 1921 case out of Florida. The definition is pretty well accepted along those lines. For example, this Pennsylvania case that is under Pennsylvania law indemnification is defined as, "A right, which inures to the person who without act default on his own," apparently only applies to males, "has been compelled by reason of some legal obligation to pay damages occasioned by the initial negligence of another, for which he himself is only secondarily liable." Lemme give you a couple of examples on that. And the first being a supplier enters into a contract to sell widgets and their supplier of materials that go into the widgets runs into issues and is unable to meet the contractual obligation. As a result the purchaser of the widgets sues the manufacturer and sustains a loss. They very well, the manufacturer very, very well may have an indemnification provision in the supply contract from the supplier that stays basically that, "If I'm liable as a result of your fault, then I have a claim against you." And that's just basically what's happening here. And in the Houston Light case it notes, "The right to indemnity rests upon the principle that everyone is responsible for the consequences of their own act or their own wrong. And if another person has been compelled to pay the damages, which the wrongdoer should have paid, the ladder becomes liable to the former." And in this instance, the supplier has result, delays by the supplier has caused harm to the manufacturing in connection there with relationship within third party. Another example of this is one from construction, for example, where the owner engages a designer to design a building. It's constructed pursuant to the design. And as a result of a defect in the design, a third party is harmed while on the property of the owner of the facility. So, the third party that was injured sues the owner, and then the owner turns around and then sues the designer based on indemnification. Again, because the person who's actually paying for the wrong, the owner, wasn't the cause of the wrong that caused the injury to the third party. The primary example of indemnification is insurance contracts. Insurance contracts frequently, well, they are indemnification. However, they also have duties to defend typically. Although there may be some arrangements and a unique policy, that is the general idea is that the insurance carrier is imdemnifying the insured against loss that the insured may sustain for whatever the policy covers. For example, an automobile accident. The injured party sues the driver that caused the accident. The driver turns it to the carrier, the carrier indemnifies the driver of the vehicle against claims of the injured party. That's as simple as indemnification can be. One of the things that we do see on a regular basis is the term, indemnify and hold harmless. There have been cases that suggest that hold harmless means something more, or in addition to indemnify. And so there are cases that actually have tried to put a different meaning on hold harmless, but it's not clear what that meaning is. For example, the duty to defend is a separate type of contractual obligation that must be specified for there to be a duty to defend, and therefore hold harmless doesn't really create that duty. I had a case a while, well, I had a case where the parties that had the right to indemnification were claiming that the word hold harmless actually meant that we were obligated to purchase insurance in order that we could hold harmless the benefit, the indemnitee of the indemnification. The court didn't take a lot of effort in throwing that one out. But I show you this case, Majrowski, which is a, whoops, I scrolled too far, is a case out of Delaware, and the court is not struggling, but clearly deals with the issue of what does indemnify mean and what does hold harmless mean? And the court noted that those two terms or words have had a long history of joint use throughout the lexicon of Anglo American legal practice, the phrase indemnify and hold harmless appears in countless types of contracts in varying contexts. And you generally do see them together. I don't think that 'cause a transactional lawyer has really given a lot of thought to what is the difference between those two phrases, but yet in their forms that they use they're together, so that's what they use, they use both terms. And if I were drafting documents, that's exactly what I would do because of the fear that not to have both documents or both terms in the document would lead someone to believe that indeed there is some difference intended by not using both terms. But the court in this case goes on and notes, "As a result of the traditional use the phrase indemnify and hold harmless just naturally rolls off the tongue and out of the word processor of American commercial attorneys." And as I indicated, that's exactly what I would do if I was drafting a contract, I'd use both phrases, so as not to give anybody an argument. One of the things that we try to do in litigation, and in commercial work is not to unnecessarily create an argument for the other side. Frequently the other side will have a bad case and they look for any excuse frequently, always. They will look for any type of argument, and not having both phrases in there could very well and has led to an argument that there's a distinction in the meaning. And you'll see, there's actually several cases that try to make this distinction between indemnify and hold harmless. But the court goes on and notes that generally the clear distinction that our law draws between indemnification and advanced rights, the argument that a right to be held harmless includes a right to advancement, cannot stand up in the light of the fact that the phrase hold harmless is actually defined by reference to indemnification. And you'll note in the decision that the court in making that statement was relying on again, "Black's Law Dictionary," and "Black's Law Dictionary" defines indemnify as hold harmless, and defines hold harmless as indemnify. So, we have a general understanding of the term. So, let's go on. Now, there's various types of indemnification. There's contractual indemnification. There's common law indemnification that are the most frequently cited types of indemnification, but there's also implied indemnification. So first of all, what is contractual indemnification? It is what it says. It is a, well, I wanted to, there it is, in this Water Bureau case. It is what it says, it's that a contractual indemnification, which is also defined in "Black's Law Dictionary" based on this decision is where there is a contractual assumption of an obligation of indemnification. And you'll see that relying on common law or some other principle to supplement a contract regarding indemnification is foolhardy. Because the scope is not defined. The procedure is not defined. So therefore contractual indemnification gives the parties an opportunity to at least define what they intend and how it applies to the specific transaction. For example, an indemnification provision in a construction contract is gonna have different considerations than an indemnification provision in a software contract, because they are dealing with different issues. But frequently what you see is that the drafter of the contract, and frequentness just the client who's gotten a form and it has an indemnification provision and they don't have a clue what it does or means. And so they don't try to modify it to fit the situation of their project or their transaction. But in any of it, that is contractual indemnification is indemnification established by a contractual relationship and express provisions. As you'll see, it has to be expressed to be enforced. Now, we also have the theory of common law indemnification. Common law indemnification is inherently narrow, because the indemnifier, the party who did the wrong, only has the obligation to indemnify if the indemnitee, the party to be indemnified, has no fault. And put this into, for example, a construction contract where the subcontractor on the project creates a defect in the construction. The contractor obviously is responsible for the subcontractor. And so you then have a situation where the subcontractor's work causes injury to a third party, whether it be the owner of the project or a unrelated third party doesn't matter for this hypothetical, but a third party is injured. So they sue who? They sue the contractor, but the contractor sues the subcontractor. Or if it's a third party unrelated to the project, the injured party could sue. If it's the owner, then the subcontractor has no privity of contract and it can only sue the contractor because of the lack of privity. And then, of course you'd have things like the economic loss doctrine kick in if they try, if the subcontractor was trying to sue the owner. But in any event, there's a lack of privity, so that kind of a claim is generally barred. So, you don't have, on common law indemnification you don't have a broad scope of the indemnification provision. The other thing is, as I said, that the party to be indemnified has to be free of fault. Well, there is actually cases, and they're mixed on this, that if the contractor has no active involvement in supervision or otherwise involved in the work performed by the subcontractor that created the problem, then the contractor could be deemed free of fault and therefore common law indemnification very well may apply. On the other hand, cases of held that where the subcontractor is involved with the work of the subcontractor, including supervision, then of course there is some fault and the contractor is not entitled to subrogation from the subcontractor. Same with any other type of business transaction where you have one party that is somewhat involved with the actual wrongdoer's work. For example, an engineer of software fails to put in proper security devices, the seller of the software gets sued. Does the seller have responsibility? Well, if all they're doing was selling, they probably have no fault and can go after the engineer or the designer of the software. But again, it's not a very usable theory. So, to rely upon common law indemnification, you're not necessarily protecting the interest of the parties involved. And it's not in case it's noted that a party must show that it had been held vicariously liable without proof of any negligence or actual supervision on its part, making the point that they have to be very remote. The party to be indemnified has to be very remote from the actual work performed, and that the proposed indemnitor, the party who actually performed the work was either negligent or exercised actual supervision or control over the injury producing work. And then in the Nebraska case it just makes the note that in a tort context where there's the third-party injury, it needs to be shown that any negligence of the indemnitee was merely passive negligence, for example, passive supervision, as opposed to active supervision. Now, the next indemnification provision or type of in indemnification is implied indemnification. And implied indemnification is actually more fluid and provides greater protection to the parties involved because it's based on to an extent, apportionment of fault, you know, many jurisdictions already have adopted, or not already, they've been around forever, but have adopted allocation of fault provisions in various fashions. Not all states, but certainly the most of the states have an allocation provision. Implied indemnification also allocates. So that if, for example, using the supervisor of construction example, if the contractor did have some involvement, but not much, in the subcontractor's work that resulted in the injury, then you could have under implied indemnification an apportionment of fault. So, in their implied indemnification the non-active indemnitee does not have to show total freedom from fault like you do with common law indemnification. So, you ask, "Why would they ever bring common law indemnification?" Well, you can bring both. But the implied indemnification gives a broader, obviously gives a broader protection. And let me go to this rugshell Falcon Drilling case where the elements of implied indemnity are, an injury is sustained by a third party, for which a punitive indemnity, in this example we're using that would be the contractor, has become subject to liability because of a positive duty created by statute of common law. Well, if the contractor is in control of the project, which they would be under construction contract, so they do have some common law duty. There may be a statutory duty we could come up with, but for purposes of the hypothetical they're in control of the work site. But whose independent actions did not contribute to the injury, meaning that the contractor was not actively involved in the work by the subcontractor, and for which the punitive indemnitor, which would be the subcontractor, should bear fault for causing because of the relationship between the parties. So, you do have that flexibility and you do have some amount of apportionment Let's see. And in this case, in the case of Marlite versus Ekron note that in that case, and the reason why I bring this up is to show that you can actually bring both claims, both common law indemnity, as well as implied in law indemnity or implied indemnity. And this court actually notes the difference between those two types of indemnification. Well, so we have some idea now of what we have in the common law context of indemnification. And the reason why, although you may wonder why we're talking about that, is so that you understand what you're drafting to or drafting around or trying to avoid, and why indemnification provision is necessary so that you don't have to deal with those relatively ambiguous situations. So, if you put it in a contract, you eliminate the ambiguity that can arise. So, the next topic in the outline is purpose of indemnification. And the purpose is simple. It's a matter of allocating fault between the parties. And this is true with most provisions in a contract is that it's a matter of allocating risk, which deals with allocating responsibility. So, the purpose of any contract is allocating risk, but the purpose of indemnification is to the nub of the allocation of risk regarding claims. But you can use indemnification provision, not only to allocate risks regarding claims, but you can also add an indemnification provision for allocating or indemnifying regarding the contractual liabilities. For example, in a sales contract there is going to be various warranties given or representations of warranties given in a sales contract. If those warranties or representations result in injury, having a specific indemnification provision will make it clear what the remedy is. Now, that could also be in the breach clause that they have the right to recover damages or terminate the contract. That's fine, but if the representation or warranty causes injury to a third party, termination may not be sufficient, or even damages may not be sufficient. For example, you could have a waiver of consequential damages. And if the damages were consequential in nature, the indemnification provision may cover it. You also could include a provision that consequential damages are available when there is a third-party claim. So, what you're doing with in indemnification is, not only are you allocating tort claims or claims of third-parties or civil wrongs, but you are also allocating risk for contractual liabilities. And depending on the type of contract, a large contract or a large sale, these kind of provisions should always be covered and typically are. But when you're dealing with a smaller contract or a smaller transaction the contract is not as inclusive. Having indemnification provisions can supplement a lot of errors or several errors that can exist in a short-form type of contract. By just simply saying the party is indemnifying the owner or the other party for all harm, risk or loss. And that takes care of it. Okay, one of the other things that indemnification provisions avoids disputes, and this is a reason to have it or a purpose for it. And by that it doesn't necessarily avoid the disputes with the third party or the injured party that is seeking a claim against either a negligent or another party. It is, also you can put in your indemnification provision procedures that outline how indemnification is going to be handled and who is subject to indemnification and who's not subject to indemnification. So, the details you put into the indemnification provision will actually, or could avoid disputes between the indemnitor and the indemnitee. So, the more complex or more thorough the indemnification provision is, the more you are avoiding disputes between those two parties. And of course, you wanna make sure that with the contractual indemnification you are modifying common law obligations and or common law concepts of indemnification. So, what are the factors to be considered when defining the scope of indemnification? Well, you'll see the first one is availability of insurance. Now, when you're dealing with two large companies, availability of insurance may not be as significant in determining or in drafting the indemnification provision. But when you're dealing with contractors or smaller companies or closely held companies, you may wanna consider the availability, well, you should consider the availability of insurance. And by that meaning that the party providing the indemnification has insurance to back up the indemnification. You'll frequently see in a contract where the large company has the indemnification provision or a large company, a smaller company have an indemnification provision. The only person that's gonna benefit by that is the one that can afford it, or it's not benefit, will be harmed by that, because the other parties or the other party, the undercapitalized party just throws up their hands, files bankruptcy, or closes the door. So, with insurance you know that you have a source of repayment. So with the indemnification provision you also include a requirement that the party maintain insurance and that the party to be indemnified has a direct right against the insurance policy, either as a named insured, or is a name beneficiary of the policy, or through some type of assignment. And then you wanna make sure that you have the carrier's confirmation that the indemnified party is covered by the policy and that there will not be a termination of the policy without notice to the indemnified party. You can also indemnify the potential losses or injury. For example, in the sales example I used a minute ago about sales of widgets. The possible loss or injury is going to be that the manufacturer cannot get the widgets to the retailer in a timely fashion, and there's a breach. So you can specifically set forth the type of injuries you're trying to avoid in the indemnification provision. Now, you can also include a general, very broad scope indemnification provision. But at least when I look at some of those contracts, you wonder, "Why did the other side agree to this?" Because now a totally unforeseeable type of injury has arisen that is actually covered by this very broad scope indemnification. Now that's to the advantage of the indemnitee, but certainly not to the indemnitor, and was not really within the foresight or the contemplation of the parties at the time they entered into the agreement. So, by having specificity, both as the indemnitee and the indemnitor will result in some avoidance of disputes. Another thing you need to consider when you're doing these types of indemnification provisions is the party's own, the indemnified party's own negligence. Some states actually prohibit indemnification provisions from indemnifying a party from their own negligence. Some it's gross negligence. Some do not have any limitation at all, but it requires that the contract clearly spell it out that the party's own negligence is covered by the indemnification provision. And there's a reason for that. Going back to, what I talked about with insurance, if one party is going to acquire the insurance for everybody, and that will reduce the cost for everybody else. So there's a cost savings that's generally allocated between all the parties. But nonetheless, where you have one party who's going to be getting the insurance and it covers everybody, then you specifically wanna include the parties' negligence, the indemnified party's negligence is covered so that they have the benefit of the insurance. Another reason to have it is because the party doesn't wanna have anything to do with potential liability. And they have basically turned over the entire project to the party giving the indemnification. And then I've already talked a little bit about this in direct claims between the parties, for example, a breach of the warranties and representations contained in a purchase contract, the sale of a business, so that if there's a breach of the contract and there's claims between the parties it's covered, then you also wanna specify claims by third parties, whether it's a party injured economically, or injured by physical injury, or both, depending on what the parties agree to. And then I've already talked about breach of warranties and contractual. Another thing to consider with indemnification, because things are unforeseeable, is putting a cap on the amount of the indemnification. An example of that is where you had, a good example for that is where you have multiple parties involved in a contract, and you have some of the parties providing very limited amount of materials for the project. And so, but the owner of the project wants indemnification from everybody. Okay, that's not unreasonable, But do you wanna be able to shift liability of indemnification on a person who has only contributed a very minor amount to the total project? So one of the things you can do is put a cap on an indemnification provision, which is, for example, it can be anything, but it be capped at the amount that the party or the value that the party added to the project, which basically would be the contract price. Or you can arbitrarily pick a number. And the reason for that is because the third party providing a limited amount of materials to a project may very well not wanna be exposed to the risk of the entire project when it's such a small player, so they provide a cap on damages. And it's similar to the situation where you can have a person providing the bolts for a project that failed. The bolts were a few hundred dollars, but the loss was catastrophic, involving millions. And you try to put the liability on the bolt supplier for the project. Now, you can, certainly it's foreseeable that if the bolt fails, the project fails, but then you have situations of ability to recover. That's another reason why you wanna have insurance to cover or back up what a small provider is providing to the project. Another matter that should be covered by or can be covered by indemnification is the, oh, I lost my train, consequential damages. Again, consequential damages can be totally devastating to a party. For example, in a construction project, they're building a hotel, an income producing piece of property. They wanna have it built for a special event in the area where the hotel is being built to capture the revenue at a higher price. And because of various reasons, it doesn't matter, the project is not timely completed. And this hotel loses revenue for a year. Now is the contractor, or whoever caused the issue gonna be liable for those lost revenue? Well, it's consequential damages. Consequential damages are recoverable if they're foreseeable and therefore you could have a situation where a party with relatively limited involvement in the project could be liable for significant amounts of damage. So, do you have an indemnification provision that covers the consequential damages that are sustained by the indemnitor? Or do you limit that? Do you waive it? Do you cap it? Those are something that you need to consider when you're drafting an indemnitor provision is the effect of consequential damages. And then, I've said this earlier that the duty to defend is a separate obligation, and it is, and therefore you need to insert the duty to defend. However, just saying hold harmless, and let's say the indemnitor will indemnify and hold harmless and defend needs to be at a minimum contained in the indemnification provision if you, in fact, want the indemnitor to handle the litigation involving the indemnitee. You can also, and the reason why I mention that is 'cause there's various ways to do that where the indemnitor merely agrees to pay the defense costs incurred by the indemnitee in connection with litigation. Or where the indemnitor is totally taken out of the case and the indemnitee takes over the case completely, including the right to settle the litigation, to control the litigation in all respects. Now, typically you'll see that in certain casualty types, in most casualty types of insurance, where the insured does has no right to control the litigation. However, in professional liability policies they frequently, they being insurance policies, will frequently have a provision that gives the professional the right to agree to the settlement or not. However, to control the unreasonable professional who refuses to give consent to settle a claim, there's frequently a hammer provision in insurance policies, and you can put this in indemnification policies, and this is why I'm telling you that, where the indemnitor can then settle the case for X number of dollars. The indemnitee refuses to settle, assuming that they under the indemnification provision that right is retained by the indemnitee. So, what can be put into the contract is that the indemnitor can tender to the indemnitee the amount that the indemnitee could settle the claim for. And then the indemnitor takes over responsibility and discharges the indemnification provision so that there is no further liability of the indemnitor in the litigation once they have paid what they could settle the case for to the indemnitee. And then the indemnitee can do whatever they want with respect to the litigation. Another thing to consider or not is attorney's fees. And like unfunded indemnification provisions attorney's fees only benefit the party who has no fees, well has no capital. And I shouldn't say it quite like that, 'cause that's not totally true. Fee shifting like indemnification is an allocation of risk. But if you're representing a large company with a smaller company that's undercapitalized, underfunded, having an attorney's fees provision gives you no advantage because the only person that's gonna collect it would be the other side, the smaller company in the event they're successful. Otherwise you could just end up with a judgment for attorney's fees, but no recovery. So that takes to the last issue is the ability to respond whenever, and you'll notice that was also the, I think that was the first point, availability of insurance would dictate the ability to respond. And therefore when you're drafting an indemnification provision, keep in mind that indeed the ability to respond is going to make the, or drive the point about what you wanna do with the indemnification provision, have it at all, have insurance backing it up or having some type of security available in order that the party being indemnified actually will be indemnified. Now, I'm gonna show you a couple or three forms, and these are for talking purposes only. Indemnification provisions, if there are only one sentence like these are inadequate, they're not gonna give you the full benefit that indemnification can provide. But I wanna point out a few key terms in these forms that need to be expanded on greatly so that you can see just a comparison. The first one is a broad form of indemnification, and it states, "The indemnitor is responsible for its fault," and then, "and the fault of any other party, Which can include all parties to the contract to third parties." Now, and then it goes on and says, "Related to, or concerning the subject contract." Now, the reason I point this out is frequently you'll see an indemnification provision that, not uncommon, in fact commonly, it'll be limited to just the fault of the party giving the contract. And there's a reason for that. They don't wanna assume liability for third parties. But on the other hand, if that party is responsible for third parties' actions, for example, a contractor being responsible for subcontractors or the seller of software being responsible for the engineers, the work of the engineers, under those circumstances you may wanna include the conjunctive and, so that it's clear that the indemnitor is responsible for not only its fault, but others. And then it says, "Which can include all parties of the contractor or third parties." And then it says, "Related to, or concerning the project." That is much broader language than related to the work performed by the indemnitor. By broadening it up related to or concerning, it makes for a broader form of contract. And then it goes on and says, "This includes indemnification for the sole and primary fault of the indemnitee by contrast. And it's pointing out that the indemnitee is liable but the term related to provides a broader coverage as opposed to one where you talk about specific events. So I mean, this is just comments to that first sentence, but you're trying to broaden it up with the conjunctive if you do not want it broad, of course you leave that out. Another form would be, you know, one of the things that's missing, for example, in this, again, let me emphasize, this is not indemnification provision, it's just an example of some language is you need to say, if you wanted it covered the fault of the owner or the indemnitor, or excuse me, indemnitee, then you would have to say, "Including the risk of the indemnitee." And then the next example is under this type of indemnity all risk, but the fault of the indemnitee. Under these circumstances the indemnitee's fault is not going to be covered. And as I mentioned earlier, sometimes you do wanna have the indemnitee's fault covered because of available insurance or other resources, so that all parties are relying on a single source to provide coverage for everybody's fault or liability. And then the narrower form is, the indemnitor is held responsible for the loss cause by the in indemnitor's fault solely, and no other party. And it's narrower because it's not related to or concerning the project, so it's very narrow. So, that's what you have as examples. Those are, again, you know, I've said this, I don't need to say it again, but those aren't indemnification forms. They are just language to consider and to see the contrast of indemnification forms. Okay, so how do you deal with direct claims? And again, this is a, we've talked about this already, but it's merely a matter of allocating risks between the parties to the contract and the responsibilities of the breaching party and how far the indemnification goes. For example, does it, as an example was, does it cover consequential damages? Does it cover the duty to defend? Does it cover the right to control? Let's see what, that's actually the simple one because it's obviously in the contract. Let's see. Okay, another thing that we've talked about already is controlling the procedures. Indemnification provisions can include procedures for enforcing it, such as when notice has to be given. And then how involved, like duty of cooperation that you'll find in insurance policies where the indemnitor has the obligation to defend, but then it puts a burden on the indemnitee to cooperate. Sometimes you'll see a situation where one of the parties has a special relationship with the party that is being sued and do not necessarily want the indemnitor to succeed because of a business relationship. An example would be a contractor who builds schools. One of the subcontractors is injured by the fault of the owner. Because the subcontractor does not have a direct claim against the owner it goes through the contractor. So, the contractor has the duty of prosecution of the claim under the contract. But the contractor doesn't wanna sue its good client on behalf of a subcontractor. So, there is a lack of cooperation. Now, that's not an example of indemnification, but it's an example of why there may not be a urge or a feeling of need for the indemnitee to cooperate with the indemnitor. So therefore put such a provision in the indemnification provision so that we know we do get the attention of the indemnitee. In fact, you can see insurance policies canceled when an insured is not cooperating with the insurer in defending or prosecuting a client. But going on in the next bullet point, you wanna put in things such as the duty to defend, the right of the indemnitor's right to settle, or the indemnitee's right to be involved, inserting a hammer clause that we talked about, where if the indemnitee refuses to consent to a settlement, then the indemnitor would have a right to tender the settlement to the indemnitee. And then things such as the indemnitee's right to assume the defense. For example, you see this with professionals where they do not want to be defended by somebody other than their own personal attorney. And therefore they want to have the right to assume the defense and only be indemnified for costs as opposed to cost of defense. Let's see, the duty to defend. As I indicated, this has to be expressly stated just like when you're indemnifying the indemnitee for its own negligence. Duty to defend also has to be specifically identified as an obligation. Indemnification and hold harmless does not include duty to defend. So it has to be expressly stated in the contract. It is a distinct and separate duty. And then you'll notice that I've cited some cases where it talks about the fact that these two are separate and distinct obligations. And also when the duty to defend becomes enforceable. With insurance and duties to defend, whatever a claim is asserted that has a, at least a indication, an inference that it is subject to the indemnification provision, the duty to defend comes to life. Even if it's a frivolous claim. One of the things that you can consider when you're drafting an indemnification provision that if the claim is facially baseless, that the duty to offend does not arise. But if it then subsequently determines that the duty, that the claim does have some merit, then the indemnitor has the obligation to assume the defense and pay the indemnitee for costs that have already been incurred in connection with the defense of the claim. Let's see, and then consider what, if any rights the indemnitee has in connection with controlling the defense, the arguments made in those types of situations. Settlement provisions, how do you settle the claims? And then I wanna give you an example of why that is available. And that is so that the indemnitee can preserve its own reputation or its relationship with others. They very well may want to be able to settle the claims independent of the indemnitor. A sole remedy provision is something to consider, not that it's always necessary. But consider it for purposes of whether or not it's going to be other remedies available for those types of claims, third-party claims or claims for breach. The sole remedy provision express whether it's broad or not, at least lets the parties know what they're dealing with at the time of contracting. You also wanna have, we've talked about this already, limitations of liability provisions, for example, a cap. But that's not the only type of liability limitation that can exist. You can also have waivers of incidental or consequential damages, how you're going to deal with punitive damages if they're sought. Does it cover loss profits, loss revenue, diminution of value. The limitation provision can have a time limit. For example, the indemnification provision stops if a claim is not asserted within a stated amount of time, like one year or two years. So you don't have the continuing indemnification provision for extended periods of time. Makes it easier to budget when it has a limited time period. And then the indemnification provision can also limit certain types of claims. So that it's, for example, if you know that there is going or have a strong belief that there's going to be litigation involving certain aspects of the transaction. So, if there's a situation where the indemnitee is involved in certain types of transactions that you want to eliminate, then you can eliminate those in the indemnification provision and state that those types of claims are not gonna be covered by the indemnification. And insurance coverage. I've mentioned it before and continue to mention it, 'cause that is a significant aspect of making sure that indeed there is backing for the indemnification provision. And then, one thing with insurance is that there is frequently an exclusion for contractually assumed obligations and frequently is argued that indemnification is a contractually assumed obligation and therefore not subject to coverage. However, in connection with indemnification provisions, those are frequently not considered contractually assumed obligations because the indemnitee would have liability in any event. But to make sure that you do not run into this contractually, this contractual liability exclusion, you can include such things as insurance for contractually assumed obligations. There is such a type of insurance and it's available. And so you can get that in connection with any other types of insurance that you may have in order to protect the indemnitor from loss. But other types of insurance may come into play that you wanna make sure you have, such as general commercial liability insurance, property damage insurance. They all cover different types of risks. Professional liability insurance, meaning like, so for example, an engineer has liability coverage in the event of errors and emissions. Now, there are indemnification statutes, and they're frequently referred to as anti-indemnification statutes because they frequently limit the scope of indemnification. I'm just gonna give you a couple of examples, because I didn't do a 50 state survey and cite them all, but it is something that you, if you're drafting a contract, you just need to do anyway, would look and see if your state has some types of special provisions regarding indemnification. Now this first one is an Illinois case, or not a case, but a statute that provides with respects to contracts for construction. So it's limited to a specific area that it provides that, "An agreement to indemnify or hold harmless a person for their own negligence is void as against public policy and wholly unenforceable." So, even though you may want to have insurance, the indemnification provision may not work, so you can get insurance that would cover. And the owner can require, or the party, the indemnitee can require the indemnitor to get insurance that is not necessarily indemnification by the indemnitee or indemnitor, but would still provide protection to the indemnitee or the owner of the project. In Arizona this statute provides, again in a construction contracts, a covenant in a construction contract that purports to indemnify and hold harmless or defend the promisee from their sole negligence is unenforceable. Now, you'll notice that the Illinois statute mentioned the person's own negligence. So there could be apportionment. Here you simply cannot, under Arizona you cannot indemnify against the sole negligence of the party, but the party could have liability for other injuries. And then the New Mexico statute, again, with a construction contract, you can only have indemnification for the fault of the indemnifying party, and therefore you cannot have coverage of third parties. But the thing to note in the New Mexico case, that if the contract requires a party to contract, to purchase contracts or project-specific insurance, that is not voided by the anti-indemnification provision. And there's some cases that note the difference that an indemnification is different than requiring somebody to get insurance to indemnify. So you do have, in some states that distinction being made. The Oregon case requires, "That a person provide, ensure or provide insurance or indemnification cause in whole or in part by the negligence of the indemnitee is void." So, this is broader and could prohibit, again, it's in a construction contract, but it would prohibit obtaining, requiring to obtain insurance. And then in this Utah statute that it provides that indemnifying against somebody's own fault is a void as well, but it does provide pro-rata allocation of fault. Okay, moving on to the very last topic that I wanna bring up is that if nothing else from this presentation, it hopefully is made clear that one of the things that you must consider when drafting indemnification is that it be broader or narrower, depending on what the parties agree to. And considering whether or not that it does have sufficient backing by insurance or some funding by the indemnitee, whether it's their own corporate assets or not, to actually protect the indemnitee from harm or loss. If the indemnitee cannot respond to the, I mean, excuse me, if the indemnitor cannot respond to the claim of indemnification, then the indemnification provision does absolutely no good. And so that is one of the things that you should consider when you're drafting an indemnification provision. The other is the scope. You need to compare it to the statutes of your state. So you make sure that you're not drafting a provision that could otherwise be declared as void in light of the fact that it is prohibited by statute or case law. I didn't cite the case law, but also case law has held certain types of indemnification provisions, where you're indemnifying the indemnitor from liability as void as against public policy. And then you also consider the procedures for the indemnification with respect to the duty to defend. Again, the duty to defend is a separate distinct obligation from indemnification and having just simply a duty to defend provides little guidance on what is actually going to occur. And also, it's unclear from just a simple duty to defend if the costs that are incurred by the indemnitee in connection with the defense are covered. What I mentioned, attorneys fees. That's the other thing to consider is including the recovery, or not including the recovery of fees by the indemnitee in cooperating with and dealing with the defense of the client. So, putting those all together, you end up with a contract of indemnification that can be a page or several pages long. And in fact, you can run into indemnification provisions that are multiple pages. Frequently it's one paragraph, but if you're really trying to protect your client, one paragraph cannot possibly, well, it's a long paragraph with no breaks and thought, but if it's 10 lines, you're not actually giving enough specificity in the indemnification provision to avoid all disputes. Now, you can't eliminate 'em all, but you can certainly reduce them with a well-written indemnification provision. And with that, thank you very much.