The Indemnification Clause: What It Means and How to Negotiate It (2026)

What is an indemnification clause? An indemnification clause (an "indemnity") is a promise by one party to cover the other party's losses, costs or liabilities if certain things go wrong. In plain terms: "if X happens and it causes you loss, I will make it good." It shifts a defined risk from one side to the other. A common example: a software vendor indemnifies a customer against third-party claims that the software infringes someone's intellectual property. If such a claim is brought, the vendor agrees to defend it and pay the resulting costs and damages. Indemnities appear in almost every commercial contract, covering areas like IP infringement, breach of confidentiality, data breaches, personal injury, and breach of the contract itself. Under Indian law, a contract of indemnity is defined in section 124 of the Indian Contract Act, 1872 as a contract where one party promises to save the other from loss caused by the conduct of the promisor or of any other person. Section 125 sets out what the indemnity-holder can recover, including damages, and the costs and sums paid in related proceedings, within the terms of the indemnity. This article is general guidance, not legal advice. ## Sample indemnification clause wording A general, mutual-friendly starting point. Adapt to your deal and have it reviewed. ```

INDEMNIFICATION (a) [Party A] ("Indemnifying Party") shall indemnify, defend and hold harmless [Party B], its officers, employees and agents ("Indemnified Party") from and against any and all losses, damages, liabilities, costs and reasonable legal expenses arising out of or in connection with: (i) any breach by the Indemnifying Party of this Agreement; (ii) any third-party claim that the [deliverables / services] infringe that third party's intellectual property rights; and (iii) the Indemnifying Party's gross negligence, fraud or wilful misconduct. (b) The indemnity in (a) is subject to the Indemnified Party: (i) promptly notifying the Indemnifying Party of the claim; (ii) allowing the Indemnifying Party to control the defence and settlement (not settling in a way that admits fault or imposes obligations on the Indemnified Party without consent); and (iii) providing reasonable cooperation at the Indemnifying Party's expense. (c) The indemnity obligations under this clause [are / are not] subject to the limitation of liability in clause [X].

- **Scope of loss.** Which losses are covered: direct losses, legal costs, settlements, fines? Does it reach indirect or consequential loss?
- **Who is covered.** Just the other party, or also its officers, employees, affiliates and customers?
- **Defence and control.** Who runs the defence of a claim, and who may settle it?
- **Notice and cooperation.** What the indemnified party must do to keep the benefit of the indemnity.
- **Cap and carve-outs.** Is the indemnity inside or outside the contract's liability cap? Indemnities sitting outside the cap are a major risk.
- **Survival.** Does the indemnity continue after the contract ends? ## How to negotiate an indemnification clause **If you are giving the indemnity (the indemnifying party):**
- Narrow the triggers to things genuinely within your control.
- Cover direct losses and defence costs, and resist open-ended "any and all losses" without limit.
- Push to bring the indemnity inside the overall liability cap, or agree a separate, sensible cap.
- Exclude losses caused by the other party's own fault or changes they made.
- Require prompt notice and the right to control the defence, so you are not paying for a claim someone else mishandled. **If you are receiving the indemnity (the indemnified party):**
- Make sure the triggers cover the real risks (IP infringement, data breach, breach of contract).
- Keep key indemnities (such as IP and confidentiality) outside the general liability cap where you can.
- Include a duty to defend, not just to reimburse after the event.
- Cover your group, not just the signing entity, if others are exposed.
- Add survival so the protection outlasts the contract. **Both sides:** make the clause mutual where the risks are mutual, and align it with the insurance each party carries. ## Common mistakes to avoid - **Leaving the indemnity outside the liability cap by accident.** This can turn a capped contract into an uncapped exposure.
- **Triggers that are too broad.** "Any loss arising from this agreement" can swallow risks you never meant to take.
- **No duty to defend.** Reimbursement after the event is far weaker than having the other side run and fund the defence.
- **No notice or control rights.** Paying for a claim you had no say in defending.
- **Ignoring survival.** An indemnity that dies with the contract may be useless when a claim surfaces later. ## A note on jurisdiction Indemnities are treated differently across legal systems. In India, sections 124 and 125 of the Indian Contract Act, 1872 define indemnity fairly narrowly (loss caused by the conduct of the promisor or another person), and insurance-type arrangements are often handled as contingent contracts under section 31 rather than as classic indemnities. English and US law use "indemnity" more broadly, including liabilities from events and accidents. The enforceability of indemnities for a party's own negligence, and whether consequential loss is covered, varies by jurisdiction and wording. Because the position varies by jurisdiction, have an indemnity reviewed by a qualified lawyer for the governing law of your contract. Last verified October 2026. ## Where a contract workspace helps Indemnities are one of the clauses most likely to hurt you quietly: a trigger too broad here, a clause sitting outside the cap there, inconsistent wording across a dozen contracts. Reading each one carefully, every time, and keeping them consistent is exactly the work that slips when contracts are scattered. That is the idea behind a single AI contract workspace. It can read a draft, surface the indemnity and show whether it is one-sided or uncapped, flag how it interacts with the liability clause, let you edit it in plain language, and keep your standard position consistent across contracts, tuned to how your company contracts. Tools such as [Adira](https://adiralaw.com) are built around that idea of drafting, understanding and editing contracts clause by clause in one place. You can negotiate an indemnity well with the checklist above; a workspace just makes it harder to miss the dangerous version.