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Risk and liability

Indemnification clause: meaning and sample wording

An indemnity is a promise by one party to cover the other party's losses if a specified kind of claim arises, most often a claim by a third party caused by the first party's breach, negligence or infringement of someone else's intellectual property.

When to use it

Use one wherever a party's mistakes could expose the other party to claims from outsiders: service and supply agreements, software and content licences, and contractor agreements where the contractor creates material the client will publish.

Sample indemnification clause

The Supplier shall indemnify, defend and hold harmless the Customer and its officers, employees and agents from and against all losses, damages, liabilities, costs and expenses (including reasonable legal fees) arising out of any third-party claim to the extent caused by (a) the Supplier's breach of this Agreement, (b) the negligence or wilful misconduct of the Supplier or its personnel, or (c) any allegation that the Deliverables infringe the intellectual property rights of a third party.

The Customer shall (i) notify the Supplier in writing promptly after becoming aware of the claim, (ii) allow the Supplier to control the defence and settlement of the claim, provided that no settlement that admits fault on the Customer's behalf may be made without the Customer's consent, and (iii) give the Supplier reasonable cooperation at the Supplier's expense.

What to check

  • Third-party claims or all losses?An indemnity limited to third-party claims is the market norm. One that covers any loss "arising from" a breach can turn an ordinary breach-of-contract claim into an uncapped indemnity claim.
  • "To the extent caused by"This wording makes the indemnity proportionate, so a party does not pay for losses the other party caused itself.
  • The claims procedureNotice, control of the defence and consent to settlement are where indemnities succeed or fail in practice. Spell them out.
  • Read it with the liability capSay clearly whether indemnities sit inside or outside the limitation of liability. Intellectual property indemnities are often uncapped; general ones usually are not.

Make the variable parts fill themselves in

In a Word template, replace the details that change with {tags} and wrap optional wording in a section. Clausery turns them into questions, so each document only includes the parts that apply:

{indemnifying_party} shall indemnify, defend and hold harmless {indemnified_party} from and against all losses arising out of any third-party claim to the extent caused by {indemnifying_party}'s breach of this Agreement{#include_ip_indemnity} or by any allegation that the Deliverables infringe a third party's intellectual property rights{/include_ip_indemnity}.
{#is_mutual}
Each party gives the same indemnity to the other on reciprocal terms.
{/is_mutual}

Paste this into your own template, then check it with the free template tag checker or read the template syntax.

Questions

What is the difference between "indemnify" and "hold harmless"?

Many courts treat the two as meaning the same thing. Some read "hold harmless" as also protecting the indemnified party from claims by the indemnifying party itself. Using both, as most contracts do, avoids the argument.

Is an indemnity limited by the limitation of liability clause?

Only if the contract says so. If the liability clause is silent about indemnities, the result depends on how a court reads the two clauses together, so state the position expressly.

Can I use this sample wording as it is?

It is a general starting point. Contract law differs between countries and states, and the right wording depends on the deal, so have it reviewed before you rely on it.

Free templates that use it

Related clauses

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This page is general information, not legal advice. Laws differ between countries and states; have wording reviewed for your situation before you rely on it.