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Editor's Note: In order to minimize the impact of supply chain disruptions, this clause provides that a purchaser may hold the vendor responsible for downstream claims through the contract's indemnity provision. This provides for purchaser's protection even if the vendor has claimed force majeure or other legal excuses.
Vendor agrees to indemnify, defend and hold harmless Purchaser, its Affiliates, and their respective directors, officers, employers and agents (collectively “Purchaser Indemnitees”) from and against any and all costs, fees, penalties, expenses, third-party damages, attorneys’ fees and all other liabilities to any third party whatsoever (“Losses”), arising out of any Claim against any Purchaser Indemnitee which arises from or relates to any actual or alleged:
(a) failure of Vendor fully and timely [to deliver Products conforming in all respects to the requirements of this Agreement] [to perform Services in strict compliance with the terms hereof], whether or not such failure (i) results from an Event of Force Majeure affecting Vendor as provided in Section X (Force Majeure) hereof or (ii) would be excused under any other contractual defense or principle such as impossibility or impracticability of performance or frustration of purpose; or
(b) breach or violation of any covenant or other obligation or duty of Vendor under this Agreement or under applicable law;
in each case whether or not caused in whole or in part by the negligence of any Purchaser Indemnitee and whether or not the relevant Claim has merit.
Comment: An indemnification provision in a commercial contract provides a contractual remedy to redress a party's liability or financial loss suffered as a result of a claim, typically by a third party, that results from an action, inaction or breach by the counterparty.
An indemnification provision generally supplements the remedies already available to a party by operation of contract, tort, or other law. However, it can be drafted to expand a party's liability by providing recovery for losses incurred or claimed by third parties or for events that would not otherwise constitute a cause of action under contract or tort law.
A party's contractual performance may be qualified and liability to the counterparty for non-performance may be excused upon the occurrence of certain events agreed upon by the parties, commonly referred to as “force majeure events” or “events of force majeure.” Such events typically include natural disasters, government-related actions, civil disturbances, party-specific occurrences including fires, power outages, labor and machinery issues, and a “catch-all” other circumstances outside the reasonable control of the affected party. They may also refer to pandemics and epidemics.
Depending on the language of the particular force majeure provision, parties invoking the protection of a force majeure clause during the Covid-19 pandemic were not liable to their counterparties for their inability to perform. The counterparty, as a result, shoulders all or part of the consequences of such non-performance, including potential claims from the counterparty's own customers that arise in connection with the excused performance, unless its own contracts with customers provide a similar excuse.
Some purchasers are addressing this situation by negotiating a modification to the contract's indemnity provision to impose liability on the vendor for third-party claims notwithstanding the force majeure excuse.
Example Clause Search: For additional precedents, access our Transactional Precedent Database of Third-Party Indemnification Claims clauses in publicly filed commercial agreements.
Value/Risk Analysis: The inclusion of an indemnity clause such as above is beneficial to the purchasing party since it shifts certain liability exposures that result from a claimed force majeure condition back to the party invoking force majeure. In the absence of such a provision, the purchasing entity risks responsibility for claims asserted by third parties, including its contractual counterparties, that result from the supply chain breakdown.
• Definitions of Affiliate and Claim
• Force Majeure