[Updated most recently November 1, 2013. For details, go to the end of this post.]
Over the years I’ve posted plenty of items about indemnification. (If you click on the “Indemnification” category to the right, you’ll be offered sixteen different posts.) But I’ve not posted any indemnification language … until now!
Yes, I know, I feel very emotional about it too. *sobs*
What you see below is the indemnification section from a contract for purchase of widgets. (I apologize for not being able to replicate the formatting required by the MSCD enumeration scheme.) This language covers just nonparty claims. If indemnification were the exclusive remedy, as is usually the case in M&A contracts, you’d need an additional subsection providing for indemnification for inaccurate statements of fact, breached obligations, and any disclosed liabilities. Because I’m currently working on commercial contracts, not M&A contracts, this is what I have on hand to offer.
Also, because it’s for a simple commercial contract, this indemnification section doesn’t address time limitations (my version of “survival” language), and it doesn’t have anything about caps and baskets. But even as is, it might be more than you need for a given transaction. If that’s the case, lop off anything that seems excessive.
It uses but doesn’t contain definition of “Affiliate” and “Person,” simply because the contract I took it from defines those terms elsewhere.
If as discussed in MSCD and this post you elect to say “the Vendor will be liable to those Acme Indemnitees for” instead of “the Vendor shall indemnify those Acme Indemnitees against,” you’d need to make conforming changes elsewhere, starting with the section heading.
I don’t recall when I first prepared this language, but I spent quite a lot of time on it. Feel free to use it. Of course it could be improved; I welcome your rotten tomatoes.
12. Indemnification. (a) With respect to any Proceeding brought by someone other than the Vendor or someone other than one or more Acme Indemnitees against one or more Acme Indemnitees arising out of this agreement or Acme’s purchase or use of Units (each, a “Nonparty Claim”), the Vendor shall indemnify those Acme Indemnitees against all Indemnifiable Losses arising out of that Proceeding, except to the extent that Acme negligently or intentionally caused those Indemnifiable Losses.
(b) To be entitled to indemnification under section 12(a), an Acme Indemnitee subject to any Nonparty Claim must promptly (and in any event no later than ten days after the Acme Indemnitee first knew of that Proceeding) notify the Vendor of that Nonparty Claim and deliver to the Vendor a copy of all legal pleadings with respect to the Nonparty Claim. If the Acme Indemnitee fails to timely notify the Vendor of a Nonparty Claim, the Vendor will be relieved of its indemnification obligations with respect to that Nonparty Claim to the extent that the Vendor was prejudiced by that failure and the Vendor will not be required to reimburse the Acme Indemnitee for any Litigation Expenses the Acme Indemnitee incurred during the period in which the Acme Indemnitee failed to notify the Vendor.
(c) To assume the defense of a Nonparty Claim, the Vendor must notify the Acme Indemnitee that it is doing so. Promptly thereafter, the Vendor shall retain to represent it in the Nonparty Claim independent legal counsel that is reasonably acceptable to the Acme Indemnitee.
(d) An Acme Indemnitee is entitled to participate in the defense of a Nonparty Claim. An Acme Indemnitee may defend a Nonparty Claim with counsel of its own choosing and without the Vendor participating if (1) the Vendor notifies the Acme Indemnitee that it does not wish to defend the Nonparty Claim, (2) by midnight at the end of the tenth day after the Acme Indemnitee notifies the Vendor of the Nonparty Claim the Vendor fails to notify the Acme Indemnitee that it wishes to defend the Nonparty Claim, or (3) representation of the Vendor and the Acme Indemnitee by the same counsel would, in the opinion of that counsel, constitute a conflict of interest.
(e) The Vendor shall pay any Litigation Expenses that an Acme Indemnitee incurs in connection with defense of the Nonparty Claim before the Vendor assumes the defense of that Nonparty Claim, except with respect to any period during which the Acme Indemnitee fails to timely notify the Vendor of that Nonparty Claim. The Vendor will not be liable for any Litigation Expenses that a Acme Indemnitee incurs in connection with defense of a Nonparty Claim after the Vendor assumes the defense of that Nonparty Claim, other than Litigation Expenses that the Acme Indemnitee incurs in employing counsel in accordance with section 12(d), which Litigation Expenses the Vendor shall pay promptly as they are incurred.
(f) After the Vendor assumes the defense of a Nonparty Claim, the Vendor may contest, pay, or settle the Nonparty Claim at its discretion without the consent of the Acme Indemnitee only if that settlement (1) does not entail any admission on the part of the Acme Indemnitee that it violated any law or infringed the rights of any Person, (2) has no effect on any other claim against the Acme Indemnitee, (3) provides as the claimant’s sole relief monetary damages that be in full by the Vendor, and (4) requires that the claimant release the Acme Indemnitee from all liability or the Nonparty Claim.
(g) In this agreement, the following definitions apply:
“Acme Indemnitee” means Acme, any Affiliate of Acme, each Representative of any of the foregoing, and each of the heirs, executors, successors, and assigns of any of the foregoing.
“Indemnifiable Losses” means the aggregate of Losses and Litigation Expenses.
“Litigation Expense” means any [reasonable] out-of-pocket expense incurred in defending a Proceeding or in any related investigation or negotiation, including court filing fees, court costs, arbitration fees, witness fees, and attorneys’ and other professionals’ fees and disbursements.
“Loss” means any amount awarded in, or paid in settlement of, any Proceeding, including any interest but excluding any Litigation Expenses.
“Proceeding” means any judicial, administrative, or arbitration action, suit, claim, investigation, or proceeding.
“Representative” means, with respect to an entity, any of that entity’s directors, officers, employees, agents, consultants, advisors, and other representatives.
[Updated November 1, 2013: In 12(f), replaced "at its discretion, except that it may not settle the Nonparty Claim without the consent of the Acme Indemnitee unless that settlement" with "without the consent of the Acme Indemnitee only if that settlement".]
[Updated September 29, 2013: Eliminated further lameness: (1) changed "is may" in 12(d) to "may"; (2) removed from 12(f) all references to "compromise"; (3) deleted from 12(f) "that may be brought"; and (4) in 12(f) changed "in respect of" (yuck) to "for".]
[Updated August 13, 2013: I made two changes to reflect Vance's comment and two more to reflect A. Wright Burke's comment. And in section 12(a) I changed "that purchase and that use" to "that Proceeding".]
[Updated August 14, 2013: Prompted by a comment by Rich, I trimmed the introduction to the definitions. And prompted by Chris Lemens's extensive comment, I did the following: (1) moved from 12(b) to 12(e) the part about the Vendor not being required to reimburse Litigation Expenses for any period of delay; (2) changed the verb structure of 12(c); (3) in the second sentence of 12(d) changed "is entitled to" to "may"; (4) in 12(f) changed "will be entitled to" to "may"; (5) in the definition of "Litigation Expenses" added "out-of-pocket" in front of "cost" and deleted " and revised the definition to make it more generic; and (6) cut back the definition of "Loss." For further details, so my annotations to Chris's comment.]
[Updated August 17, 2013: Prompted by a further comment from Chris, I did the following: (1) revised 12(a) to specify that it doesn't cover claims by Acme Indemnitees against other Acme Indemnitees; (2) revised 12(e) for symmetry between the first and second sentences; and (3) revised the definitions of "Litigation Expenses" and "Loss" to eliminate the clumsy strings and to add "reasonable," in brackets, to the definition of "Litigation Expenses." For further details, see my response to Chris's comment.]
[Updated August 19, 2013: In 12(c) changed "notifying" to "notify," and added a period at the end of the definition of "Proceeding".]