Briefly

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00:07
Adam Stofsky
David, in talking about these complex contract terms, indemnities, indemnification, it seems like one of the most common indemnities out there has to do with lawsuits from other people. I'll defend you or pay damages if you get sued. I feel like these show up all the time and they're pretty confusing. So can you kind of walk us through what those mean, how to interpret them and how they're used?

00:35
David Tollen
Yeah, they are confusing. So what you're describing is sometimes called a third party indemnity, and they distinguish that from a third party indemnity. So in a first party indemnity, you're saying if a particular type of loss happens and you lose some money, like there's an accident in our warehouse, we'll reimburse you, we're going to cover your damaged equipment costs, whatever it might be.

01:00
Adam Stofsky
You're meaning, like I have a contract with you're selling me some stuff and you're going to deliver it to the warehouse. And I say, look, if at our warehouse your truck gets damaged, we're going to pay for that.

01:11
David Tollen
That's right. That would be often called a first party indemnity. Third party indemnity is essentially the same thing. But the loss that you're concerned about is not we're gonna have a broken truck, we're gonna lose equipment, something like that. It's that whatever happens is gonna lead to a third party suing us. And so the indemnity says the loss we're gonna cover you for is the cost of that third party lawsuit. If there's an accident in our warehouse and there was a, you know, your truck was delivering stuff to our warehouse and it was an accident and damaged the truck, and you had a passenger in the truck and the passenger was injured, and. And so sues you trucking company, if something like that happens, we're covering you. That is a third party indemnity.

01:59
David Tollen
And what it says is that we, the warehouse company, will indemnify you against the cost of that lawsuit. You know, any damages that the court awards to the third party, damages that the court says you, the trucking company, have to pay, we, the warehouse company, are going to pay those damages. Usually that also automatically means that the indemnitor, in this case, the warehouse company, is going to defend the case, they're going to pay. Pay for lawyers to do that. Often indemnity clauses will get real specific on that. You say indemnify and defend third party lawsuits. So, yeah, we're going to pay for the lawyers. We're going to defend the suit. If there's a settlement, we're going to pay it. That's a third party indemnity. You're not actually making a promise to the third party.

02:48
David Tollen
What you're doing is saying if a third party sues you, the other contracting party, the indemnified party, we're going to cover your losses related to that lawsuit.

02:59
Adam Stofsky
Right. So you have no relationship with this third party. You don't even know who they are or if they even exist. You're saying if someone sues, it's almost like saying, hey, sue us. Instead, we're over here. Sue us, because we're going to make it like you didn't get sued. We're going to deal with the defense, we're going to pay the damages.

03:16
David Tollen
You probably don't want to quite say sue us, but yeah, you're diverting the problem from the indemnified party to the indemnitor, and you're dealing with that fact. I mean, indemnity is a solution. Third party indemnity is a solution for the fact that there's other people aside from the two contracting parties who could be impacted by this relationship. And one of those other people might file a lawsuit. We can't limit the liability for that, govern how that's going to happen. We can't deal with that within our contract because that third party plaintiff, whoever it might be, passenger in the truck, whatever, isn't signing this contract. So the indemnity is a way for the parties to address how one might protect the other against that kind of dispute, against that kind of cost.

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