An indemnification clause is one of the most important, and most misunderstood, provisions in a contract. Whether you are entering a commercial agreement, lease, consulting contract, or services agreement, the indemnification clause can determine who pays when something goes wrong.
This guide explains what an indemnification clause is, how it works, whether indemnification clauses are enforceable, and how to evaluate indemnification risk before signing a contract.
What Is an Indemnification Clause?
An indemnification clause is a contractual provision that assigns responsibility for certain losses, claims, or liabilities from one party to another. In most contracts, this clause determines who pays if a legal claim arises during or after the contract term. These costs may include:
- Legal fees and defense costs
- Judgments and settlements
- Regulatory fines or penalties
- Third-party claims
At its core, the indemnification clause functions as a risk-allocation mechanism. Rather than leaving liability questions to default legal rules or courts, the parties proactively agree on how specific risks will be handled. This is why indemnification clauses are commonly negotiated in commercial contracts, leases, consulting agreements, technology agreements, and construction contracts.
From a legal standpoint, an indemnification clause in a contract typically addresses three key components:
- Indemnify – the obligation to compensate another party for losses or damages
- Defend – the duty to provide or pay for legal defense against covered claims
- Hold harmless – protection from being held legally responsible for certain claims
What Does an Indemnification Clause Do?
What does an indemnification clause do? It governs what happens after something goes wrong.
Indemnification clauses come into play when:
- A third party files a lawsuit
- A regulatory agency imposes penalties
- Intellectual property infringement is alleged
- Property damage or personal injury occurs
- A contract breach causes downstream losses
Rather than arguing later about responsibility, the indemnification clause pre-assigns that responsibility.
In practice, an indemnification clause may:
- Require one party to pay settlements or judgments
- Obligate one party to cover attorneys’ fees and litigation costs
- Shift responsibility for third-party claims
- Protect a party from losses tied to the other party’s negligence or misconduct
- Influence insurance coverage decisions
- Affect risk pricing and contract valuation
- Determine post-termination liability exposure
These provisions are especially important because indemnification obligations can exist even when the indemnified party did nothing wrong. For example, a company may be indemnified against claims arising from a contractor’s work—even if the company is named in the lawsuit. Without an indemnification clause, that company might bear its own legal costs despite having minimal involvement.
Types of Indemnification Clauses
There are several common types of indemnification clauses, each serving a different purpose and risk profile. Understanding these distinctions is essential when negotiating or reviewing a contract.
Standard Indemnification Agreement
The indemnification clause below provides an example of broad, unilateral indemnification language for breaches of representations, warranties, covenants, omissions, and other contractual violations by a company or its affiliates and related parties.
Where Standard Indemnification Clauses Are Commonly Used
Standard indemnification clauses appear in a wide range of commercial agreements, including:
- Services agreements
- Sales and purchasing agreements
- Consulting agreements
- Supply and manufacturing contracts
- Distribution agreements
- Strategic partnership and collaboration agreements
- Retailer and business cooperation agreements
In these contexts, indemnification provisions are often designed to protect one party from downstream liability caused by the other party’s contractual noncompliance.
Standard Indemnification Clause Example: Vendor/Services Agreement
The following example from the SEC shows a standard indemnification clause from a consulting or service agreement where one party agrees to indemnify the other for claims tied to negligence, misconduct, or contractual breaches arising from performance obligations.
“9.1 Indemnification.
(a) Vendor shall indemnify, hold harmless and, at Company’s request, defend Company, its Affiliates, employees, officers and agents from and against all claims, demands, losses, liabilities, damages and expenses (including attorneys’ fees) relating to (a) any bodily injury or death of any person or damage to real and/or tangible personal property caused by the negligence or willful misconduct of Vendor, its personnel or agents in connection with the performance of the Services hereunder, (b) any claim that the performance or receipt of the Services, or any use or other exploitation of the Deliverables, infringes or misappropriates any Intellectual Property Right of any third party, but only to the extent that such infringement or misappropriation is caused by any content, materials or instructions provided to Vendor by Company, (c) any breach of Company’s representations and warranties under Section 4, and (d) any breach of Company’s confidentiality obligations under Section 7.
(b) Company shall indemnify, hold harmless and, at Vendor’s request, defend Vendor, its Affiliates, employees, officers and agents from and against all claims, demands, losses, liabilities, damages and expenses (including attorneys’ fees) relating to (a) any bodily injury or death of any person or damage to real and/or tangible personal property caused by the negligence or willful misconduct of Company, its personnel or agents in connection with the performance of the Services…”
(“Consulting Service Agreement.” Sec.gov, 2025, www.sec.gov/Archives/edgar/data/318291/000119312506198112/dex1031.htm? Accessed 22 Dec. 2025.)
Mutual Indemnification Clause
A mutual indemnification clause, also known as a reciprocal indemnification clause, requires each party to indemnify the other for losses caused by its own actions, negligence, or contractual breaches. These types of provisions create balance by allocating responsibility equally based on fault.
What Is the Purpose of a Mutual Indemnification Clause?
The purpose is fairness as each party bears the risk of its own conduct rather than shifting all liability to one side.
Mutual Indemnification Clause Example: Reseller Agreement
This mutual indemnification clause from the SEC illustrates how both parties agree to protect each other and their respective representatives from specified legal claims or liabilities, often tied to negligence or misconduct.
“Mutual Indemnification. Each Party will indemnify, defend and hold harmless the other Party and its assignees, agents, officers and employees harmless from and against any claims, suits, proceedings, costs, liabilities, expenses (including court costs and reasonable legal fees), or damages (“Claims”) to real or tangible personal property and/or bodily injury to persons, including death, resulting from its or its employees’, clients’ or agents’ negligence or willful misconduct arising from or related to this Agreement.
Reseller will defend, indemnify and hold harmless Spyglass from and against all Claims by a third party (including Clients) against Spyglass related to: (i) Reseller’s or any Client’s use of the Services in any manner other than as permitted under this Agreement; … Spyglass will defend, indemnify and hold harmless Reseller from and against all Claims by a third party against Reseller arising from or relating to: (i) any claims or allegations that the Services as provided by Spyglass infringe any valid patent, copyright…”
(“RESELLER AGREEMENT.” Sec.gov, 2015, www.sec.gov/Archives/edgar/data/1468666/000095012315007740/filename10.htm? Accessed 22 Dec. 2025.)
Consultant Indemnification Clause
A consultant indemnification clause addresses how risk is allocated when a consultant provides professional services to a client. Unlike many other indemnification provisions, these clauses often focus on protecting the consultant from liabilities arising out of how the client uses the consultant’s work or from claims brought by third parties.
Why Consultant Indemnification Clauses Matter
Consultants frequently operate with limited control over how their deliverables are implemented. A consultant indemnification clause helps address this imbalance by:
- Shifting responsibility for third-party claims tied to client decisions
- Protecting consultants from misuse or modification of their work
- Reducing personal or business exposure for independent contractors
- Aligning liability with the party best positioned to manage the risk
Without this protection, consultants may face legal claims stemming from actions taken entirely by the client or other third parties.
Consultant Indemnification Clause Example: Consulting Agreement
The consultant indemnification clause below shows how a contract can assign mutual indemnification obligations between a company and a consultant—protecting each party from losses tied to the other’s wrongful conduct or contract breaches.
“8. INDEMNIFICATION.
(a) Indemnity by the Company. The Company hereby agrees to indemnify and hold harmless Consultant and each person and affiliate associated with Consultant against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation and legal counsel fees), in addition to any liability the Company may otherwise have, arising out of, related to or based upon any violation of law, rule or regulation by the Company or the Company’s agents, employees, representatives or affiliates.
(b) Indemnity by Consultant. Consultant hereby agrees to indemnify and hold harmless the Company and each person and affiliate associated with the Company against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation and legal counsel fees), in addition to any liability the Company may otherwise have, arising out of, related to or based upon:
(i) Any breach by Consultant of any representation, warranty or covenant contained in or made pursuant to this Agreement; or
(ii) Any violation of law, rule or regulation by Consultant or Consultant’s agents, employees, representatives or affiliates.”
(“CONSULTING AGREEMENT.” Sec.gov, 8 June 2015, www.sec.gov/Archives/edgar/data/1035422/000155335015000593/mdst_ex10z5.htm? Accessed 22 Dec. 2025.)
Frequently Asked Questions (FAQ)
Generally, indemnification provisions are enforceable. However, enforceability depends on:
– State law
– Contract clarity
– Public policy
– Whether the clause attempts to indemnify gross negligence or intentional misconduct
Courts often scrutinize indemnification clauses closely, especially when they are one-sided.
Oftentimes, indemnification clauses survive termination if the contract explicitly states survival. Many indemnification obligations apply to claims arising after termination, particularly intellectual property and third-party liability claims.
If a contract does not include an indemnification clause, then:
– Liability is determined by default legal rules
– Parties may face higher litigation costs
– Risk allocation becomes uncertain
– Insurance coverage disputes may arise
Signing a lease with an indemnification provision will depend on:
– Whether indemnity is mutual
– Scope of covered claims
– Whether it includes landlord negligence
– Insurance requirements
Many lease indemnification clauses heavily favor landlords and should be reviewed before signing.
In most commercial contracts, yes. They:
– Allocate risk intentionally
– Reduce disputes
– Support insurance planning
– Protect against third-party claims
Poorly drafted indemnification clauses, however, can create more risk than they resolve.
Indemnification typically includes reimbursement and defense, while “hold harmless” focuses on protection from liability. Many clauses combine both concepts.
Often, yes. Mutual indemnification clauses promote fairness by making each party responsible for its own actions.
Yes. Caps, exclusions, and insurance-backed indemnities are common risk-management tools.
Expert Contract Services
Indemnification clauses can expose your business to significant, hidden liability if they are not carefully drafted or negotiated. At Law Advocate Group, LLP, we specialize in helping businesses of all sizes navigate complex contracts and safeguard their interests.
Our team can assist with:
- Drafting clear and enforceable indemnification clauses
- Reviewing existing contracts for hidden liabilities
- Advising on mutual, consultant, and standard indemnification obligations
- Ensuring your agreements align with your business goals and risk tolerance
Contact us today to schedule a consultation with our Los Angeles contract attorneys.
