Indemnity clauses and how they differ from a damages claim

An indemnity is a promise to answer for loss, and it is not merely a restatement of the right to damages for breach.

Differences that matter. An indemnity may cover loss without proof of breach; may cover first-party as well as third-party claims; may not be subject to the same causation and foreseeability limits; may run from a different limitation start date; and may survive termination when other obligations do not.

Third-party claim procedures. Notice within a stated period; the indemnitor’s right to assume the defence with counsel reasonably acceptable; conditions on settlement including whether the indemnitee’s consent is needed for a settlement imposing non-monetary obligations; and cooperation. Failure to give notice usually excuses the indemnitor only to the extent of prejudice, and the clause should say so.

Limits. Caps, baskets and deductibles, de minimis thresholds, survival periods, and exclusions for consequential damages. Whether the consequential damages waiver elsewhere in the agreement applies to indemnity obligations is a recurring ambiguity worth resolving expressly.

Negligence of the indemnitee. Indemnity for a party’s own negligence must usually be stated clearly and conspicuously, and some states prohibit it in construction contracts by statute.

Insurance interaction. An indemnity backed by required insurance, with additional insured status and a waiver of subrogation, is far stronger than one standing alone.