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How to Deal with Warranty and Indemnification Clauses

August 13, 2012

Tags: ASJA, indemnification, indemnity, warranty, warranties, settlement

The following appeared as a position paper on the ASJA website in 2003 and is reprinted here with ASJA's permission--and the warning that it may be out of date (but may alert you to potential problems). This is NOT a clause you want to accept lightly. You may want to run a warranty or indemnity clause in a writer's contract past a lawyer or someone knowledgeable about contracts.

Warranty and indemnity (a/k/a indemnification) clauses can be among the most onerous of contract provisions that writers today may encounter. Exact language may vary, but typically these zingers involve some variation on the theme: "you will indemnify and hold harmless the publisher against any and all claims or actions arising out of a breach or alleged breach of the foregoing warranties..." What do "warranty" and "indemnification" mean and how should you deal with such clauses?

In legalese, when you "warrant" something, you're making a representation that the other party can rely on as being true. Warranty clauses in publishing contracts often start out with fairly reasonable representations: that the work hasn't been previously published and you aren't plagiarizing someone else's writing, for example. No problem there. But keep reading. They often go on to say that you warrant the work "contains no defamatory, libelous, or unlawful matter and Publisher's exploitation of its rights shall not violate or infringe any copyright rights, rights of privacy and/or publicity, or ANY OTHER statutory, common law, or other rights of any party," or words to that effect. Hmmm. Can you really represent that no portion of your article violates ANY provision of law in 50 states or any country on the World Wide Web? Or that your writing or the publisher's use "will not violate or infringe upon" such a wide range of possible 'rights'? Of course not.

Yet that indemnity clause puts serious financial teeth behind just such a warranty -- and the bank account they bite will be your own!! By "indemnifying and holding harmless" your publisher (and also, depending on how broadly written the provision is, the publisher's officers, directors, employees, agents, licensees, and others), you're agreeing to pick up the tab for warranty-related claims. The bottom line, of course, could include not only lawyers (at hundreds of dollars an hour) but also court costs and ultimately damage awards. Worse yet, under many of these clauses, you're agreeing to be liable for such costs on "all claims," a catch-all phrase that includes EVEN COMPLETELY FRIVOLOUS CLAIMS!

A HISTORICAL PERSPECTIVE:
Some say indemnity clauses first appeared in book publishing contracts (where, because of the dollar amounts potentially involved, they may make more financial sense) and were later imported by over-eager counsel into magazine publishing. Recent reports suggest that many mainstream magazines are no longer routinely inserting indemnity clauses in their standard magazine publishing contracts. Whether this reflects these publishers' even-more-onerous predilection for all-rights contracts or a more reasonable assessment of the parties' respective rights and obligations remains to be seen.

YOUR POSITION & POSSIBLE RESPONSES:
Short of actual misconduct on your part (for which of course you SHOULD be held accountable), it's obviously unfair to ask a writer to underwrite defensive litigation -- this is a sad cost of doing business for the publisher.

As you negotiate, remember that (unless you're a John Grisham) the publisher probably doesn't REALLY EXPECT to look to your assets to bankroll defensive litigation. And you can point out that most publishers these days already carry libel and other forms of insurance to cover precisely such business contingencies. If you are presented with a publishing contract that includes a broad indemnity clause, the experience of other ASJA members suggests a variety of possible responses:

1) Suggest that the clause be deleted. That's right -- ask to strike the offending 'graph in its entirety. Point out that many major magazine publishers no longer insist on including such dreadful language. Highlight the respective financial abilities of the parties to defend potential suits. Inquire about whether the publisher already carries libel and other business liability insurance. Ask whether the publisher actually expects it would GET anything if it pursued a writer's assets. Question whether the magazine really wants impartial reporting -- and point out the "chilling effect" these clauses can have on honest (or even mildly negative) reporting where controversial issues are involved.

2) Limit your warranties to a "best of your knowledge" standard. To those onerous representations that no portion of your article violates ANY provision of law -- or that your writing or the publisher's use "will not violate or infringe upon any rights of privacy and/or publicity or any OTHER rights of any party" -- add six magic words as a qualifier: "To the best of Writer's knowledge." ASJAers report that many magazines routinely accept such a change to their boilerplate contract, perhaps because it makes such obvious sense.

3) Limit your obligation to FINAL JUDGMENTS. Emphasize that you don't intend to pick up the cost of defense for every frivolous lawsuit that comes down the pike. One more set of magic words: "provided that such liability is finally established by a court of competent jurisdiction, and that such judgment is sustained after all appeals have been exhausted." Translation: You refuse to bear responsibility for the modern-day business reality of frivolous lawsuits. You'll pick up the tab ONLY if there is a judgment saying you screwed up -- and provided the appeals courts ultimately agree. (Note: If you lose at the trial level, you may need to be prepared to PAY for those appeals. And see footnote below about settlements.)

4) Consider purchasing professional liability insurance. Particularly if you write in highly lawsuit-prone areas (such as true crime) you may want to consider obtaining your OWN insurance. The National Writers Union, for example, offers its members affordable coverage that includes libel, copyright infringement, and a handful of other claims. Sure, it's annoying to have to pay to cover a risk that arguably belongs to the publisher. But if it helps you sleep at night, it's a bargain. PLAN B: Find out if it is possible to "tailgate" on the publisher's liability insurance policy by having you named as an "additional insured."

5) LIMIT your warranties to what you yourself (and not your editor) wrote. Here's language one ASJA member inserted in his book contracts: "The parties agree that the foregoing warranties do not and will not apply to modifications of or additions to the text or illustrations made by the Publisher without the Author's knowledge or over the Author's objection." You might even just put a period after "Publisher."

6) LIMIT your potential liability to the contract price. This same ASJAer adds the following clause: ". . . provided that the Author's liability hereunder is limited to the total sums payable to the Author under the terms of this Agreement" and, in the case of a book, "for the edition or printing of the Work in which the breach is alleged to have occurred." On a $1,000 magazine article, that means your potential liability could be $1,000 -- not the roof over your head. A side note here: if the publisher does agree to such a limitation, make sure subsequent paragraphs don't undo that protection with broader, conflicting language.

CONCLUSION: The proliferation of indemnity clauses, especially in the magazine world, appears to be another case of lawyerly overkill. Don't get caught without a flak jacket. Insist on modifying the contract terms until you feel the risk you're assuming is acceptable.

A FOOTNOTE ABOUT SETTLEMENT: Worried that a publisher might decide to settle in an effort to keep costs down -- and that that might reflect badly on you? Sad fact of life: the publisher will typically be a separate party in any lawsuit, so its decision to settle (or not) will not be yours to make. Often, the publisher's deeper pockets are a more appealing target -- and give the publisher more inclination to settle. But settlement may well be in your best interest as well. The vast majority of cases DO settle before trial, often for purely financial reasons. And most settlement agreements stipulate that even if money is paid, it is "not an admission of any guilt or wrongdoing but solely in an effort to resolve a disputed claim."

Now the bad news: If a publisher settles AND you've signed an indemnity agreement, you may be sent a bill for the settlement amount. Sure, you can try to fight it -- by continuing your part of the lawsuit in hopes of proving at trial or on appeal that you weren't at fault, for example, or by arguing that your agreement with the publisher is unenforceable. But it can be a costly battle.

(Pat McNees was on the contracts committee that went through several drafts, chiefly written originally by Karen Dustman, before arriving at this version. Many thanks to Karen and to Sue Russell. Let me know if I have forgotten others!)

What indemnity provisions mean in contracts (Legal Ease, Film Independent, outlining the parts for which you should fight to narrow your reps and warranties, thereby giving the indemnity provision less bite)

Comments

  1. August 15, 2014 2:13 PM EDT
    Thank you. I can currently find very little work anymore that doesn't come with these dangerous clauses. The publisher's attorneys advise against any change the author suggests unless the writer gets another attorney involved.
    - Brenda
  2. November 2, 2014 8:58 AM EST
    Thank you, Pat.

    Instead of "provided that such liability is finally established by a court of competent jurisdiction, and that such judgment is sustained after all appeals have been exhausted", "provided that such liability is finally sustained" is all that is needed.
    - Michael S. Altus, PhD, ELS

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