Tech contracts use indemnities to address third party lawsuits. The indemnitor promises to defend a lawsuit against the indemnified party and to pay any judgments. (Those terms imply that the indemnitor will pay for settlements too — and many contracts make that explicit.) Given that structure, a “mutual indemnity” makes no sense.
[We’ll discuss this and more in our April 4 webinar on indemnities. You can register here.]
One indemnifies, the other is protected
For every indemnified claim, one party must indemnify while the other is protected. Why would anyone want each party to defend the other against the same claim? “Mutal” makes no sense.
The two parties can indemnify against similar third party claims. For instance, the vendor indemnifies IP claims against the customer related to the customer’s use of the vendor’s SaaS. And the customer indemnifies IP claims against the vendor related to content the customer posts on the vendor’s systems. So they’re both covering IP claims. But they’re indemnifying different IP claims. There’s nothing mutual about it.
No matter how similar the indemnified claims may be, they’re not the same — or the clause makes no sense. Even if you jam the two parties’ indemnities into a single sentence, the two still indemnify different claims. Here are two indemnities in a single sentence: “Each party (‘Indemnitor’) shall indemnify and defend the other (‘Indemnified Party’) against any third party claim arising out of or related to a Data Incident resulting from Indemnitor’s negligence or breach of this Agreement.” That’s not a mutual indemnity. Party A indemnifies claims about data incidents related to Party A’s negligence or breach. Party B indemnifies a different set of claims: about data incident claims related to Party B’s negligence or breach. That’s two separate types of claim. (They could overlap, and if so, you’ve got trouble. But at leats you tried to separate them.)
Semantics, but not really …
This may seem like semantics. Can’t we just call the indemnity “mutual” if each party covers similar claims (IP, data incident, etc.)? Yes, I suppose, but that’s a confusing way to put it. Worse, contract-drafters often say “mutual” because they misunderstand. And that leads to bad drafting. “Each party shall indemnify and defend the other against any third party claim of personal injury or property damage.” That’s a potential trainwreck because you can’t tell who indemnifies and who’s protected.
Join us for our April 4 webinar on indemnities. You can register here.
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