Indemnification
What it means
An indemnification clause says that if something goes wrong, one party pays for the other party's losses. In plain terms: "if this causes you a problem, I'll cover it." The party doing the covering is the indemnifying party, and in a contract handed to a small business, that is usually you.
The clause normally lists what triggers it — a breach of the agreement, a claim from someone outside the contract, an injury, a data breach, or an accusation that your work infringed somebody's intellectual property. When one of those happens, you are on the hook for the other side's costs, and "costs" typically means legal fees as well as any settlement or judgment.
The details are where the money is. A mutual indemnity means each side covers problems it causes, which is usually fair. A one-way indemnity means only you do. An uncapped indemnity means there is no ceiling on what you might owe, even if the contract itself is worth a few thousand dollars. And an indemnity that covers claims "arising from" the agreement can reach much further than one covering claims "caused by your negligence".
Watch for indemnities that survive termination. Many do, which means you can still be paying for a claim years after the relationship ended.
Why it matters for your business
This is the clause most likely to cost you more than the contract is worth. A $5,000 services agreement with an uncapped, one-way indemnity can expose you to a six-figure claim, and your general liability insurance may not cover a liability you agreed to take on by contract.
See it in action
ContractClerk reads the indemnity in context — whether it runs one way or both, whether it is capped, and how wide the trigger is — and explains in plain English what you would be agreeing to cover. Where it sees a problem, it suggests wording you can send back.
Related terms
- Limitation of Liability — The cap is the number that tells you your worst case.
- Force Majeure — This clause decides who carries the loss when something neither party caused disrupts the deal.
- Warranty Disclaimer — This clause plus the liability cap is your entire remedy if a product does not do what you bought it for.
Is there an indemnification clause in your contract?
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Review your contract free →This is general information about how indemnification clauses usually work. It is not legal advice, and how a clause applies depends on the rest of the document and on where you are. For a high-stakes agreement, talk to an attorney.