Indemnity
Also called: Indemnification · Indemnity Clause · Hold Harmless
An indemnity clause shifts the cost of specified losses from one party to the other — most commonly third-party claims. The indemnifying party agrees to cover the other side’s damages, legal costs, and settlements arising from defined triggers such as IP infringement or data breach.
In more detail
The key distinction is that a general liability clause governs losses between the two contracting parties, while an indemnity typically covers losses caused by a third party. If a customer is sued because of a defect in a supplier’s product, an indemnity is what makes the supplier pay for that.
Indemnities are frequently excluded from the contract’s general liability cap, which means exposure under an indemnity clause can be effectively unlimited even when the rest of the contract is capped. This is one of the most commonly missed points in contract review.
Procedure matters as much as scope. If the clause does not say who controls the defence of a claim, who must be notified and how quickly, an otherwise strong indemnity can be difficult to actually rely on when a claim arrives.
A SaaS vendor’s product infringes a third party’s patent, and that third party sues the customer for using it. An IP indemnity requires the vendor to cover the customer’s legal costs and any damages — because the underlying infringement was the vendor’s, not the customer’s.
How broadly courts read indemnity language — and whether indemnifying a party against its own negligence is permitted — varies by legal system. Identical wording can produce different outcomes under different governing laws.
What our lawyers check
- What specifically triggers the indemnity — vague "any and all claims" wording creates obligations nobody intended
- Whether the indemnity is mutual or one-sided
- Whether it sits inside or outside the general liability cap
- Notice and defence-control procedure, without which the indemnity is hard to enforce in practice
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
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