How to Negotiate An Indemnity Clause
Negotiate an indemnity clause by narrowing the trigger to specific, defined events rather than "any and all" losses, and by making sure it doesn't effectively duplicate or bypass the contract's liability cap. A broad, undefined indemnity can expose a party to open-ended risk that the rest of the contract's protections don't reach.
This guide describes general, widely-used commercial negotiation practice — it is informational, not legal advice on any specific contract. The right position for your deal depends on your actual leverage, relationship, and governing law. Have your actual clause reviewed by a lawyer before relying on any of this.
What each side typically wants
Wants the broadest possible trigger — "any and all losses arising out of or in connection with" — so it can recover for as wide a range of harm as possible, often uncapped.
Wants the trigger narrowed to specific, defined events it actually controls, subject to the same cap as the rest of the contract's liability.
Red flags worth pushing back on
- Trigger worded as "any and all losses arising out of or in connection with this Agreement" — broad enough to cover almost anything
- Indemnity sits outside the contract's general liability cap with no cap of its own, creating effectively unlimited exposure
- No requirement that the indemnified party notify promptly and allow the indemnifying party to control the defense of a third-party claim
- Covers losses the indemnifying party couldn't reasonably have prevented or foreseen
- One-sided — only one party gives an indemnity, when both are taking on comparable risk
How to negotiate it
- Narrow the trigger to specific, named categories (e.g. third-party IP infringement claims, breach of confidentiality, personal injury/property damage caused by the indemnifying party)
- Cap the indemnity at the same level as the general liability cap, or set an explicit separate cap
- Require the indemnified party to give prompt notice and let the indemnifying party control (or at least participate in) the defense
- Exclude losses caused or contributed to by the indemnified party's own negligence
- Push for mutual indemnities where both parties carry comparable risk under the contract
Sample fallback language
"...shall indemnify [Party] against third-party claims arising from [Indemnifying Party]'s infringement of intellectual property rights, up to a maximum aggregate amount of [cap], provided [Party] gives prompt written notice and reasonable cooperation."
Illustrative starting language only — have it reviewed and adapted to your actual deal and governing law before using it.
Frequently asked questions
Is an indemnity the same as a limitation of liability clause?
No — a limitation of liability clause caps exposure; an indemnity creates an obligation to cover specific losses, often including third-party claims. The two interact, which is why checking whether the indemnity sits inside or outside the liability cap matters.
Why do indemnities often exclude consequential losses?
Because "any and all losses" can otherwise sweep in indirect, hard-to-quantify losses (like lost profits) that the indemnifying party never priced in — excluding consequential loss keeps the indemnity tied to direct, provable harm.
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