Indemnification
Also known as: Indemnity, Hold harmless
A promise by one party to cover specified losses suffered by the other, usually arising from third-party claims.
What it is
An indemnification clause shifts the financial consequences of certain risks from one party to another. Typically the indemnifying party agrees to defend, pay for, or reimburse losses, damages, legal fees, and settlements that flow from a defined trigger — for example, a claim that the service infringes a third party's intellectual property, or that the other side breached its own obligations. Well-drafted indemnities also set out how claims are notified, who controls the defense, and whether the indemnified party can approve settlements.
Why it matters
Indemnities are where liability actually lands when something goes wrong. Without one, each side generally bears its own losses, and recovery depends on proving ordinary breach-of-contract damages. With one, a clearly identified risk — such as an IP lawsuit from a third party — has a named owner. Because indemnities can be open-ended, they are often the clause most heavily negotiated alongside limitation of liability, and the interaction between the two determines the real shape of the deal.
Typical language
An example of how this clause often reads — illustrative only, not a template:
The Supplier shall defend, indemnify, and hold harmless the Customer from and against any third-party claim alleging that the Services, as provided by the Supplier and used in accordance with this Agreement, infringe any patent, copyright, or trade secret, and shall pay any damages and reasonable legal fees finally awarded against the Customer in connection with such claim, provided that the Customer promptly notifies the Supplier of the claim and gives the Supplier sole control of the defense and settlement.
Common pitfalls
- Indemnities that swallow the rest of the contract because they are not capped by the limitation of liability clause.
- No notice requirement, so the indemnifier first hears about a claim after a settlement has already been agreed.
- Unclear whether the duty is to "defend" (pay lawyers as you go) or only to "indemnify" (reimburse after the fact).
- Carve-outs that are too vague — e.g. "except for the Customer's misuse" without defining misuse.
- Mutual indemnities pasted in without considering whether both sides actually face symmetrical risk.
Related clauses
Draft a contract with this clause
Open the drafting canvas with a starter prompt for indemnification. You can edit every line before anything is saved.
This explainer is general information and is not legal advice.