Understanding Indemnity Clauses: What Every Business Must Know

Indemnity clauses are some of the most dangerous—and most overlooked—terms in contracts. They can expose your business to unlimited liability for things beyond your control. Here's what you need to know.

What is an Indemnity Clause?

An indemnity clause is a promise by one party to compensate another for losses or damages. Essentially, it's risk transfer: you agree to pay for losses the other party might suffer.

This means if anyone sues the client related to your work—even if you did nothing wrong—you're on the hook.

Types of Indemnity

• Broad Form: You indemnify even for the other party's negligence. Extremely one-sided.
• Intermediate Form: You indemnify unless the loss was caused solely by the other party.
• Limited Form: You only indemnify for your own negligence or breach. Fair.

What to Watch For

• ❌ "Any and all claims, damages, losses" — unlimited scope
• ❌ "Arising from or related to" — very broad trigger
• ❌ "Third party claims" — you could be liable for someone else's lawsuit
• ❌ No cap on liability amount
• ❌ One-way indemnity (only you indemnify, not them)

How to Negotiate Indemnity Clauses

• ✅ Make indemnity mutual — both parties indemnify each other
• ✅ Limit to your own negligence or willful misconduct
• ✅ Cap indemnity at the contract value or insurance coverage
• ✅ Require prompt notice of claims
• ✅ Get the right to control defense of claims

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