Negotiating Indemnity Clauses - Stewart McKelvey
Negotiating Indemnity Clauses - Stewart McKelvey
Negotiating Indemnity Clauses - Stewart McKelvey
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<strong>Negotiating</strong> <strong>Indemnity</strong> <strong>Clauses</strong><br />
Presented by:<br />
Lydia S. Bugden<br />
April 17, 2013<br />
© 2013 <strong>Stewart</strong> <strong>McKelvey</strong>. All rights reserved. Not to be copied or used in whole or in part without the express written consent of <strong>Stewart</strong> <strong>McKelvey</strong>
NEGOTIATING INDEMNITY<br />
CLAUSES<br />
To Indemnify or Not<br />
Damages vs. <strong>Indemnity</strong><br />
“A right to recover damages is a legal right in favor of a plaintiff to be<br />
compensated by a defendant for injuries recognized at law, which were<br />
suffered by the plaintiff as a result of the wrongful conduct of the<br />
defendant. A right of indemnity may exist where the plaintiff has<br />
suffered no injury at the hands of the person who is obliged to<br />
indemnify, and even where the wrong giving rise to the claim for<br />
indemnity was committed by some third party, or where no wrong<br />
has been committed by any person but the indemnifier is nonetheless<br />
obliged to make good a loss which has been suffered by the claimant.”<br />
Halsbury’s s Laws of Canada, 1 st ed. Guarantee and <strong>Indemnity</strong> (Canada: Lexus Nexus Canada Inc., 2010) at 374 [hereafter Halsbury’s]<br />
s]<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
Contract Negotiations – Allocations of Risk<br />
• Due Diligence<br />
• Representations and Warranties<br />
• Qualified as to "knowledge"<br />
• Materiality thresholds<br />
• Material Adverse Change<br />
• Indemnification<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
The Balancing Act<br />
• Owner wants:<br />
• Full benefit of what they bargained for<br />
• Bulletproof protection<br />
• Contractor wants:<br />
• Maximized returns<br />
• Certainty<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
Bulletproof Protection<br />
• Owner Wants:<br />
• Unqualified representations and warranties<br />
• Limited exceptions to indemnification<br />
• Lengthy survival periods<br />
• No "anti-sandbagging" g provisions<br />
• Expanded remedies beyond indemnification<br />
• Unfettered discretion to deal with third party claims<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
Certainty<br />
• Contractor Wants:<br />
• Well qualified representations and warranties<br />
• Expansive exceptions to indemnification<br />
• Tight survival periods<br />
• "Anti-sandbagging" g provisions<br />
• Narrow indemnity provisions, i.e. baskets and caps<br />
• Exclusivity as to remedies<br />
• Control over third party claims<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
Sample <strong>Indemnity</strong> Clause<br />
The Owner and Contractor shall each indemnify and hold harmless<br />
the other from and against all claims, demands, d losses, costs,<br />
damages, actions, suits, or proceedings whether in respect of losses<br />
suffered by them or in respect to claims by third parties that arise out<br />
of, or are attributable in any respect to their involvement as parties<br />
to this Contract, provided such claims are:<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
Sample indemnity clause‐continued<br />
.1 caused by:<br />
(1) the negligent acts or omissions of the party from whom<br />
indemnification is sought or anyone for whose acts or omissions that<br />
party is liable, or<br />
(2) a failure of the party to the Contract from whom indemnification is<br />
sought to fulfill its terms or conditions;<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
<strong>Indemnity</strong> Baskets<br />
• "Deductible" – until a specified monetary threshold is met, no<br />
indemnification and thereafter, indemnifier only liable for the loss<br />
above the $ threshold<br />
• "Tipping Basket" – once the monetary threshold is met, the<br />
Purchaser is indemnified ifi d for the full amount of the loss<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
<strong>Indemnity</strong> Caps<br />
• Contractor driven, i.e. the desire for certainty<br />
• Owner to look for carve outs from the "cap"<br />
• Status of representations and warranties will play into the<br />
negotiations<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
Limitation of Liability –Sample Clause<br />
a. Notwithstanding any other provision in this Contract, the Contractor<br />
shall not be liable for any Losses under this Contract unless and<br />
until the aggregate of all Losses suffered by the Owner exceeds a<br />
one-time deductible d of $100,000 000 (the “Deductible”), d in which h case<br />
the Contractor shall be liable only for the excess of the aggregate<br />
amount of Losses over the Deductible.<br />
b. No claim shall be made by the Owner at any time unless the<br />
Losses suffered by the Owner exceeds the Deductible and the<br />
aggregate of Losses claimed by the Owner hereunder at such time<br />
in respect of such claim exceeds the amount of $5,000. The<br />
parties acknowledge that the limitations in this subsection (b) are<br />
not a deductible and the Owner shall be entitled<br />
to seek recovery of the full amount of all Losses.<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
Limitation of Liability‐continued<br />
c. Notwithstanding any other provision in this Contract, the maximum<br />
liability of the Contractor under all of its representations, warranties<br />
and indemnities in this Contract shall be limited to 100% of the<br />
Contract Price, as adjusted pursuant to this Contract.<br />
d. Notwithstanding the limitations contained in Subsections (a), (b)<br />
and (c) above, the parties agree that such limitations shall not apply<br />
in respect of any Environmental Work and any Losses resulting<br />
therefrom.<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
Third Party Claims<br />
• How long is the claims period<br />
• How is notice of a Third Party Claim to be provided<br />
• Who has carriage of matter<br />
• How are costs of defense allocated<br />
• Who has control of the settlement<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
The Big Picture<br />
• Who is Indemnifying<br />
• Essentially unsecured obligation<br />
• What is the true exposure<br />
• Escrow / Holdback<br />
• Timing of Indemnification<br />
• Explicit survival periods<br />
• When indemnifier pays<br />
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NEGOTIATING INDEMNITY<br />
CLAUSES<br />
The Big Picture‐ continued<br />
• "Materiality Scrapes“<br />
• used to determine whether breach has occurred<br />
• Exclusivity / Waiver<br />
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QUESTIONS<br />
30<br />
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These materials are intended to provide brief informational<br />
summaries only of legal developments and topics of general<br />
interest. The materials should not be relied upon as a<br />
substitute for consultation with a lawyer with respect to the<br />
reader’s specific circumstances. Each legal or regulatory<br />
situation is different and requires review of the relevant facts<br />
and applicable law. If you have specific questions related to<br />
these materials or their application to you, you are<br />
encouraged to consult a member of our firm to discuss your<br />
needs for specific legal advice relating to the particular<br />
circumstances of your situation. Due to the rapidly changing<br />
nature of the law, <strong>Stewart</strong> <strong>McKelvey</strong> is not responsible for<br />
informing i you of future legal l developments.<br />
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