Indemnification
A contractual obligation to compensate another party for losses or damages.
Definition
Indemnification is a contractual agreement where one party agrees to compensate another for certain damages, losses, or liabilities. Indemnity clauses allocate risk—determining who bears the cost if something goes wrong, especially for claims from third parties.
Common indemnifications include: the provider indemnifies against IP infringement claims, the client indemnifies against claims arising from content they provide, both parties indemnify against claims from their own negligence.
Why It Matters
Indemnification clauses determine who pays when problems arise—especially problems involving third parties. Without clear indemnification, parties may face costly disputes about responsibility for claims.
Reviewing indemnification obligations is crucial before signing contracts. Unlimited indemnification can expose you to enormous liability. Negotiate reasonable limits aligned with the contract value and actual risk.
Examples
- 1
A developer indemnifies the client against claims that the code infringes third-party patents—promising to cover defense costs and damages.
- 2
A content client indemnifies the agency against claims arising from using licensed images the client provided.
- 3
Indemnification clause: "Each party shall indemnify the other against claims arising from the indemnifying party's negligence or misconduct."
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