Indemnification is not only a big word, it is a concept a lot of people don’t understand. It isn’t their fault. Whenever someone encounters the word “indemnification,” it is usually in a contract provision that says something like:
You agree to indemnify, defend and hold harmless Company and its respective directors, officers, employees, service providers and agents from and against all claims and expenses (including reasonable attorneys’ fees) arising out of your breaches of this contract. Not a whole lot of context there.
The official legal definition of “indemnify” according to Black’s Law Dictionary is “to save harmless; to secure against loss or damage; to give security for the reimbursement of a person in case of an anticipated loss falling upon him. Also to make good; to compensate; to make reimbursement to one of a loss already incurred by him.” Well now, that explains everything doesn’t it? Hardly.
But indemnification isn’t that hard to understand in spite of such “help.” Replace “indemnify” with “pay you” in the above provision, and you more or less have the idea. If you promise to indemnify me, you promise to pay me back for anything I have to pay to another due to your bad actions. So if you waive a magic English-izing wand over
You agree to indemnify, defend and hold harmless Company and its respective directors, officers, employees, service providers and agents from and against all claims and expenses (including reasonable attorneys’ fees) arising out of your breaches of this contract
you get
You promise to reimburse me and others that are helping me all the money that I have pay out to others because you did something wrong.”
OK, so that at least makes more sense up front, but why do you need this provision? How does this happen?
Let’s pretend that you made and sold some widgets to me, and I turned around and sold those widgets to others. Unfortunately, you messed up, and the widgets explode. Somebody got hurt. That hurt person needs to be paid for his damages. After all, he didn’t do anything wrong and is bearing the entire brunt of the exploding widgets. Not that fair, is it? So he knows he bought it from me, maybe it even has my name on it. I have to pay him, and he may not even know that you exist. But is it fair that I now have to be the one left holding the bag? I didn’t make the exploding widget; I just sold it. It looked like all the non-exploding widgets that I sold previously. No, you, Ms. Exploding Widget Maker should be the one who is accountable for it.
This scenario is totally foreseeable, right? Well, maybe not exploding widgets, but ask Samsung about how unexpected explosions might occur. You bet your buttons they want to get some money back from the battery manufacturer. So when we are talking about how you are going to supply me with widgets to sell, I might want to put something in the contract saying if I have to pay out due to exploding widgets or anything else due to your actions, I get to be reimbursed for those payouts by you. Ta-da! I want you to indemnify me, and here comes that provision full of big words.
And I wouldn’t be surprised that you might want the same thing back from me. After all, if you give me perfectly fine widgets, and I muck with them or sell them for definitely non-widgety purposes, you don’t want to be left holding the bag. Hello, mutual indemnification clauses. I indemnify you for my wrong doings; you indemnify me for your wrong doings.
Now when you are looking at that boiler plate language at towards the end of the contract, before your eyes glaze over, you can point to this provision and say, “Wait a minute, why am I only paying you back, and not vice versa? What’s up with that?”