Contract negotiations can be complicated, especially when they involve legal issues. One of the most frequently negotiated contract provisions is indemnification, which is found in most business-to-business contracts.
Indemnification is about risk allocation -- shifting liability from one party to the other. In effect, it makes one party the insurance company for the other.
Indemnification provisions commonly include three interrelated requirements: to indemnify, to hold harmless, and to defend. To indemnify means to compensate a party for its liabilities or losses (or settlement). To hold harmless means one party will not assert a claim against the other party. To defend means to pay the fees of the attorneys who defend the claim. Each of these three obligations may be limited through negotiation.
For example, the burdens of indemnification, hold harmless, and defense can be lightened by:
A careful analysis of risks and rewards is important when it comes to indemnification, hold harmless, and defense provisions.