Cross indemnity

What is Cross Indemnity?

Cross indemnity is a legal agreement between two or more parties where each party agrees to indemnify, or compensate, the other(s) for certain losses, damages, costs, or expenses that may arise in connection with a specified activity or contract. This reciprocal arrangement usually seeks to ensure that each party takes responsibility for its own actions or omissions, even as they work together.

In essence, cross indemnity clauses are designed to provide mutual protection and to allocate risks between the involved parties. These terms generally mean that if one party is held liable for something, the other party will bear the risk or cost associated with that liability as per the agreed terms.

When should I use Cross Indemnity?

Cross indemnity clauses should be used when:

• Both parties are engaging in activities that might expose them to third-party claims or liabilities. This often applies in industries such as construction, technology, or manufacturing where different parties collaborate on a project.
• There is a need to define clear responsibilities and liabilities. This helps prevent disputes by laying out who is responsible for what in the event of a loss or claim.
• The parties wish to maintain a balance in terms of risk allocation. By having cross indemnities, both parties feel more secure in their responsibility, knowing they’re protected against certain risks caused by the other.
• It is necessary to comply with legal or insurance requirements. Often, cross indemnities are required under law or as a condition for obtaining certain types of insurance.

How do I write Cross Indemnity?

When drafting a cross indemnity clause, consider the following key components:

1. Identifying the Parties Involved: Clearly identify the parties who are entering into the indemnification agreement.

2. Scope of Indemnity: Define what types of losses, damages, costs, or expenses are covered. Be specific about scenarios, such as third-party claims or breaches of contract.

3. Reciprocal Obligations: Make sure that the indemnities are indeed reciprocal, with clearly iterated duties for each party.

4. Limitations and Exclusions: State any limitations on the indemnity, such as maximum liability caps, and specify any exclusions.

5. Procedural Requirements: Outline the process for making an indemnity claim, including notification periods and documentation requirements.

6. Legal Compliance: Ensure the clause conforms to relevant laws and regulations, taking into account jurisdiction-specific requirements.

Example: Party A agrees to indemnify and hold harmless Party B from any claim, demand, suit, or proceeding brought against Party B to the extent that such claim arises out of Party A’s negligence or willful misconduct. Conversely, Party B agrees to indemnify and hold harmless Party A from any claim, demand, suit, or proceeding brought against Party A to the extent that such claim arises out of Party B’s negligence or willful misconduct.

Which contracts typically contain Cross Indemnity?

Cross indemnity clauses are commonly found in:

• Joint Venture Agreements: To allocate risks and liabilities between partners.
• Construction Contracts: To handle potential liabilities arising from construction activities.
• Service Agreements: Especially in cases where services provided might impact third parties.
• Partnership Agreements: Where mutual indemnification is necessary for collaborative operations.
• Technology Licensing Agreements: When licensees and licensors need to protect against infringements.

In these contracts, the cross indemnity tends to facilitate cooperation by clearly delineating responsibilities and potential liabilities.