(please click ad for more information)

Current News

Relevant Information—For You, By You

INDEMNIFICATION CLAUSES: IMPORTANT?
updated 04/05/13 08:41 PM
Limit Your CU's Liability
It has become increasingly common to learn of credit unions being targeted with patent infringement lawsuits.

Whether the lawsuit is by an opportunistic patent holder merely seeking a quick buck (such as patent trolls) or the lawsuit is based on legitimate infringement of a patent, such lawsuits represent a significant threat to any defendant. Patent suits are, by nature, extremely expensive and time consuming.

When the focus of the patent infringement is within a product or service provided to or on behalf of a credit union by a vendor, protecting the credit union from these and other types of lawsuits often depends on a properly drafted indemnification clause.

Recommendations
A credit union should obtain a copy of the proposed contract at the beginning of the due diligence/negotiation process as opposed to waiting until the business terms are agreed upon. Attorneys stress that contract terms are as equally important as the business terms and should be negotiated in unison.

A credit union should also inform vendors from the onset of the negotiation process that it expects the vendor to "stand behind" its product and/or service. This means the credit union should demand indemnification from the vendor (or its agents, employees, subcontractors) not only for patent infringement, but also copyright and trademark infringement.

Furthermore, the credit union should demand indemnification against claims made by any third party which arises due to the vendor's (or its agents, employees, subcontractors) breach of the contract, negligence, and/or willful misconduct.

Elements of a Good Clause
The key to a good, properly drafted indemnification clause is to:

  • List all types of claims covered (patent infringement, etc.).
  • Include a specific obligation on the vendor’s part to defend all third-party claims arising from those claims covered. This is important to immediately shift the burden of defense from the credit union to the vendor. Without a specific obligation to defend, the vendor has no duty to provide a defense, and the credit union’s recourse would be to fight the claim and then seek reimbursement from the vendor.
  • Provide for approval of the vendor's defense team (attorney) with a right to remain apprised of all activity, and have a say in the settlement of any claim.

Limitation of Liability
Care must be taken if the contract has a limitation of liability section. Without a "carve out" for indemnification obligations, a vendor's maximum indemnification obligation would be up to the limitation negotiated.

This could leave the credit union liable to the third-party claimants for all amounts in excess of the limitation, even though the credit union had nothing to do with the issue under which the claim was made.

Therefore, limitation of liability sections are equally important to review and negotiate, as are indemnification clauses.

A Reminder
Recent lawsuits serve as a reminder to credit unions of the importance of having contracts reviewed by an attorney, not only for proper indemnification clauses, but to help limit credit union liability.

 
print   email   share   share   share

CUs ACROSS THE GLOBE HONOR ICU DAY updated 10/16/14 10:26 AM
Today Marks The 67th Celebration
Credit unions around world are coming together in honor of International Credit Union Day—a celebration that started back in 1948 to reflect upon the industry’s rich history and to promote its achievements and impact. It is also a time to honor those who have dedicated themselves to movement and show appreciation to all credit union employees and members.

ECONOMY: JOBS AND HOUSING IN FOCUS updated 10/14/14 09:55 PM
Past Performance No Guarantee of Future
Jobs and housing drive many components of the credit union business. So how are we faring in California and Nevada?

CONGRESSMAN SHERMAN ON 'REACH' PANEL updated 10/14/14 09:38 AM
Will Discuss Supplemental Capital
Rep. Brad Sherman, D-CA, will join a panel of credit union experts to discuss supplemental capital for credit unions at this year’s 2014 Annual Meeting and Convention—REACH—adding to the exciting line-up of speakers and breakout sessions.

EXCITEMENT BUILDS FOR 'REACH 2014' updated 10/14/14 09:01 AM
New Special Guest Announced
REACH 14, the California and Nevada Credit Union Leagues' highly-anticipated Annual Meeting and Convention, is quickly approaching! This year will be one for the books. After all, the one and only Earvin “Magic” Johnson will be there!