Indemnity Clauses in Plain English

Indemnity clauses are frequently included in commercial agreements and often work alongside limitation of liability provisions.

Although they are commonly used, the practical effect of indemnities is not always well understood.

What Is an Indemnity?

An indemnity is a promise by one party to compensate another for specific losses or liabilities.

In simple terms, it transfers responsibility for certain risks from one party to another.

For example, a supplier may agree to indemnify a customer against claims that the supplier’s product infringes another party’s intellectual property rights.

If that claim arises, the supplier may be responsible for covering the loss.

Why Indemnities Are Used

Indemnities are often used where one party is in the best position to control or manage a particular risk.

Examples include:

• Intellectual property infringement
• Property damage caused during services
• Loss caused by negligence or breach of contract

These clauses clarify which party should bear responsibility if those risks materialise.

Why the Wording Matters

Indemnity clauses can vary significantly depending on how they are drafted.

Important considerations include:

• The events that trigger the indemnity
• The types of losses covered
• Whether there are financial limits

Because indemnities can create significant exposure, it is important to carefully review the wording before entering into an agreement.

Businesses can confidently manage contractual risk with the support of Clearscope Legal.

Final Thoughts

Indemnity clauses play an important role in allocating risk in commercial agreements.

Understanding how they operate can help businesses make informed decisions when negotiating contracts.