Negotiating Indemnity Clauses - Stewart McKelvey

Negotiating Indemnity Clauses 

Presented by: 

Lydia S. Bugden 

April 17, 2013 

© 2013 Stewart McKelvey. All rights reserved. Not to be copied or used in whole or in part without the express written consent of Stewart McKelvey

NEGOTIATING INDEMNITY 

CLAUSES 

To Indemnify or Not 

Damages vs. Indemnity 

“A right to recover damages is a legal right in favor of a plaintiff to be 

compensated by a defendant for injuries recognized at law, which were 

suffered by the plaintiff as a result of the wrongful conduct of the 

defendant. A right of indemnity may exist where the plaintiff has 

suffered no injury at the hands of the person who is obliged to 

indemnify, and even where the wrong giving rise to the claim for 

indemnity was committed by some third party, or where no wrong 

has been committed by any person but the indemnifier is nonetheless 

obliged to make good a loss which has been suffered by the claimant.” 

Halsbury’s s Laws of Canada, 1 st ed. Guarantee and Indemnity (Canada: Lexus Nexus Canada Inc., 2010) at 374 [hereafter Halsbury’s] 

s] 

65 2013 Construction Seminar 

© 2013 Stewart McKelvey all rights reserved


CLAUSES 

Contract Negotiations – Allocations of Risk 

• Due Diligence 

• Representations and Warranties 

• Qualified as to "knowledge" 

• Materiality thresholds 

• Material Adverse Change 

• Indemnification 




CLAUSES 

The Balancing Act 

• Owner wants: 

• Full benefit of what they bargained for 

• Bulletproof protection 

• Contractor wants: 

• Maximized returns 

• Certainty 




CLAUSES 

Bulletproof Protection 

• Owner Wants: 

• Unqualified representations and warranties 

• Limited exceptions to indemnification 

• Lengthy survival periods 

• No "anti-sandbagging" g provisions 

• Expanded remedies beyond indemnification 

• Unfettered discretion to deal with third party claims 




CLAUSES 

Certainty 

• Contractor Wants: 

• Well qualified representations and warranties 

• Expansive exceptions to indemnification 

• Tight survival periods 

• "Anti-sandbagging" g provisions 

• Narrow indemnity provisions, i.e. baskets and caps 

• Exclusivity as to remedies 

• Control over third party claims 




CLAUSES 

Sample Indemnity Clause 

The Owner and Contractor shall each indemnify and hold harmless 

the other from and against all claims, demands, d losses, costs, 

damages, actions, suits, or proceedings whether in respect of losses 

suffered by them or in respect to claims by third parties that arise out 

of, or are attributable in any respect to their involvement as parties 

to this Contract, provided such claims are: 




CLAUSES 

Sample indemnity clause‐continued 

.1 caused by: 

(1) the negligent acts or omissions of the party from whom 

indemnification is sought or anyone for whose acts or omissions that 

party is liable, or 

(2) a failure of the party to the Contract from whom indemnification is 

sought to fulfill its terms or conditions; 




CLAUSES 

Indemnity Baskets 

• "Deductible" – until a specified monetary threshold is met, no 

indemnification and thereafter, indemnifier only liable for the loss 

above the $ threshold 

• "Tipping Basket" – once the monetary threshold is met, the 

Purchaser is indemnified ifi d for the full amount of the loss 




CLAUSES 

Indemnity Caps 

• Contractor driven, i.e. the desire for certainty 

• Owner to look for carve outs from the "cap" 

• Status of representations and warranties will play into the 

negotiations 




CLAUSES 

Limitation of Liability –Sample Clause 

a. Notwithstanding any other provision in this Contract, the Contractor 

shall not be liable for any Losses under this Contract unless and 

until the aggregate of all Losses suffered by the Owner exceeds a 

one-time deductible d of $100,000 000 (the “Deductible”), d in which h case 

the Contractor shall be liable only for the excess of the aggregate 

amount of Losses over the Deductible. 

b. No claim shall be made by the Owner at any time unless the 

Losses suffered by the Owner exceeds the Deductible and the 

aggregate of Losses claimed by the Owner hereunder at such time 

in respect of such claim exceeds the amount of $5,000. The 

parties acknowledge that the limitations in this subsection (b) are 

not a deductible and the Owner shall be entitled 

to seek recovery of the full amount of all Losses. 




CLAUSES 

Limitation of Liability‐continued 

c. Notwithstanding any other provision in this Contract, the maximum 

liability of the Contractor under all of its representations, warranties 

and indemnities in this Contract shall be limited to 100% of the 

Contract Price, as adjusted pursuant to this Contract. 

d. Notwithstanding the limitations contained in Subsections (a), (b) 

and (c) above, the parties agree that such limitations shall not apply 

in respect of any Environmental Work and any Losses resulting 

therefrom. 




CLAUSES 

Third Party Claims 

• How long is the claims period 

• How is notice of a Third Party Claim to be provided 

• Who has carriage of matter 

• How are costs of defense allocated 

• Who has control of the settlement 




CLAUSES 

The Big Picture 

• Who is Indemnifying 

• Essentially unsecured obligation 

• What is the true exposure 

• Escrow / Holdback 

• Timing of Indemnification 

• Explicit survival periods 

• When indemnifier pays 




CLAUSES 

The Big Picture‐ continued 

• "Materiality Scrapes“ 

• used to determine whether breach has occurred 

• Exclusivity / Waiver 



QUESTIONS 

30 

2013 Construction Seminar 


These materials are intended to provide brief informational 

summaries only of legal developments and topics of general 

interest. The materials should not be relied upon as a 

substitute for consultation with a lawyer with respect to the 

reader’s specific circumstances. Each legal or regulatory 

situation is different and requires review of the relevant facts 

and applicable law. If you have specific questions related to 

these materials or their application to you, you are 

encouraged to consult a member of our firm to discuss your 

needs for specific legal advice relating to the particular 

circumstances of your situation. Due to the rapidly changing 

nature of the law, Stewart McKelvey is not responsible for 

informing i you of future legal l developments.

Negotiating Indemnity Clauses - Stewart McKelvey

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