Indemnification sounds complicated, but has a simple definition—to hold harmless. Issues surrounding indemnification arise frequently in the collection industry due to the relationships among companies that service consumer accounts, their creditor clients, forwarding law firms that eventually file suit to recover the obligation, and industry vendors. Creditors, debt buyers, collection agencies, law firms, and vendors are all valuable components of the collection process. All generally work together toward a common goal, but consumer complaints occasionally create a conflict of interest among companies. Most typically, indemnification arises through the contract for services entered between parties wherein a party accepts the contractual obligation to indemnify the other party under certain circumstances. The indemnification provision is important and should be reviewed carefully before entering into any agreement.

When your company and a company with which you have a business relationship are individually or collectively the target of a consumer demand or complaint, your company should immediately take the following steps:

1. Consult the service agreement between your company and any other entity that may have caused or contributed to the underlying issue which generated the threat or lawsuit;

2. Consider if allegations in the threat or lawsuit read in concert with each party’s contractual obligations warrants discussing whether someone may be contractually responsible for the defense of the threat or lawsuit; and

3. Notify your general counsel, compliance department, or attorney of any questions and/or decisions regarding indemnification.

Companies can save money, time, and business relationships by; (1) carefully reviewing indemnification provisions at the outset of the business relationship, and (2) immediately considering the benefits and risks triggering the indemnification provision upon receipt of a consumer demand or lawsuit. Early indemnification decisions can mitigate damages, assist with strategy, and provide business partners clarification of their respective responsibilities. Contact our firm for advice about how to manage the up front contract negotiations and/or the back end implications when indemnification becomes and issue in a threat or lawsuit.

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