A Step-by-Step Guide for Writing an Indemnity Agreement

Assurance of Indemnity

Indemnity contracts, also known as releases of liability, need to be carefully written to guarantee that the amount of security they provide is what is intended. Basics are covered.

An indemnification agreement that shields the board from risks or liabilities brought on by the partner must be a part of every operational agreement, according to the board of directors. Additionally, indemnity agreements are necessary for commercial transactions, employment contracts, rental agreements, construction contracts, and other agreements in which one party seeks to be protected from damages suffered by the other party. 

It's crucial to comprehend an indemnification agreement's terms before signing one if you find yourself in any of these circumstances so that your rights are safeguarded. 

This article will define indemnification agreements and offer a step-by-step tutorial on how to draft a strong indemnity agreement. Additionally, it shows the features that make OnBoard a potent tool for organizing board meetings and indemnity agreements. 

What exactly is an indemnity contract?

In an indemnity agreement, each party to the contract promises to pay the other for any losses or damages that might result from the other's conduct. The agreement may also specify terms for the reimbursement of expenses paid in defending against claims or class action lawsuits, including attorneys' fees. 

When two parties enter into a business relationship, they frequently employ indemnity agreements to safeguard one other against any financial losses or responsibilities. For instance, a company might sign an indemnification contract with a supplier to cover any damages that might arise from the supplier's failure to provide the promised goods or services.

Most businesses utilize indemnity agreements to shield board members from personal liability in the event of monetary or legal problems. Indemnity contracts, regardless of the situation, are a crucial component of doing business and should be handled seriously. 

Make sure you comprehend the provisions of the agreement and any possible repercussions if you're thinking about signing an indemnity agreement. To make sure the agreement is binding on all parties and offers the required protections, it's also crucial to get legal advice.

How to Draft an Indemnity Contract

Two parties make up an indemnity agreement: 

The party that upholds another's innocence in a contract is an indemnitor.
Parties who are shielded from liability by an indemnitor are known as indemnitees.
Whether you are the indemnitee or the indemnitor affects how an indemnification agreement is written. You, the indemnitee, seek a contract that safeguards you against all legally actionable liabilities. If you are the indemnitor, be sure the contract limits your liability to acts of negligence and contract breach. 

Write a successful and enforceable indemnity agreement by using the next seven stages.

1. Examine the local indemnity laws

Laws governing indemnity regulate the amount of risk that can be allocated among contracting parties. This should be taken into account when choosing the state statutes that will control your indemnity agreement. 

Each state has its own indemnity legislation. For instance, if a provision in an indemnification agreement doesn't adhere to particular rules, it can be deemed invalid in some states. Even some states have anti-indemnity laws.

Your indemnity agreement will be correctly drafted and provide sufficient protection for both parties if you take the time to consider the pertinent indemnity legislation in your region.

2. Construct the indemnity clause

An indemnity agreement's core is the indemnification clause. The liabilities the indemnitee will be shielded against are listed in this section. Particularly if your company is the protected party in the agreement, make sure the language is clear and only leaves room for one interpretation (unambiguous). Any ambiguity in a contract is typically determined in the indemnitor's favor. 

The clause should specify the specific conditions under which the indemnifying party commits to defend and hold the indemnitee blameless. 

3. Describe the Indemnification Period and the Coverage Amount.

This method must include describing the duration of the indemnification and the extent of the coverage. The duration of the agreement's protection of the indemnitee from claims and legal actions is known as the indemnity period. This time frame can either be set at a specified duration, like five years, or it might be infinite. It's crucial to be specific when defining the indemnity period once more. 

The conditions that the indemnification provision will apply to are referred to as the scope of coverage. Make sure that, as the party offering liability protection in the agreement, you exclusively assume obligations resulting from your organization's conduct. 

4. Identify the Indemnification Exceptions.

This section outlines the circumstances in which the indemnitee will not be protected by the indemnitor. Depending on the type of the agreement, these terms change. Most indemnity agreements, however, state that the party seeking indemnification won't be compensated if: 

  • The offender breaks the law knowingly.
  • The indemnitee behaves in a rash or malicious manner.
  • The risk occurred for the indemnified's advantage. 
  • Through other legal processes, the indemnitee receives full compensation.
Just a few examples of indemnification exceptions are shown here. Consider additional ideas that are unique to your situation. 

5. Describe the Method by Which the Indemnitee Notifies the Indemnitor of Claims

An indemnification agreement should specify how the indemnitee will inform the indemnitor of a claim or dispute covered by the contract. In this manner, whether facing losses, damages, or legal challenges, the party indemnified won't be in the dark. To make sure the contract is thorough, you should additionally specify how the indemnitor will defend the party being indemnified against the claims. 

6. Write the Settlement and Consent Clause 

This provision describes how both parties to an indemnification agreement must obtain the other's permission before resolving a claim covered by the agreement. The clause prevents the indemnitor from settling claims in a way that limits or imposes penalties on the indemnified without the indemnified's express approval. It also makes sure that neither side holds up approval of the proposed settlement unduly. 

7. Detailed How to Apply the Accord

In the event that something goes wrong, it's critical to ensure that the agreement is enforceable. As a result, the indemnity agreement should specify how disputes and disagreements will be handled. Both parties should be able to grasp this process and know what to expect when problems emerge. 

A sample indemnity agreement

The drafting of indemnity agreements can be difficult and expensive. Fortunately, several websites offer free templates that you can modify to suit your needs. For example, you can select the types of liabilities the agreement covers, the kinds of damages that can be recovered, and the parties involved. The templates can also be modified to contain further clauses and conditions to guarantee that all parties are suitably protected.

You may create an indemnity agreement using these websites without having to pay a lawyer to do it, which is a terrific way to save money. A three-step indemnity agreement builder is offered by Rocket Lawyer for free.

How to Handle a Deed of Indemnity With OnBoard

An indemnification agreement is typically used in construction, service, and business contracts. The documentation for large businesses can quickly grow to hundreds of agreements that must be managed. Powerful software that assists in the following ways is required for an organization to properly produce and maintain them: 

  • Create indemnity contracts more quickly
  • Increase collaboration with stakeholders in the examination and discussion of indemnity contracts
  • Keep the indemnity records in a safe, convenient location for management.
An effective software program is available from OnBoard to make creating indemnification agreements simpler. As follows: 

Create indemnity agreement templates that you may utilize in the future with OnBoard's workflows to quickly construct indemnity agreements for various transactions. You'll not only write contracts that adhere to the standards of your company but also save time in the process. 

Integrate your collaboration: Stakeholders must hold fruitful discussions and work together to produce an accurate and thorough indemnity agreement. A unified platform where many parties can meet is offered by OnBoard. It is jam-packed with potent tools that improve communication for a more streamlined and quick decision-making process. 

Store, administer, and disseminate indemnification agreements through a single platform: A secure platform is offered by OnBoard for the storage and anytime access of indemnity agreements. You can save the following documents and contracts on our site as well: 

  • Board information
  • Minutes and schedules
  • policies for social media
  • reports from committee 
  • Board directives

OnBoard: How to Get Started
With the help of the cloud-based board administration platform OnBoard, it is simple to organize all board meetings and activities. OnBoard has all the capabilities required to efficiently handle board activities, from agenda generation and attendance tracking to meeting scheduling and document sharing.

Boards may easily customize the user-friendly platform to meet their own demands because to its wide range of customization possibilities. OnBoard also offers strong compliance and security safeguards. OnBoard guarantees that your board's data and other private information is always secure with data encryption and two-factor authentication.

Looking for board management software to make board operations more efficient for your business? Examine our free Buyer's Guide for Board Management Software.

Question and Answer Sheets

1. What Is an Indemnity Agreement Used For?
Indemnity contracts exist to shield one party from the legal ramifications of the carelessness or negligence of the other.

2. Does the Indemnity Agreement Have Legal Effect?
Yes. A legally enforceable agreement called an indemnification agreement between two or more parties spells out each party's rights and obligations in the event of a dispute.

3. Who Covers the Indemnity?
Losses and damages covered by the indemnity agreement are paid by the indemnitor to the indemnitee.

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