Indemnification provisions in service agreements typically require one party (the “indemnifying party”) to compensate the other party (the “indemnified party”) for any losses, damages, or expenses incurred as a result of a third-party claim arising out of the indemnifying party’s performance under the agreement. The purpose of these provisions is to protect the indemnified party from legal liability arising from the actions of the indemnifying party.

Limitation of liability provisions, on the other hand, seek to limit the amount of damages that one party can recover from the other party in the event of a breach of the agreement or other legal claim. These provisions may include a maximum dollar amount of damages that can be recovered, or they may exclude certain types of damages from recovery altogether.

Both indemnification and limitation of liability provisions are commonly found in service agreements, and they can be important tools for managing risk and protecting the parties’ interests. However, these provisions can also be controversial and may be subject to legal challenges if not drafted carefully.

There are a number of important points to consider when negotiating indemnification and limitation of liability provisions in a service agreement. Some of the most important points to consider include the following:

Scope of indemnification: It is important to clearly define the scope of the indemnification obligation, including which parties are covered by the indemnification, and which types of losses, damages, or expenses are covered.

Exclusions from indemnification: You may consider excluding certain types of losses, damages, or expenses from the indemnification obligation, such as indirect or consequential damages.

Limitation of liability: Consider whether you want to include a maximum dollar amount for the damages that can be recovered in the event of a breach of the agreement or other legal claim.

Survival of indemnification and limitation of liability provisions: It is important to consider whether these provisions will survive the termination of the agreement.

Insurance requirements: You may want to consider requiring the indemnifying party to maintain insurance coverage for the benefit of the indemnified party.

Waiver of consequential damages: You may want to consider whether to waive the right to recover consequential or indirect damages, such as lost profits or loss of business opportunity.

Here are some tips on how a client can negotiate favorable terms under indemnification and limitation of liability provisions in a service agreement with a service-providing vendor:

Clearly define the scope of the indemnification obligation: The client should clearly define the scope of the indemnification obligation, including which parties are covered by the indemnification and which types of losses, damages, or expenses are covered.

Exclude certain types of losses from indemnification: The client may want to consider excluding certain types of losses, such as indirect or consequential damages, from the indemnification obligation.

Limit the maximum dollar amount of damages that can be recovered: The client may want to consider including a maximum dollar amount for the damages that can be recovered in the event of a breach of the agreement or other legal claim.

Require the vendor to maintain insurance coverage: The client may want to require the vendor to maintain insurance coverage for the benefit of the client.

Waive the right to recover consequential damages: The client may want to consider waiving the right to recover consequential or indirect damages, such as lost profits or loss of business opportunity.

Negotiate a fair allocation of risk: The client should try to negotiate a fair allocation of risk between the parties, taking into account the relative bargaining power of the parties and the potential costs and benefits of the indemnification and limitation of liability provisions.

It is important to seek legal advice when negotiating these provisions to ensure that they are fair and enforceable.