An MOU establishes the foundational understanding between parties prior to definitive agreements. This playbook reviews negotiation of commitments, timelines, and governance structures.
Why This Matters: Without precise indemnification terms, parties may face open-ended liability for third-party claims. Clear indemnity provisions are critical to controlling potential financial exposure.
Negotiation strategy
If you're the Party A:
Negotiate for a cap on indemnification liability to limit financial exposure. Ensure exclusions for indirect damages and require prompt notification of claims.
If you're the Party B:
Seek to include broad indemnification obligations to cover all potential liabilities. Aim to limit exclusions and ensure the right to control defense of claims.
Essential elements
1
Indemnification Obligations
Compensation for losses and liabilities.
2
Limitations on Indemnification
Caps and duration of liability.
3
Exclusions from Indemnification
Exceptions to indemnity obligations.
Action framework
ACCEPT
Propose edits to include specific caps and exclusions that align with industry standards.
EDIT
Reject clauses that impose unlimited liability or lack clear exclusions.
ADD
Add language to address specific liabilities or jurisdictions not covered.
PRO TIP
Always ensure indemnification clauses are reviewed by legal counsel to align with jurisdictional requirements.
Example clauses
FAVORABLE
Balanced Indemnification Clause
"Each party agrees to indemnify the other for losses arising from breaches, subject to a cap of $1 million."
NEUTRAL
Standard Indemnification Terms
"The Indemnifying Party shall indemnify the Indemnified Party for any third-party claims."
UNFAVORABLE
Unlimited Indemnification Liability
"The Indemnifying Party shall indemnify for all losses without limitation."
Fallbacks
High-Risk Projects
In high-risk projects, consider increasing the indemnification cap and including specific liabilities related to project risks.
Cross-Border Transactions
For cross-border deals, ensure indemnification terms comply with international laws and address currency fluctuations.
Technology Agreements
In tech contracts, include indemnification for intellectual property infringements and data breaches.
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