Clause guide
Indemnity clause: meaning, risks, and what to negotiate
Requires one party to cover certain losses, claims, or damages suffered by the other.
What it means
Indemnity clauses can shift major financial risk. If the language is too broad, you may end up paying for losses that go well beyond your control.
Common risks
- • The clause may cover indirect or open-ended claims.
- • You may be responsible for third-party claims without proper limits.
- • The other side may have indemnity protection while you have none.
What to check before signing
- • What types of claims are covered?
- • Is the indemnity mutual or one-sided?
- • Are there carve-outs, caps, or control over defense and settlement?
Negotiation ideas
- • Limit indemnity to third-party claims only.
- • Exclude indirect, consequential, or speculative losses.
- • Require notice, defense control, and approval rights for settlements.
Example clause
“Each party shall indemnify, defend, and hold harmless the other party from third-party claims arising from its breach of this Agreement or its negligence.”
Frequently asked questions
Is indemnity the same as liability?
Not exactly. Liability is broader. Indemnity specifically deals with covering losses or claims in defined situations.
Related clauses
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