The idea behind exclusivity is that indemnification might restrict remedies available under common law (such how how long you have to bring a claim, or the amount you might recover), and those limits would be pointless if an unhappy party could choose to circumvent them by bringing a lawsuit grounded in a common-law cause of action. Does this make sense? I should explore further how this plays out in a civil-law context.

Ken

First of all I fail to see how you can bring in “deep pockets” through an indemnity clause in the contract for performance. You are contracting with the subsidiary company and, normally, it does not have authority to commit the parent. My knowledge of common-law may not be completely accurate, but it is my understanding that in order to get access to the deep pockets, you will need a one-sided commitment from the parent. In order for the commitment to be inforcable, it must be executed as a deed, commonly known as a “parent company guarantee”.

Also, I fail to understand why a “sole remedy” clause is required. In oil and gas, the arrangement of “mutual indemnity” is the guideline. Under that arrangement, my company commit to release the other party from any claim my company may have, and indemnify him from any claim a member of my company’s group may have, in relation to any damage the other party causes to the property of my company’s group. Isn’t that sufficient to exclude any other remedy I may have?

Maybe my failure to understand is due to lack of experience with other types of indemnity, or lack of knowledge of common-law, but this I spend a lot of time arguing for “mutual indemnity”, particularly with US customers, so I would very much like to get this clarified.

In commercial contracts, indemnification provisions are often negotiated out of all proportion to their likely value to the parties. I think that the reason for this may be that you don’t have to be a great attorney or a great communicator to present your client with a parade of horribles, offer to make the other side pay to keep them at bay and then go to the mat for your position (all at the usual hourly rate, of course). (That’s not to say that the same isn’t often entirely appropriate zealous representation.)

I think it’s best to address the fact that claims can come from two sources. For what it’s worth, the discussion of indemnification procedure in “Negotiating and Drafting Contract Boilerplate” takes the same approach.

As to the relative merits of accessing deep pockets though indemnification or a guarantee, that’s something I’ll have to ponder. I welcome any input.

I’m not sure that I missed the notion of limiting liability for nonparty claims. I mention capping liability, and that can be handled in any number of ways.

Ken

I’ve never seen an indemnity of the type you describe in the “deep pockets” description – in my experience, that’s typically just handled by a mechanism like a parent guarantee.

I think you actually missed the most-important part of the indemnity, which is shifting responsibility for third-party claims. Sophisticated parties understand that limits of liability are appropriate and necessary and are willing to assume some risk that their own losses from the counterparty’s breach will exceed the LOL, but aren’t willing to “insure” the losses their counterparty’s breaches cause third parties (see, e.g., an IP indemnity, which you’d be crazy not to include in any licensing deal or almost any services deal).

As between the parties and their performance/warranty issues, everything you described could be handled with a thoughtful limit of liability provision with exceptions.