What Is an Indemnity Clause in a Contract?

A plain-English introduction to indemnities, common triggers, exclusions and how to review the risks.

The basic idea

An indemnity is a contractual promise that may require one party to cover certain losses or claims suffered by another. Its effect depends on the wording and the law that applies.

For example, a service agreement might allocate responsibility for third-party claims arising from specified conduct. That does not mean every indemnity is automatically reasonable or enforceable.

Read the trigger carefully

Ask what event activates the promise, whose losses are covered, whether legal costs are included and whether fault or negligence matters. Broad phrases can create exposure beyond the contract price.

Compare with other clauses

Check liability caps, insurance requirements, exclusions and dispute procedures. A liability cap may or may not apply to indemnities depending on the wording. Review any requirement to defend a claim or obtain consent before settlement.

What to do with a broad indemnity

Identify the actual risk the other party is trying to allocate, then consider whether narrower triggers, exclusions or a cap would fit the commercial deal. AI tools can help explain and compare wording, but important indemnities should be reviewed by legal counsel.