CHAPTER 30
Buyer’s Indemnification
of Seller

Some projects by their very nature pose significant risk to seller. Certain hazardous jobs such as a nuclear and munitions demolition may constitute a basis for seller to request that they be indemnified by buyer.

In certain cases, seller may not wish to engage in a hazardous job if evaluations show that the risk is great. In other instances, seller may wish to subcontract work to a vendor who asks to be indemnified. In such circumstances, seller should have indemnification coverage in their contract enabling them to flow similar language down to their subcontractor.

Standard indemnification language does not exist. Hence, one specific indemnification provision that appropriates itself for a specific situation may not be suitable for another. It is thus imperative when drafting indemnification language that the nature of the work be considered so that a suitable provision may be formulated.

Indemnification relies heavily on the financial strength of buyer. If buyer is a small firm with few financial assets, it does not necessarily behoove seller to negotiate an indemnification provision, since buyer does not have ample resources to protect seller in the event that the indemnification provision is triggered. In instances where seller feels it prudent to be indemnified, seller should verify buyer’s financial strength.

The following clauses may be considered by seller when requesting that either buyer or buyer’s subcontractor indemnify seller.

1) Broad Indemnification Provisions (most desirable to seller): Insertion of the following indemnification provision provides broad protection to seller. Protection includes liabilities resulting from contract performance even when seller is entirely or partially responsible:

To the fullest extent permitted by law, buyer shall defend, indemnify, and hold harmless seller and its employees, agents, officers, directors, and subcontractors from and against any and all suits, actions, legal or administrative proceedings, damages, costs, expenses, and liabilities, including but not limited to attorney’s fees and court costs, (hereunder Liabilities) asserted against or incurred by seller and which arise out of, directly or indirectly relate to, or in any way include, but are not limited to, injury to or death of persons, loss of or damage to property (including loss of use thereof) economic loss, including lost profit or opportunity, and indirect, special, or consequential damages.

Notice that the indemnification language above includes language that this book has defined as adding risk to seller. In this particular instance, however, buyer is indemnifying seller; hence, it works to seller’s advantage to include such language as hold harmless, including but not limited to, and directly or indirectly related to. Keep in mind that seller’s responsibility is to mitigate risk to their company. When buyer is indemnifying seller, the broader the indemnity language, the more favorable it is for seller.

2) Broad Indemnification of Seller (desirable): In some circumstances, buyer may request that seller be held liable for their negligent acts and omissions. In this situation, seller is still indemnified, but not to the same extent as provided for above. Inclusion of the following language to the broad indemnification provision above is an acceptable compromise in the event that buyer does not wish to accept responsibility for seller’s negligent acts:

Notwithstanding anything herein to buyer, such indemnification shall not apply to liabilities that are finally determined to result from the gross negligence or willful misconduct of seller.

3) Broad Indemnification for Gross Negligence (substantial protection): There may be instances where buyer does not agree with the language presented above. However, they may be willing to agree to a more limited indemnification provision when gross negligence, a dollar threshold and specified period of performance are identified. In this situation, both seller and buyer are agreeing to indemnify each other; however, seller is getting more than they are giving. Seller’s agreement to assume responsibility for gross negligence may provide the catalyst required for buyer to agree with the provision as proposed. Offer this language as a compromise if buyer rejects the examples given above:

To the fullest extent permitted by law, buyer shall defend, indemnify, and hold harmless seller and its employees, agents, officers, directors, and subcontractors from and against any and all suits, actions, legal or administrative proceedings, damages, costs, expenses, and liabilities, including but not limited to attorney’s fees and court costs (hereinafter Liabilities) asserted against or incurred by seller and which arise out of, are directly or indirectly related to, or are in any way incident to the services provided by seller under this contract. Such damages include but are not limited to injury to or death of persons, loss of or damage to property (including loss of use thereof), economic loss, including lost profit or opportunity, and indirect, special, or consequential damages. Notwithstanding anything herein to the contrary, seller shall indemnify buyer, employees, agents, officers, and directors from any liabilities arising from or caused by the gross negligence or willful misconduct of seller. Buyer’s liability to indemnify buyer shall be limited to the lesser of _______________ times the contract value or $_________________. Seller’s indemnification shall be limited to direct damages and shall not include liability for indirect or consequential damages. Seller’s obligation to indemnify client shall be effective only for claims made in writing to seller prior to the expiration of ____________ years after the completion of services provided under this contract.