General Contract Clauses: Indemnification (Unilateral; Pro

Resource ID: w-006-9696

Unilateral indemniﬁcation and defense provisions for a sale of goods

or services transaction under Ohio law. These Standard Clauses are

drafted in favor of the indemniﬁed party and address the duty to

compensate, defend, and hold harmless for losses incurred, notice

of claims, control of defense, and settlement of claims procedures.

Consistent with most supply of goods and services agreements

using unilateral indemniﬁcation provisions, these Standard Clauses

assume that the agreement’s buyer or customer is the indemniﬁed

party. Parties, however, can modify these Standard Clauses to make

any other party (including the seller, supplier, or service provider) the

indemniﬁed party. These Standard Clauses have integrated notes

with important explanations and drafting and negotiating tips.

Indemnification is an undertaking by a party

(the indemnifying party) to compensate

the other party (the indemnified party)

for certain costs and expenses, typically

regarding third-party claims. Under Ohio

law, a right to indemnification arises from

contract, and the nature of an indemnity

relationship is determined by the intent of

the parties as expressed by the language

used (Worth v. Aetna Cas. & Sur. Co., 513

N.E. 2d 253, 256 (1987)).

Indemnification provisions vary based on

factors such as:

 The type of transaction.

 The predicted nature of potential third-

party claims.

 The balance of the parties’ bargaining

power.

 Industry norms.

UNILATERAL VERSUS MUTUAL

INDEMNIFICATION PROVISIONS

Indemnification provisions can be:

 Unilateral. Under unilateral

indemnification provisions, one

party indemnifies the other without

reciprocation. For a list of circumstances

under which parties commonly use

unilateral indemnification provisions,

see Common Rationales for Unilateral

Indemnification.

DRAFTING NOTE: READ THIS BEFORE USING DOCUMENT

MARY K. NEWMAN, DINSMORE & SHOHL LLP,

WITH PRACTICAL LAW COMMERCIAL TRANSACTIONS

General Contract Clauses:

Indemniﬁcation (Unilateral;

Pro-Indemniﬁed Party) (OH)

Search the Resource ID numbers in blue on Westlaw for more.

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

 Mutual and equal. Under mutual and

equal indemnification provisions, each

party indemnifies the other to an equal

extent. This approach is most appropriate

where:

z

the parties’ respective bargaining

powers are fairly equal;

z

the nature and extent of the parties’

respective contributions under the

agreement are fairly similar; or

z

the parties shoulder similar burdens or

reap similar rewards.

 Mutual and unequal. Under mutual

and unequal provisions, each party

indemnifies the other, but the parties’

indemnification obligations differ in scope

or substance. The parties generally use

this approach where:

z

the parties have unequal bargaining

power;

z

the nature or extent of the parties’

contributions under the agreement are

different; or

z

the parties shoulder dissimilar burdens

or reap dissimilar rewards.

These Standard Clauses are unilateral

indemnification clause under Ohio law.

Like most supply of goods and services

agreements, the seller, supplier, or service

provider is the indemnifying party and

the buyer or customer is the indemnified

party. However, the parties can revise these

Standard Clauses to customize the parties’

roles.

For sample mutual indemnification clauses,

see Standard Clauses, General Contract

Clauses: Indemnification (OH) (w-000-1141).

For more information on indemnification

generally, see Practice Note, Indemnification

Clauses in Commercial Contracts (OH)

(w-006-3791).

Common Rationales for Unilateral

Indemniﬁcation

The parties typically use unilateral

indemnification provisions where the

indemnifying party (often the seller, supplier,

or service provider):

 Has better knowledge of and is in a

better position to mitigate the covered

losses and liabilities. For example, in

many manufacturing agreements, while

the buyer’s performance obligations are

limited to payment, the manufacturer’s

include designing and manufacturing the

goods. In this case, third parties are more

likely to be harmed by the manufacturer’s

acts or omissions than the buyer’s acts or

omissions.

 Has less bargaining power than the

indemnified party.

 Wants to attract customers. For example,

a buyer in a sale of goods agreement may:

z

be more likely to purchase goods or

services from a seller if the seller offers

an indemnity; and

z

interpret a seller’s reluctance to give

an indemnity as a lack of confidence in

its products or that it can adequately

manage its liabilities.

 Views indemnification liability as a cost of

doing business and builds that cost into

its pricing.

ENFORCEABILITY

While indemnification agreements are

generally enforceable in Ohio, statutory

or common law restrictions may limit the

enforceability of an indemnity. The nature

of any indemnity relationship is determined

by the intent of the parties as expressed by

the language used (Worth v. Aetna Cas. &

Sur. Co., 513 N.E.2d 253, 256 (1987)). Ohio

courts mostly strictly construe contracts of

indemnity, and give them no greater scope

than the language of the agreement clearly

and unequivocally expresses (Palmer v.

David R. Pheils, Jr. & Assoc., 6th Dist. Wood

No. WD-01-010, 2002 WL 1436030, ¶ 39).

Ohio courts give those words their ordinary

and popular meaning (Portsmouth Ins.

Agency v. Med. Mut. of Ohio, 4th Dist. No.

08CA3218, 934 N.E.2d 940, 944, ¶ 18).

States’ laws vary, however, on how they

interpret or enforce agreements for

indemnification. While Ohio law governs

these Standard Clauses, parties should

become familiar with any laws that

potentially govern the agreement before

drafting an indemnification clause (see

Practice Note, Choice of Law and Choice of

Forum: Key Issues (7-509-6876). The parties

should examine the degree to which courts

in the applicable jurisdiction enforce:

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

 Provisions that require a party to

indemnify another for all claims,

regardless of who is at fault (see

Glaspellv. Ohio Edison Co., 505 N.E.2d

264, 267 (1987)). In Glaspell, the court

refused to strictly construe against the

drafter the phrase “any loss” to exclude

claims arising from a party’s own alleged

negligence, where the parties were

commercial enterprises of sufficient size

and quality as to presumably possess

high degree of sophistication in matters

of contract. In other situations, however,

courts apply a heightened level of

scrutiny whenever a party attempts to

indemnify against its own negligence

(Toth v. Toledo Speedway, 583 N.E.2d

357, 358 (6th Dist. 1989)). In either case,

the best practice is to expressly mention

negligence.

 Indemnities providing for tort-based

damages like punitive damages. Ohio

law generally disfavors insurance against

punitive damages resulting from the

insured’s own torts, but has carved

out exceptions (see, for example, The

Corinthian v. Hartford Fire Ins. Co., 758

N.E.2d 218, 223 (8th Dist. 2001)).

 Indemnities given by protected classes like:

z

construction-related contracts (see R.C.

2305.31);

z

workers’ compensation benefits (see

R.C. 4123.82); and

z

consumers (see the Consumer Sales

Practices Act, R.C. 1345.01 et seq.,

where Ohio courts have adopted a

liberal approach to ensure protection for

consumers) (Price v. KNL Custom Homes,

Inc., 28 N.E.3d 640, ¶ 15 (2015)).

Therefore, the indemnified party should

consider specifying the causes of action

and set out the requisite level of causation

that would create an obligation to

indemnify.

ASSUMPTIONS

These Standard Clauses assume that:

 The agreement is governed by Ohio

law. If the law of another state applies,

these terms may have to be modified to

comply with the laws of the applicable

jurisdiction.

 There are only two parties to the

agreement. The parties should adjust

the agreement as necessary if additional

parties, like a party’s affiliates, should

also have rights or obligations under

the agreement. If there are multiple

parties on one side of the transaction,

these parties should consider entering

into a separate contribution agreement

to allocate responsibility for complying

with these Standard Clauses.

 The parties intend to use unilateral

and not mutual clauses. For a sample

mutual indemnification clause, see

Standard Clauses, General Contract

Clauses: Indemnification (OH)

(w-000-1141).

 The parties to the agreement are US

entities and the transaction takes place

in the US. If any party is organized or

operates in, or any part of the transaction

takes place in a foreign jurisdiction, these

terms may have to be modified to comply

with applicable laws in the relevant

foreign jurisdiction.

 These terms are being used in a

business-to-business transaction. These

Standard Clauses should not be used in

a consumer contract, which may involve

legal and regulatory requirements and

practical considerations that are beyond

the scope of this resource.

 These terms are not industry- or

transaction-specific. These Standard

Clauses do not account for any industry-

specific laws, rules, or regulations that

may apply to certain transactions,

products, or services. The parties should

adjust the terms as necessary to address

transaction-specific details.

 Intellectual property indemnification,

if any, is handled in a separate

provision. These Standard Clauses do

not cover intellectual property claims,

which are often covered in a separate

provision because intellectual property

indemnification generally has different:

z

remedies; and

z

limitations of liability.

For an example of an intellectual property

indemnification provision, see Standard

Document, Professional Services

Agreement: Section 11.2 (9-500-2928).

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

General Contract Clauses: Indemnification (Unilateral; Pro-Indemnified Party)

1. Indemnification.

 Capitalized terms are defined elsewhere

in the agreement. Certain terms are

capitalized but not defined in these

Standard Clauses because they are defined

elsewhere in the agreement (for example,

Agreement, Buyer, Customer, Personnel,

Seller, Service Provider, and Supplier).

BRACKETED ITEMS

Bracketed items in ALL CAPS should be

completed with the facts of the transaction.

Bracketed items in sentence case are either

optional provisions or include alternative

language choices, to be selected, added, or

deleted at the drafting party’s discretion.

These Standard Clauses cover:

 Substantive indemnification rights and

obligations (see Indemnification Rights

and Obligations).

 Indemnification procedures (see

Indemnification Procedures).

INDEMNIFICATION RIGHTS

ANDOBLIGATIONS

The general obligation to indemnify may

apply to:

 Direct (first-party) claims. These are

claims that an indemnified party has

against an indemnifying party. Typically,

commercial contract indemnification

provisions do not cover direct claims.

A federal court applying Ohio law,

however, held that an indemnity provision

applies to both third-party and direct

claims unless otherwise limited in the

contract (Battelle Mem. Institute v. Nowsco

Pipeline Services, Inc., 56 F. Supp. 2d

944, 951-52 (S.D. Ohio 1999)). While not

typically covered in commercial contract

indemnification provisions, parties may

be subject to increased risk of liability or

dispute if they overlook or fail to address

direct claims (see Indemnification:

Avoiding Common Pitfalls: Overlooking

or Failing to Adequately Address Direct

Claims (6-538-5805)). An indemnification

provision for direct claims often covers

damages relating to the indemnifying

party’s acts, omissions, or breach of the

agreement.

 Third-party claims. These are claims that

a third party has against an indemnified

party, which parties most commonly use

indemnification to cover.

This indemnification provision:

 Covers third-party claims, not direct

claims. If the parties want to cover direct

claims, they must revise this provision.

For more information on direct versus

third-party claims, see Practice Note,

Indemnification Clauses in Commercial

Contracts (OH): Direct Versus Third-Party

Claims (w-006-3791).

 Consistent with most indemnification

provisions, requires the indemnifying

party to indemnify, defend, and hold

the indemnified party harmless from

losses. Where the indemnifying party has

significant leverage, the indemnified party

should expect the indemnifying party to

negotiate to omit one or more of these

obligations.

Indemnify

Indemnification requires the indemnifying

party to:

 Reimburse for covered paid costs and

expenses (losses). Ohio courts require

reimbursement for all costs and expenses

associated with defending suits against

the indemnified party in litigation covered

by the indemnity clause where either:

z

a statutory duty requires it;

z

the contract provides for it;

DRAFTING NOTE: INDEMNIFICATION

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

z

the indemnifying party acted in bad

faith; or

z

the indemnifying party would be

unjustly enriched.

(Krasny-Kaplan Corp. v. Flo-Tork, Inc., 609

N.E.2d 152, 154 (1993).)

 Where the indemnifying party wrongfully

refuses to defend, Ohio law includes

recovery of litigation costs, including

attorneys’ fees and expenses, as part

of the indemnification claim, even if the

provision does not expressly cover such

costs (Allenv. Std. Oil Co., 443 N.E.2d 497,

500 (1982)).

 Advance payment for covered unpaid

costs and expenses (like liabilities)

as they are incurred but only if the

recoverable damages under the

indemnity include liabilities, claims

or causes of action. The indemnity

obligation in this Standard Clause covers

unpaid costs and expenses because

it includes the term “liabilities” under

recoverable damages.

For a discussion of losses versus liabilities,

see Practice Note, Indemnification Clauses

in Commercial Contracts (OH): Defining the

Recoverable Damages (w-006-3791).

Defend

Consistent with most commercial

contracts, these Standard Clauses include

the obligation to defend. In Ohio, the duty

to defend is separate and distinct from

theduty to indemnify (Ohio Government

Risk Mgt. Plan v. Harrison, 874 N.E.2d

1155, ¶ 19 (Ohio 2007)). The obligation

to defend is also usually broader than

the obligation to indemnify because it

may apply whetheror not the third-party

claim has merit (Ward v. United Foundries,

Inc., 951 N.E.2d 770, ¶ 19 (Ohio 2011)).

For an example, see Practice Note,

Indemnification Clauses in Commercial

Contracts (OH): Defense is Often Broader

than Indemnification: An Example

(w-006-3791).

The obligation to defend arises before

any duty to indemnify and requires an

indemnifying party to:

 Reimburse for covered paid costs and

expenses (losses) comprised of defense

costs and expenses.

 Advance payment for covered unpaid

costs and expenses (like liabilities)

comprised of defense costs and expenses.

 Control the defense, subject to a control

of defense provision (see Section 1.3).

An indemnification provision must expressly

include any obligation to defend as Ohio

courts do not otherwise assume this

obligation. For example, even where an

agreement requires one party to reimburse

another party for legal expenses incurred in

defending itself as part of its indemnification

obligation, Ohio courts do not require that

party to also assume the burden of providing a

defense unless the language of the agreement

imposes an express duty to defend (see Rayco

Mfg., Inc. v. Beard Equip. Co., 9th Dist. Wayne

No. 11CA0057, 2014-Ohio-970, ¶ 22).

Hold Harmless

Like most indemnification provisions, this

Standard Clause requires the indemnifying

party to hold the indemnified party harmless.

Depending on the jurisdiction, the phrase

“hold harmless” may have one or more

meanings. For example, a court may interpret

the term “hold harmless” to be synonymous

with indemnification (see Indemnify). In Ohio,

the term is used interchangeably with the

term “indemnification” (see Office of Attorney

General, State of Ohio, Opinion No. 96-060,

1996 Ohio Op. Atty. Gen. 2-233 (Ohio A.G.),

1996 Ohio Op. Atty. Gen. No. 96-060, 1996

WL 708356)).

Although unlikely in Ohio, if used together

with the term “indemnify,” a court may

give the term “hold harmless” meaning

above and beyond indemnification, such as

requiring the indemnifying party to:

 Advance payment for covered unpaid

costs and expenses (like liabilities) as

they are incurred, even if the recoverable

damages under the indemnification

provision do not cover liabilities, claims,

or causes of action (see Mellinkoff’s

Dictionary of American Legal Usage

286 (1992); see also discussion in Bryan

A. Garner, U, 15 Green Bag 2d 17, 22-24

(2011)). Under this interpretation, courts

construe “hold harmless” to protect

another against the risk of loss as well as

actual loss whereas “indemnify” means

“reimburse for any damage,” a narrower

meaning than that of hold harmless.

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

1.1 [Seller/Supplier/Service Provider/[PARTY NAME]] Indemnification. [Subject to the terms

and conditions set forth in [Section 1.2] [,/ and] [Section 1.3] [and] [Section 1.4],] [Seller/

Supplier/Service Provider/[PARTY NAME]] (as “Indemnifying Party”) shall indemnify[, hold

harmless,] and defend [Buyer/Customer/[OTHER PARTY NAME]] and its officers, directors,

employees, agents, affiliates, successors, and permitted assigns (collectively, “Indemnified

Party”) against any and all losses, damages, liabilities, deficiencies, claims, actions, judgments,

settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including

[reasonable] attorneys’ fees, that are incurred by Indemnified Party (collectively, “Losses”),

arising out of or related to any third-party claim alleging:

(a) breach or non-fulfillment of any provision of this Agreement by Indemnifying Party or

Indemnifying Party’s Personnel;

(b) any negligent or more culpable act or omission of Indemnifying Party or its Personnel

(including any reckless or willful misconduct) in connection with the performance of its

obligations under this Agreement;

caused by the negligent or more culpable acts or omissions of Indemnifying Party or its

Personnel (including any reckless or willful misconduct); or

 Release the indemnified party (see, for

example, Dresser Indus., Inc. v. Page

Petroleum, Inc., 853 S.W.2d 505, 507-08

(Tex. 1993)).

Therefore, the term “hold harmless” is

bracketed to give the parties the option

to strike this term and avoid confusion or

undesirable interpretation.

For more information on indemnification

versus hold harmless, see Practice Note,

Indemnification Clauses in Commercial

Contracts (OH): Indemnification versus

Hold Harmless Provisions (w-006-3791).

INDEMNIFICATION PROCEDURES

The optional provisions under

these Standard Clauses favor the

indemnifiedparty and set out

proceduresregarding:

 Notice requirements (see Section 1.2).

 Control of defense (see Section 1.3).

 Settlement of claims (see Section 1.4).

When deciding whether to include one

or more of these optional provisions, the

indemnified party should consider its:

 Negotiating strategy. For example,

adding these optional provisions may

prompt the indemnifying party to

negotiate for its rights to be similarly

expanded, which may extend or

complicate negotiations.

 Priorities in relation to its transactional

risks and rewards. For example, the

indemnified party may choose to include

a control of defense provision if it highly

values the right to select and direct legal

counsel when facing a third-party claim,

especially if the indemnified party is unsure

of whether the indemnifying party can

provide a timely and adequate defense

(see Defend). This is particularly important

in cases where potential legal liabilities

cannot be entirely remedied by monetary

payment (for example, where there is a risk

of damage to reputation or the indemnified

party requires injunctive relief). In this case,

the indemnified party should also consider

requiring the indemnifying party to:

z

obtain a minimum amount of

representation and warranty

insurance; or

z

set aside a portion of the purchase

price in escrow to satisfy any future

indemnification claims (see Practice

Note, Indemnification Clauses

in Commercial Contracts (OH):

Representation and Warranty Insurance

and Escrow (w-006-3791)).

 Note that, if representation by the same

counsel presents a genuine conflict of

interest between the parties, Ohio law

may grant the indemnified party the right

to select counsel (see Star Rent-A-Car,

Inc.v. Campbell, 2nd Dist. Montgomery

No. 20083, 2004 WL 541140, ¶¶ 13, 14).

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

(d) any failure by Indemnifying Party or its Personnel to comply with any applicable

federal, state, or local laws, regulations, or codes in the performance of its obligations

under this Agreement.

The indemnified party should adjust

the scope of this indemnity provision as

necessary to fit its needs and objectives, for

example, by:

 Ensuring that the definition of

“Indemnified Party” includes all relevant

parties (see Multiple Indemnified Parties).

For example, in addition to those entities

listed in this Standard Clause, the

indemnified party may want to include its:

z

corporate parent; and

z

partners, managers, members, or

shareholders, or all three (including

all three may be preferable for the

indemnified party to take into account a

potential future reorganization).

 Including a right to obtain reimbursement

for costs and expenses associated with:

z

enforcing any right to indemnification

under the agreement;

z

pursuing any insurance providers; and

z

taxes imposed on the indemnity

payment (see Standard Clauses,

General Contract Clauses:

Indemnification (OH): Section 2.5

(w-000-1141)).

MULTIPLE INDEMNIFIED PARTIES

If the defined term “Indemnified Party”

covers more than just the other party to

the agreement, then the indemnified party

must consider including several provisions

addressing those other parties.

Deﬁning Afﬁliate

“Affiliate” should be included as a defined

term in the agreement’s definition section

to help clarify the parties eligible for

indemnification. For example:

“‘Affiliate’ of a Person means any other

Person that directly or indirectly, through

one or more intermediaries, controls,

is controlled by, or is under common

control with, such Person. The term

‘control’ (including the terms ‘controlled

by’ and ‘under common control with’)

means the possession, directly or

indirectly, of the power to direct or cause

the direction of the management and

policies of a Person, whether through

the ownership of voting securities, by

contract, or otherwise.”

If the parties use this definition, they must

define the term “Person” elsewhere in the

agreement.

Third-Party Beneﬁciaries Provision

A third-party beneficiaries provision should

be included to give affiliates the right

to enforce their indemnity rights under

the agreement. For a sample third-party

beneficiaries provision, see Standard

Clauses, General Contract Clauses: Third-

Party Beneficiaries (6-519-7630).

Temporal Modiﬁers

Depending on its priorities, the

agreement’s governing law, and the nature

of the transaction, the indemnified party

may want the definition of “Indemnified

Party” to expressly cover its past, present,

and future affiliates, employees, agents,

and other parties. For example, a New York

court held that use of the term “affiliates”

in a contract includes only those affiliates

in existence when the contract was

executed, absent clear and unambiguous

language indicating that the parties

intended to bind other affiliated parties

to the underlying contractual obligations

(Ellington v. EMI Music, Inc., 997 N.Y.S.2d

339, 343 (2014)).

If the parties include temporal modifiers,

then they should consider whether:

 To include a temporal modifier in other

provisions of the agreement.

 The definition of “Indemnified Party” or

“Indemnifying Party” is appropriately

used throughout the agreement in light of

this modification.

DRAFTING NOTE: SELLER/SUPPLIER OR SERVICE PROVIDER INDEMNIFICATION

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

INDEMNIFYING PARTY’S MITIGATION

APPROACHES

The indemnified party should expect the

indemnifying party to try to:

 Make the indemnification mutual (see

Make the Indemnification Mutual).

 Limit its indemnification obligation

(see Limit the Seller’s Indemnification

Obligation).

 Make the indemnification provision the

buyer’s sole and exclusive remedy (see Use

Sole and Exclusive Remedy Provisions).

For a sample unilateral pro-indemnifying

party provision, see Standard Clauses,

General Contract Clauses: Indemnification

(Unilateral; Pro-Indemnifying Party) (OH)

(w-006-9859).

Make the Indemniﬁcation Mutual

Depending on the facts and the parties’

respective negotiating leverage, the

indemnifying party may insist on including

a mutual indemnification. For example,

sellers often insist that the buyer indemnify

them based on:

 The buyer’s use of goods or services. The

buyer is generally in the best position to

mitigate losses and liabilities related to its

use of the purchased goods or services.

 The buyer provided items or

information. To make the product,

the seller may need to rely on items or

information provided by the buyer (for

example, when the seller builds to the

buyer’s specifications or incorporates a

buyer-provided part into the product).

Therefore, the seller may require the

buyer to indemnify it for any harm arising

from its use of the items or information.

 The interaction of the goods with any

product, material, or equipment that

the seller did not supply. Unless the

seller authorizes the interaction, the seller

may require the buyer to indemnify it if

the harm could be avoided by using the

goods without the interaction.

 The buyer’s hosting of the seller at its site.

Where the seller must enter the buyer’s site

to deliver goods or perform services, the

buyer is generally in the best position to

mitigate losses and liabilities related to the

safety and security of its own site.

The buyer’s intellectual property. The

seller may require the buyer to indemnify

it against third-party claims based on the

buyer’s intellectual property, for example,

where the seller manufactures products

based on the buyer’s specifications or

designs.

For a sample mutual indemnification

provision, see Standard Clauses, General

Contract Clauses: Indemnification (OH)

(w-000-1141).

Limit the Indemnifying Party’s

Indemniﬁcation Obligation

The indemnified party should expect

the indemnifying party to try to limit its

indemnity obligation by:

 Negotiating to qualify certain provisions,

for example, by using:

z

materiality to qualify the indemnifying

party’s breach of the agreement or

failure to comply with law (see Standard

Clauses, General Contract Clauses:

Indemnification (OH): Drafting Note:

Materiality Qualifiers (w-000-1141));

z

reasonableness to qualify attorneys’

fees;

z

a limited scope of activity (for example,

“negligent work”) or standard of

negligence, whether “gross negligence”

(in Ohio defined as “failure to exercise

any or very slight care;” see Hall v.

Kosta’s Night Club, 2016-Ohio-5003

¶ 27) or “sole negligence” to qualify

the indemnifying party’s acts and

omissions; or

z

all of the above.

 Limiting payment to losses that are finally

adjudicated.

 Limiting the indemnity obligation to cover

only claims arising in certain jurisdictions.

 Limiting the definition of indemnified

party. For example, sellers often refuse

to include the buyer’s customers as

indemnified parties, since the losses

and liabilities suffered by the customers

are often only partly attributable to the

seller’s actions.

 Limiting the indemnity obligation to losses

and liabilities that are not covered by:

z

insurance proceeds received by the

indemnified party (see Standard

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

Clauses, General Contract Clauses:

Indemnification (OH): Section 2.4

(w-000-1141)); and

z

tax benefits received by the indemnified

party (see Standard Clauses, General

Contract Clauses: Indemnification (OH):

Section 2.5 (w-000-1141)).

 Limiting its indemnification-related

liability under a limitation of liability

clause, which could contain either or both:

z

a liability cap or basket (see Standard

Clauses, General Contract Clauses:

Indemnification (OH): Section

2.2 (w-000-1141) and Section 2.3

(w-000-1141)); or

z

a consequential damages waiver (see

Standard Clauses, General Contract

Clauses: Limitation of Liability (OH):

Section 1.1 (w-000-1141)).

 Replacing the nexus phrase “arising out of

or related to” with the narrower:

z

“caused by”;

z

“resulting from”;

z

“solely resulting from”; or

z

“to the extent they arise out of.”

For more on nexus phrases, see Practice

Note, Indemnification Clauses in

Commercial Contracts (OH): Choosing the

Right Nexus Phrase (w-006-3791).

Use Sole and Exclusive Remedy Provisions

The indemnified party should expect the

indemnifying party to try to:

 Make the indemnification provision the

indemnified party’s exclusive remedy

for the covered claims. For a sample

sole and exclusive remedy clause to

use in an indemnification provision, see

Standard Clauses, General Contract

Clauses: Indemnification (OH): Section

2.6 (w-000-1141); see also Practice Note,

Indemnification Clauses in Commercial

Contracts (OH): Maximum Liability

(Limitation of Liability) (w-006-3791).

 Include a clause stating that the

indemnification does not apply to any

claim (whether direct or indirect) for

which a sole and exclusive remedy is

provided under another section of this

agreement (see the last sentence of

Standard Clauses, General Contract

Clauses: Indemnification (OH): Section 1.1

(w-000-1141)).

INTERPLAY OF INDEMNIFICATION

AND OTHER CONTRACT PROVISIONS

Be Mindful of Indemnity When Negotiating

Other Provisions

When negotiating the representations,

warranties, and covenants in an agreement,

the parties should carefully consider the

scope of the indemnification provision. For

example, if the parties remove or dilute the

indemnifying party’s covenant to comply with

applicable law, the indemnified party may

want to cover damages for breach of law in the

indemnification provision (see Section 1.1(d)).

For information on the relationship between

indemnification and representations,

warranties, and covenants, see

Practice Note, Relationship between

Representations, Warranties, Covenants,

Rights, and Conditions (7-519-8870).

Be Internally Consistent

When negotiating the indemnification

provision, the indemnifying party should

carefully consider the impact on and

implications of other contractual remedies,

such as contractual statutes of limitations

(see Standard Clauses, General Contract

Clauses: Contractual Statute of limitations

(OH) (w-000-1142)).

For additional information on this issue,

see Interaction Between Indemnification

and Other Contractual Remedy Provisions

Checklist (7-520-6530).

To avoid conflict and confusion, if the

indemnified party wishes the indemnity to

cover specific types of third-party claims, such

as a third-party claim based on breach of law

(see Section 1.1(d)), then it should either:

 Ensure any broad provision covering

breach of the agreement is broad enough

to cover the specific third-party claim.

 If the broad provision does not exist

or does not cover the specific claim,

include the specific claim under the

indemnification clause, and make sure

that it is consistent with:

z

any broader indemnification provision

covering breach of the agreement; and

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

1.2 [Notice of Third-Party Claims. Indemnified Party shall give notice to Indemnifying Party

(a “Claim Notice”) within [ten/[NUMBER]] days after obtaining knowledge of any Losses or

discovery of facts on which Indemnified Party intends to base a request for indemnification

under Section 1.1. Indemnified Party’s failure to provide a Claim Notice to Indemnifying Party

under this Section 1.2 does not relieve Indemnifying Party of any liability that Indemnifying

Party may have to Indemnified Party, but in no event shall Indemnifying Party be liable for any

Losses that result directly from a delay in providing a Claim Notice, which delay [materially]

prejudices the defense of the related third-party claim. Indemnifying Party’s duty to defend

applies immediately, regardless of whether Indemnified Party has paid any sums or incurred

any detriment arising out of or relating, directly or indirectly, to any third-party claim.]

z

the rest of the agreement, including

the limitation of liability provision. For a

sample limitation of liability provision,

see Standard Clauses, General Contract

Clauses: Limitation of Liability (OH)

(w-000-1253).

Sandbagging Provisions

While used more frequently in M&A

transactions, parties may find sandbagging

provisions useful in certain commercial

transactions.

Under these provisions, the indemnified

party reserves its right to bring

indemnification claims against the

indemnifying party for breach of a

representation, warranty, or covenant even if

it knew about the breach before the closing

and proceeded to close the transaction. For

an example of a sandbagging provision,

see Standard Document, Stock Purchase

Agreement (Pro-Buyer Long Form): Section

8.08 (4-382-9882).

Anti-sandbagging provisions ensure

the indemnified party cannot bring

an indemnification claim based on an

inaccuracy or breach of a representation

that it knew about before the closing

if it chooses to proceed and close the

transaction despite the inaccuracy or

breach of the representation. For an

example of an anti-sandbagging provision,

see Standard Document, Stock Purchase

Agreement (Auction Form): Section 7.04(g)

(3-502-5305).

For more information on indemnity for

breach of the agreement and other covered

claims, see Practice Note, Indemnification

Clauses in Commercial Contracts (OH):

Indemnities for Breach of the Agreement

(w-006-3791).

This provision is more favorable to the

indemnified party as compared to notice

provisions in many other indemnification

provisions because it does not require the

indemnified party to give notice in writing.

It also, in the second sentence, states that the

indemnified party’s failure to provide a timely

claim notice does not relieve the indemnifying

party from indemnification-related liability,

except to the extent that any delay materially

prejudices the defense of the related third-

party claim. However, the indemnified party

should expect the indemnifying party to

negotiate to delete this sentence in its entirety

or remove the word “materially.”

Note that Ohio courts generally agree that

“prompt, written notice” is a condition

precedent to indemnification rights (see

Bank One, N.A. v. Echo Acceptance Corp., 522

F. Supp. 2d 959, 966 (S.D. Ohio 2007). In

addition, if an indemnified party voluntarily

settles a third-party claim before seeking

indemnification, Ohio courts require that

the indemnified party give the indemnifying

party “proper and timely notice” of the

third-party matter (the settlement must also

DRAFTING NOTE: NOTICE OF THIRD-PARTY CLAIMS

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

1.3 [Indemnified Party Control of Defense. Notwithstanding anything to the contrary in this

Section 1, Indemnified Party may select its own legal counsel to represent its interests, and

Indemnifying Party shall:

(a) reimburse Indemnified Party for its costs and attorneys’ fees immediately upon request

as they are incurred; and

(b) remain responsible to Indemnified Party for any Losses indemnified under Section 1.1.]

be fair and reasonable) (see Thompsonv.

Smarthands Tech, 2014 WL 12709960, at

*2-3 (Ohio Com.Pl.)).

The indemnified party should also

expect the indemnifying party to require

it to set out the claim and the basis for

indemnification in detail in the claim notice.

For an indemnification-related notice

provision that includes provisions that are

more favorable to the indemnifying party,

see Standard Clauses, General Contract

Clauses: Indemnification (Unilateral;

Pro-Indemnifying Party) (OH): Section 3

(w-006-9859).

This optional provision recognizes control of

defense as a right, because by controlling the

defense, a party can better regulate its own

costs, expenses, reputation, and liabilities.

Without this control of defense provision, the

indemnifying party has the right to control

the defense. The indemnified party should

include this provision if it highly values

having control over the defense in light of

the circumstances. For example, if the buyer

determines that most potential indemnifiable

claims are likely to lead to an injunction or

other equitable relief, the buyer may insist

on selecting its legal counsel and controlling

its own defense. If representation by the

same counsel presents a genuine conflict of

interest between the parties, however, Ohio

law may grant the indemnified party the right

to select counsel (see Star Rent-A-Car, Inc. v.

Campbell, 2nd Dist. Montgomery No. 20083,

2004 WL 541140, ¶¶ 13, 14).

If the indemnified party includes

this provision, it should expect the

indemnifying party as the paying party to

insist on:

 Making the provision mutual. For a sample

indemnifying party control of defense

provision and related obligations of the

indemnified party, see Standard Clauses,

General Contract Clauses: Indemnification

(OH): Section 3.2 (w-000-1141) and Section

3.3 (w-000-1141).

 Capping its defense-related liability. For

a sample maximum liability provision in

an indemnification clause, see Standard

Clauses, General Contract Clauses:

Indemnification (OH): Section 2.3

(w-000-1141).

For more information about control of

defense, see Practice Note, Indemnification

Clauses in Commercial Contracts (OH):

Control of Defense Provisions (w-006-3791)

and Legal Update, Indemnification: Avoiding

Common Pitfalls: Control of Defense

Provisions (6-538-5805).

DRAFTING NOTE: INDEMNIFIED PARTY CONTROL OF DEFENSE

1.4 [Settlement of Indemnified Claims by Indemnifying Party. Indemnifying Party shall give

prompt written notice to Indemnified Party of any proposed settlement of a claim that is

indemnifiable under Section 1.1. Indemnifying Party may not, without Indemnified Party’s

prior written consent, settle or compromise any claim or consent to the entry of any judgment

regarding which indemnification is being sought hereunder.]

General Contract Clauses: Indemniﬁcation (Unilateral; Pro-Indemniﬁed Party) (OH)

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06-17

Most parties resolve their claims by entering

into a settlement agreement either

 Instead of litigating.

 After commencing litigation but before

judgment.

(See Standard Document, Settlement

Agreement and Release (OH)

(w-000-6189).)

Therefore, the indemnified party should

consider including Section 1.4, especially if

the indemnified party wants to review any

settlement to ensure that:

 The indemnified party is released from all

liability arising out of that claim.

 The settlement agreement omits any

admission or statement suggesting any

wrongdoing or liability on the indemnified

party’s behalf.

 The settlement agreement omits

anyequitable order, judgment,

or termthat affects, restrains, or

interfereswith the indemnified party’s

business.

If including this provision, the indemnified

party should expect the indemnifying party

to balk at having to get the indemnified

party’s permission to settle a claim for which

it is financially responsible. Therefore, the

indemnifying party may insist on one of the

following:

 The right to settle a claim without the

indemnified party’s consent if it:

z

releases the indemnified party from

liability;

z

omits statements suggesting

wrongdoing or liability on the

indemnified party’s behalf; or

z

omits an equitable order, judgment, or

term that affects, restrains, or interferes

with the indemnified party’s business.

 Making this provision mutual, especially

if the parties have agreed to also include

Section 1.3.

 Including “(not to be unreasonably withheld

or delayed)” after the term “consent.”

 A cap on potential liability and additional

costs.

DRAFTING NOTE: SETTLEMENT OF INDEMNIFIED CLAIMS BY INDEMNIFYING PARTY