What Is an Indemnification Clause?
An indemnification clause (also called a hold harmless or indemnity clause) is a promise by one party to cover the other party's losses, damages, or legal costs if something goes wrong. In plain English: 'If I get sued because of something you did, you'll pay for my legal defense and any damages.'
Indemnification can be one of the most financially significant clauses in a contract. A poorly negotiated indemnity clause can leave you on the hook for hundreds of thousands in legal costs — even if you weren't at fault.
The Indemnification Spectrum: Three Types Compared
You cover losses caused ONLY by your own negligence or breach of contract.
Example: A designer indemnifies the client for claims arising from the designer's infringement of third-party IP.
You cover losses 'arising out of or related to' the contract, even if partially caused by the other party.
Example: A contractor indemnifies the client for all claims 'related to the project' — including claims caused by the client's own decisions.
You cover ALL losses regardless of fault — even losses caused entirely by the other party's negligence.
Example: A vendor indemnifies a large corporation for 'any and all claims of any nature arising from or in connection with' the agreement.
Both parties indemnify each other. Each covers losses caused by their own breach or negligence. This is the fairest structure and what you should push for.
Only one party indemnifies the other. The non-indemnifying party bears all the risk. This is a red flag unless there is a clear business reason for the asymmetry.
Types of Indemnification
There are three main types of indemnification — from limited and fair to unlimited and extremely risky. Know which one is buried in your contract before you sign.
Red Flags in Indemnification Clauses
Red flag #1: One-sided indemnity where only you indemnify the other party but not vice versa. #2: Indemnification for the other party's own negligence — this shifts their responsibility to you. #3: No cap on indemnification obligations — while most liability is capped, indemnity obligations are sometimes carved out with no limit. #4: Indemnification for 'any and all claims' without limitation to third-party claims.
How to Negotiate Fair Indemnification
Push for mutual indemnification — each party indemnifies the other for its own breaches and negligence. Limit indemnity to third-party claims (not disputes between the parties). Add a duty to notify — the indemnified party must promptly notify you of any claim so you can defend it. And try to cap indemnification at a reasonable multiple of the contract value, with higher caps or no cap reserved for IP infringement and confidentiality breaches only. Indemnification is just one of several clauses to check — see our complete guide on what to look for before signing any contract.
💡 Tip: If you see 'indemnify and hold harmless' in a contract, pay attention. This is some of the most consequential language in the entire agreement. When in doubt, use ContractRev to flag indemnification red flags before you sign.