Indemnity clauses explained: what you are really agreeing to

An indemnity clause is a promise by one party to compensate the other for certain losses, damages, or liabilities. In plain language: if something goes wrong, you agree to pay for it — even if it was not entirely your fault.

Why indemnity clauses matter

Unlike a simple liability clause that caps what you owe, an indemnity can expose you to unlimited financial risk. If a client gets sued over work you delivered and the contract includes a broad indemnity, you could be on the hook for their legal fees, settlements, and damages — potentially far exceeding your project fee.

Types of indemnity

Mutual indemnity means both parties indemnify each other. This is fairer. One-way indemnity means only you indemnify the other party. This is common in freelance and service contracts and shifts all risk onto you.

What to watch for

Check whether the indemnity is capped at your total fee or unlimited. Look for "consequential damages" language — this can include lost profits, reputational damage, and other indirect losses that could be enormous. Check whether the indemnity survives termination of the contract.

How to negotiate

Push for mutual indemnity rather than one-way. Cap indemnity at the total contract value. Exclude consequential and indirect damages. Add a requirement that the indemnifying party must be notified promptly and given the opportunity to control the defence of any claim.