Indemnity vs Breach of Contract Claim in a SaaS Terms of Service?
When negotiating a saas terms of service (representing the vendor of course), I am often trying to explain to my client the difference between an indemnity and a breach of contract claim. I have been noodling on this for years, trying to figure out a simple way of explaining probably the most complex contractual legal concept that exists (by the way, I am not sure I have nailed the explanation, but hopefully this is a good start when negotiating your saas terms of service).
So here goes (shortcut: it is all about the $). The key differences are as follows:
INDEMNITY:
(1) the VENDOR must spend $ to defend the CUSTOMER (or vendor will incur liability under the indemnity ($ to be paid in the future)), even before it is proven that the vendor is at fault, and
(2) the VENDOR has very few defenses to a claim.
Think about it this way: the vendor has to spend $ defending the customer from the claim and the customer does not have to spend any $ to make this happen. Now you know why customers want indemnities for everything. So the customer may act early to drag a vendor into a case without a lot of confidence of the vendor’s fault (i.e. weak evidence or proof of wrongful conduct).
BREACH OF CONTRACT:
(1) the CUSTOMER must spend $ to sue the VENDOR,
(2) the CUSTOMER has the burden of proof, and
(3) the VENDOR has several …