41 Indemnification
Rachael Samberg
Desired result:
Indemnification provisions allow you to allocate risk as between the parties and establish predictability or certainty in forms or extent of recovery. Contracting parties do not need to include an indemnification clause in order to be entitled to damages or other remedies. The “default” or underlying law of contracts—that is, those rules a court would apply in the absence of express contractual term about something—do not typically place limits on recovery for damages. Meaning: the absence of an indemnification provision doesn’t imply that you won’t be fully compensated for another party’s breach of the agreement.
That said, it’s a good idea (and sometimes required by your institution) to expressly include an indemnification provision if:
- You have specific concerns that you may wind up being liable to a third (non-contracting) party, and want to ensure full recovery from the other contracting party for any such loss, or;
- You want to try to set enforceable limits or parameters on any potential exposure you might have under the agreement.
If you do negotiate for an indemnification provision, you’ll want to consider:
- Whether indemnification is the sole / only available remedy that a party can seek for breach, or whether the parties also want to allow other forms of damages under contract (e.g. consequential and incidental damages) or tort (e.g. punitive damages, fraud)[1]. Often, such other forms of damages are excluded;
- Whether the indemnification obligations are mutual (e.g. Party A indemnifies Party B for losses caused by Party A, and Party B indemnifies Party A for losses caused by Party B), and whether indemnification is monetarily capped for one or both parties. Try to avoid situations in which you must indemnify the publisher but they aren’t expressly obligated to indemnify you! Monetary caps on what the publisher can be indemnified for are a common way to limit your exposure and risk under the agreement, but if the caps are mutual (i.e. for “either party”) then this also limits what you can recover from the publisher;
- Whether the indemnification provision pertains only to losses arising from claims by third parties, or also includes claims between the parties.
- Whether in addition to damages, the indemnification provision includes a duty to defend against third party claims, and who has the right to control such defense. A duty to defend provides greater relief than mere monetary recovery because it can cover your costs if you are sued regardless of the ultimate merit of the allegations being brought against you.
- Whether you wish to exclude liability for breaches by your “Authorized Users.” Many institutions prohibit entering into agreements that assume liability for the acts of campus users. If that’s the case for your campus, then if you agree to mutual indemnification, you will need to exclude liability by the university for acts by “Authorized Users” under the agreement. Even in the absence of such a policy, you may want to consider doing so.
- Whether you are concerned about particular types of non-party claims being brought against you (e.g. perhaps you are concerned about being sued for violation of disability laws or standards), in which case it is a good practice to include an indemnification that extends to “losses incurred due to non-party claims.” This way, you can be sure the licensor will not evade making you whole for non-party claims, which the licensor might otherwise try to do in the provision by disclaiming other damages (like consequential damages). You may also wish the indemnification to include an obligation to defend you in any such third-party claims, as noted above.
- Whether you are agreeing to indemnification for any breach or loss, or just certain kinds of breaches or losses. In a mutual indemnification provision, if you want to be on the hook only for substantial breaches of the agreement, or only for negligent or intentional acts and breaches, then you can modify the indemnification provision to provide for this.[2]
What it means:
An indemnification clause is a type of remedy intended to make explicit a breaching party’s general obligation to make a non-breaching party whole for losses sustained because the agreement was breached.[3] To illustrate, suppose Party A (licensor) and B (licensee) sign an eResources agreement. Party A then breaches the agreement. (Perhaps the breach arises because Party A made a representation that turned out to be false, or because Party A did not perform some other obligation.) The point of indemnification is to increase the likelihood that Party A actually will compensate Party B for the losses they incurred as a result of Party A’s breach.
Historically, indemnification was intended to compensate a contracting party for the losses it sustains as a result of third party claims or liability. In other words, let’s suppose Party A (the publisher) promises Party B (your university) in an eResources agreement that the licensed materials comply with Federal accessibility laws and meet WCAG 2.1 guidelines. Party B (your university) then provides the materials to Authorized Users, and an Authorized User—that is, someone who is not a party to the agreement between A and B—sues your university for failing to provide accessible materials. Because Party B was providing materials that it thought were accessible based on Party A’s representation, Party B should be entitled to recover any costs it owes to the non-party Authorized User. Indemnification would be the way that Party B would recover against Party A for Party B’s losses.
In more modern contracts, however, eligibility for indemnification does not always contemplate or necessitate recovery for losses incurred to a third party like Authorized Users; it can instead refer to any recovery that makes a contracting party whole for another contracting party’s breach[4]. But if you do want the indemnification provision to include claims between the parties (rather than just as to losses incurred to third parties), you should make this clear in the indemnification provision to avoid ambiguity. We think this is something as to which we think the California Digital Library’s model license language (featured immediately below) should probably be improved upon to make clear.[5]
Desired Language:
[From CDL Model License]
The Licensor shall indemnify and hold harmless the Licensee and Authorized Users for any losses, claims, damages, awards, penalties, or injuries incurred, including reasonable attorney’s fees, that arise from any third party claim that alleges copyright infringement or other intellectual property infringement arising from the use of the Licensed Materials by the Licensee or any Authorized User. NO LIMITATION OF LIABILITY SET FORTH ELSEWHERE IN THIS AGREEMENT IS APPLICABLE TO THIS INDEMNIFICATION. This Section shall survive the termination of this Agreement.
Use the following alternative only if absolutely necessary because it imposes mutuality:
In addition to the indemnity in the preceding paragraph, each party shall indemnify and hold the other harmless for any losses, claims, damages, awards, penalties, or injuries incurred, including reasonable attorney’s fees, arising from any alleged breach of such indemnifying party’s representations and warranties made under this Agreement, provided that the indemnifying party is promptly notified of any such claims, and such indemnification is only in proportion to the losses, claims, damages, awards, penalties, or injuries that were caused by the intentional or negligent acts or omissions of the indemnifying party.
The indemnified party shall provide assistance in investigating and defending such claims as the indemnifying party may reasonably request and shall have the right, but not the obligation, to participate in the defense at its own expense.
Tricks & Traps:
The main risks to a library or institution licensing eResources include receiving content or services that:
- are of lower quality than anticipated (e.g. a platform that is plagued with glitches or down-time);
- are in unsuitable format (e.g. PDFs non-compliant with disability laws and regulations)
- contain materials that violate others’ rights (e.g. data for which a third party holds copyright).
Licensors will likely want to insulate themselves from exposure to these risks by limiting either the type of damages a licensee is entitled to, or setting a monetary limit on what those damages might be.
Although negotiations around indemnification may be challenging, you typically want an outcome that:
- Excludes acts of “Authorized Users” from your liability for losses in keeping with any institutional policy.
- Caps your indemnification exposure at some value. A reasonable cap on a university’s exposure under an eResources indemnification provision can be the cost that the university is paying for the licensed materials.
- Does not cap publisher/licensor liability at an unsuitable value. You may be tempted (to facilitate negotiations) to make liability caps mutual; after all, mutuality sounds “fair.” But if you cap the publisher’s liability for damages at the same price you are paying for the resources, then you could be on the hook for damages to a non-party in an excessive amount. Suppose a publisher makes a representation about accessibility compliance that turns out to be false and you (the licensee) are sued by a non-party for providing non-compliant/inaccessible materials. If there is a mutual liability cap at the value you have paid for the eResources, you suddenly find yourself limited in how much you can recover from the publisher to defend yourself or make yourself whole in the third party litigation you now face. A cap on publisher liability at the price you’re paying for the resources would also artificially limit the publisher’s obligation to defend you in any third-party claims.
Importance and risk:
Without full recovery for claims by third parties against you (e.g. such as for failure to comply with disability laws), you could owe third parties much more than the price you paid to license the materials to begin with. Likewise, without a cap on your own exposure, you could be on the hook for damages well in excess of what you paid to license the content.
It is thus essential to make sure any indemnity provisions clearly and explicitly protect your interests, which may differ from situation to situation. For e-resources that will be heavily utilized and thus inherently have a greater detrimental impact if they fail to meet your needs, you may desire strong indemnification from the publisher. Alternatively, for e-resources that pose a greater risk of being misused (e.g. expensive business data reports that your Authorized Users might inadvertently share), you may wish to resist agreeing to indemnification. This is particularly important because indemnity provisions are strictly construed against the party seeking indemnification.[6] Courts do this to avoid imposing duties that the parties did not intend to be assumed under the agreement.
If you hit roadblocks negotiating for indemnification in these types of higher risk scenarios, remember that the absence of an indemnification provision does not mean you are not entitled to damages. It may just make it more difficult, and thus risky, to recover damages you hope to receive.
- An more in-depth discussion of types of damages may be found in Appendix A ↵
- 14A Ca Jur Contribution and Indemnification § 33 (“Parties may require negligence by the indemnitor as a condition to indemnification, or they may establish a duty in the indemnitor to save the indemnitee harmless even if the indemnitor is not negligent.”) ↵
- 41 Am Jur 2d Indemnity § 1 ↵
- 41 Am Jur 2d Indemnity § 1; Kenneth A. Adams, A Manual of Style for Contract Drafting 365 (4th ed. 2017). ↵
- Kenneth A. Adams, A Manual of Style for Contract Drafting 365 (4th ed. 2017). For an example of how courts may interpret whether the indemnification clause includes claims between the parties, or just losses arising to a third party, see, e.g. Alki Partners v. DB Fund Services, LLC, 4 Cal. App. 5th 574 (Cal. Ct. App. 2016).. ↵
- 41 Am Jur 2d Indemnity § 1; 14A Ca Jur Contribution and Indemnification § 24. ↵
