What Is an Indemnity Clause?

An indemnity clause is a risk-shifting clause. It says one party must cover certain losses, claims, damages, or legal costs suffered by the other.

In plain English: if something goes wrong, the indemnity clause helps decide who pays.

Why indemnities matter

An indemnity can go much further than ordinary breach-of-contract liability.

Depending on the wording, it can make you responsible for:

• Third-party claims
• Legal fees
• Damage caused by contractors
• Losses connected to your use of the service
• Issues only loosely connected to your conduct

That is why indemnity wording deserves a close read.

Common wording

Indemnity clauses often use terms like:

• Indemnify
• Hold harmless
• Defend
• Keep indemnified

If you see those phrases, slow down and read the full sentence carefully.

What to check

Ask these questions:

• Who is indemnifying whom?
• What events trigger the indemnity?
• Is it limited to your fault, or much broader?
• Are legal costs included?
• Is there a financial cap?

The broadest clauses can apply even where the drafting is vague or the losses are indirect.

Red flags

Watch for indemnities that are:

• One-sided
• Unlimited
• Triggered by vague words like "relating to" or "in connection with"
• Not tied to fault or negligence
• Combined with a low liability cap that protects only the other side

That combination can create a very uneven contract.

Simple example

If a software agreement says you must indemnify the provider for any claims arising out of your use of the service, that may reach far beyond obvious misuse. It could cover disputes, complaints, or downstream claims that are expensive to defend.

Final thought

An indemnity clause is not always unreasonable. But if it is broad, uncapped, and one-sided, it can carry more practical risk than the headline commercial terms.

If you want help finding those clauses quickly, run the contract through Checkr and start with indemnity, liability, and warranty sections.