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I’m not sure I understand your question, but here are a few tips I give my contracts teams:
1. Understand what you are contracting for and how the contract/relationship is structured overall. I’m amazed at how infrequently we are provided with this information, but the analysis changes materially based in the risk profile of the work. What is the nature of the work? Where is performance to occur? What’s the deal with IP? Etc.
2. Understand what indemnification and limitations of liability mean. They’re related but independent clauses. I’d do some reading online to really wrap your head around the concepts and what they mean from a practical perspective. If you’re struggling, talk to outside counsel or someone more senior in your organization, or look for CLEs.
3. For limitations of liability, the posture of the agreement matters quite a bit. What you want as a prime will look much different than what you want as a sub. As a sub, we will carve out all indirect/special/consequential damages and push for a reasonable cap tied to the contract value. We typically come in at the funded value of the contract, but often settle for something like 2x the funded value or whatever. If a prime is pushing, we might carve out separate LoL for hot button issues like infringement or
breaches issues.
4. For indemnification, think both about what is appropriate to be indemnified for and the practicalities of how that would operate. Who do you want to control the litigation strategy? The indemnified party usually has authority to approve any settlement, but you might want more involvement if there are non-monetary issues at play (reputation, etc.). Who selects counsel? Who runs the show?
5. Check the agreement for hidden LOLs and indemnification obligations. These are frequently folded in to IP clauses, but I saw one yesterday in a non-compete clause as well.
Loop in the litigators and they’ll help. I’m on the litigation team at my company and I’m always being looped in on these terms negotiations to help balance the risk.
I remember having the same issue when I started. You can have your LOL apply across the board, including to indemnification provisions, or you can carve some or all indemnification provisions our of the LOL. This might be helpful. https://btlaw.com/insights/blogs/policyholder-protection/2016/insurance-indemnification-and-limitation-of-liability-provisions-in-business-contracts
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Thank you very much, I’m reading these now and they’re really helpful.
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Broadly speaking, indemnification is for third party claims and I’ll always carve out direct claims. LOL is for direct claims and I always see indemnification obligations carved out (or people trying to do that).
I'm a in-house construction lawyer, and it drives me nuts seeing clients try to include 'indemnity' for breach of contract. The concept of 'indemnity' is (and should remain) a third-party issue.
Honestly not sure what you mean. You could make a higher limit for indemnification or carve indemnification out of the limitation entirely, just depends on your risk profile and negotiating leverage.
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I was in your shoes not too long ago.
You should familiarize yourself with your company’s basic agreement and also review other recently negotiated agreements for context.
Ask your team and manager what the level of concession that you are allowed to offer. Usually that will come in a combination of different mix of indemnification and LOL and carveouts based on the size of deal, customer type etc.
Honestly speaking, basic commercial contracts are not too complicated. (Not the really long and convoluted ones) Once you do a few you should be able to pick up pretty quickly.
Personally not a big fan of commercial contract reviews but it pays the bills…
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Thank you so much!!
If I’m the “downstream” party, I always strike breach of contract from indemnity, and object to indemnity being carved out of the LoL. If I’m upstream, I insist on indemnity being carved out of LoL (especially if I’m the prime and need to flow-down indemnity obligations to a sub). If there are roughly equal obligations flowing or risks from the other side, I’ll propose mutual indemnity and LoL language, and that typically gets everyone to a more reasonable place.
Thank you!!
Question: if a party's indemnification obligations are not excluded from the LOL cap, does that mean the cap limits the party's indemnification obligations to cover the cost to defend against third party claims?
I have been in your shoes, and would recommend all of the approaches that have been said so far. Once you learn it and have some experience doing it, it will become second nature to you. these topics are not things that are best learned in the abstract, in my opinion. Actually negotiating and doing the work to break down the clauses really helped me learn.
Agree with what everyone else has mentioned so far and apply much of this myself. Asking for a list of negotiated positions (if available) is always super helpful and will give you an idea of what the most important issues are for your company. Tiered indemnity has always worked well for me…e.g., unlimited for gross negligence, willful misconduct, fraud (and often IP); super cap on most of not all indemnification obligations (typically insurance limits), and then one to five times annual contract value for everything else. Always third party.
When redlining this is a really important area to utilize comments. So often if you are on the vendor side, the attorney on the other end doesn’t have a full understanding of what the risks to either side really are because no one has told them (my experience at least).
Also, if you are running into an issue with a large company with superior bargaining power noting they have policy xyz are LoL, you can always try to claw stuff back in other areas. Reduce your warranties, only indemnify to the extent you are at fault, etc.
As others have noted, these two get a lot easier after about a month, and six months in you’ll have it down pat, just keep asking questions and learn the business side of things.
*no one has told the client side attorney what it is your product really does, so they cannot really properly assess the risks. (edit)
Out of curiosity, has anyone ever had a tender for contractual defense and indemnity accepted without having to litigate it?
I rarely have to fight about removing it but that's because I'm the government and me saying no its illegal to agree to this usually ends the discussion