Few contractual clauses offer more protection or are as misunderstood as the hold harmless, or indemnity, clause. Whether incorporated into a larger contractual agreement or signed as a separate agreement, indemnity can protect the beneficiary against damages.
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In its simplest form, indemnity means one contractual party will compensate the other party for any damages that occur. Special considerations may limit the total compensation of such damages. It is therefore extremely important to review any such clause thoroughly before signing an agreement.
Any expenses incurred through normal business activities may be indemnified. This includes but is not limited to legal expenses, loss of revenue, loss of profits, auditing expenses, judgments and settlements.
Federal statutes regulate that acts of fraud and negligence cannot be indemnified. For example, if party B indemnifies party A, but party A acts fraudulently, causing massive losses, party A would be liable for the damages incurred through any illegal activity regardless of the indemnity clause.
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