Business contracts can become quite complex in Louisiana, and this can lead to considerable confusion for veteran and new entrepreneurs alike. However, this complexity serves a purpose – with each detail offering unique protections and benefits. Indemnification clauses represent a prime example of this “useful complexity,” and it makes sense to gain a solid understanding of how they work in the business world. With indemnification clauses, businesses in Louisiana may be able to manage risk more effectively. However, these contractual tools are only effective when utilized correctly. To discuss this subject in more detail, consider calling the experienced Louisiana business attorneys (504) 446-6506 to speak with The Business Law Group. 

What Is a “Clause?”

A clause is a section of a contract. When written correctly, these sections address highly specific concepts to eliminate any potential confusion. They may include careful definitions of various words, ensuring that all parties understand the concepts being addressed. They may also highlight the specific terms of the agreement. These terms may include not only the rights and protections of the parties, but also their obligations, responsibilities, and duties. In addition, a clause may lay out specific financial penalties for certain violations, acts, or breaches. This last point is particularly important when understanding indemnification clauses. 

What Does “Indemnification” Mean?

Although the word “indemnification” might sound complicated, its definition in plain English is quite simple. Indemnification simply means compensation. “To indemnify” is to compensate someone for some kind of harm or loss. In other words, indemnification is the act of providing money for a negative outcome. Indemnification may also refer to a more general process of providing “security” against harm, losses, or damages. 

The Definition of an Indemnification Clause

With a clear understanding of the terms “clause” and “indemnification,” the definition of an “indemnification clause” becomes fairly straightforward. This is a section of a contract that lays out the circumstances in which one party will compensate another party for harm. In the business world, companies may incur many different kinds of “harm.” 

When Might a Company Need an Indemnification Clause?

Indemnification clauses can fulfill many roles, and business leaders may rely on them for various reasons. However, the most common use has to do with liability – and most indemnity clauses protect one party against lawsuits. These clauses effectively force one party to cover all legal costs, including settlements, jury verdicts, and legal fees stemming from liability claims. 

An indemnity clause can potentially force one company to cover the risk of a lawsuit – even if the lawsuit arises due to the negligence of the other company. For example, one company might agree to distribute 4,000 chainsaws manufactured by another company. The manufacturer might then agree to an indemnification clause agreeing to accept full responsibility for product liability lawsuits filed by injured customers. 

Can Companies Manage Risk With Indemnification Clauses?

Indemnification clauses allow companies to “customize” the amount of risk they are willing to undertake in a single commercial transaction. Without this type of security, the losses associated with potential harm would be unknown. This is especially important in the context of personal injury and other civil claims, as a jury could potentially award a plaintiff any amount. The unpredictable nature of a civil trial makes indemnification clauses particularly useful for companies likely to face lawsuits in the future. 

However, it is important to note that a company cannot simply dictate whatever terms they like when creating a business contract. These agreements are only valid if both parties consent and provide their signatures without coercion or deception. Indemnification clauses may go through various revisions throughout the negotiation process. Effective legal representation during these negotiations can help parties reach agreements that serve their mutual best interests. Contact The Business Law Group to learn more about negotiation strategies while drafting commercial contracts. 

Are Indemnification Clauses Enforceable in Louisiana?

Each state has its own unique laws regarding indemnification clauses, and Louisiana is no exception. With a system based on French Foundational Law, Louisiana often enforces very different regulations compared to other “British Law” states. As the Library of Congress notes, Louisiana is the only jurisdiction in the United States that still follows French laws originating from the Napoleonic period. This is something that companies must be aware of when doing business in the Pelican State. 

The Louisiana “Anti-Indemnity” Statute Explained

Louisiana limits the enforceability of indemnity clauses in specific situations. Its “anti-indemnity statute” has prompted many to call Louisiana a “limited-form indemnity jurisdiction.” 

• Limits on Indemnity Clauses in Construction Contracts: Various indemnity clauses in construction clauses are prohibited, specifically in regard to relationships between subcontractors and general contractors. A general contractor cannot force a subcontractor to pay them compensation for any liability claims due to its own negligence. 

• Limits on Indemnity Clauses with Public Entities: A public entity in Louisiana cannot use an indemnity clause to force another party to cover its liability. Conversely, a private entity cannot force a public entity to cover its liability with an indemnification clause. 

Generally speaking, the Louisiana State Legislature bans many companies from shifting responsibility onto others for their own negligence. If a company causes an injury or loss to another party, they may need to accept any resulting losses as their own. However, the enforceability of indemnification clauses in Louisiana is a complex and nuanced subject. To discuss these details with greater clarity, companies have the option to work with an established business law firm in Louisiana – such as The Business Law Group. 

Contact The Business Law Group Today

Indemnification clauses represent only one contractual tool among many. An experienced business law attorney in Louisiana may be knowledgeable about numerous clauses, and they may be able to help business leaders create highly customized business contracts that serve specific goals. While internet research may provide a general understanding of various clauses, no amount of reading can provide a targeted Louisiana business contract that fulfills a specific role in the business world. One way to get started with business contracts is to book a consultation with The Business Law Group. Call (504)446-6506 to continue this discussion in more detail.