If you've ever signed a commercial contract — a freelance agreement, a supplier contract, a software licence — you've almost certainly agreed to an indemnity clause. Most people have no idea what it means.
An indemnity clause is, in plain English, a promise to pay for someone else's losses. When you sign an indemnity, you're agreeing that if certain things go wrong, you'll compensate the other party — even if the loss is partly or entirely their fault.
A simple example
Imagine you're a web developer and your client's contract says:
On the surface, this sounds reasonable. Of course you should be responsible for your own mistakes. But look at what it actually says: "any and all claims... arising out of or relating to" your work. That's extraordinarily broad.
If your client uses your website and a third party sues them for copyright infringement — even if you knew nothing about the infringing content — this clause could make you liable for their legal costs and any damages.
Why indemnities are dangerous
The problem with unlimited indemnities is the asymmetry of risk. A freelance developer charging £5,000 for a project could theoretically face an indemnity claim worth hundreds of thousands of pounds if something goes seriously wrong for their client.
This is why liability caps exist — and why you should always negotiate one alongside an indemnity clause.
The three things to check in any indemnity clause
1. Is it mutual?
A mutual indemnity means both parties indemnify each other. A one-sided indemnity means only you are on the hook. Always push for mutuality.
2. Is it capped?
This is a sensible cap. Without a cap, your indemnity exposure is theoretically unlimited. Always negotiate a cap equal to the contract value or your professional indemnity insurance limit.
3. What does it cover?
The narrower the better. "Claims arising from the Developer's gross negligence or wilful misconduct" is much better than "any and all claims arising out of or relating to the Developer's work." Push for specific triggers.
If you have professional indemnity insurance, check your policy limit before agreeing to any indemnity. Your cap should never exceed your insurance coverage — otherwise you're personally exposed.
This article is for informational purposes only and is not legal advice. For specific legal questions, consult a qualified solicitor.
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