Indemnification Clause Explained: Five Versions Worth Reading Before You Sign
This page is general information, not legal advice.
An indemnification clause says who pays when a third party makes a claim. If you "indemnify" the other side, you agree to cover their losses, and often their legal costs, for the claims the clause lists. These clauses show up in freelance contracts, contractor agreements, SaaS subscriptions and platform terms. They're usually written by the side with more leverage, and they often hold some of the biggest financial risk in the document.
Below are five common versions. For each: an illustrative example, why it matters, and what to ask for instead. The examples were written for this page and aren't taken from any real company's contract.
1. Broad "arising out of or relating to" scope
A typical clause might read: "Contractor shall indemnify, defend and hold harmless Client from any and all claims, losses, damages and expenses arising out of or relating to this Agreement or the Services."
Illustrative example, not from any specific contract.
Why it works against you
"Any and all claims" and "arising out of or relating to" are about as broad as indemnity wording gets. Nothing ties your duty to your own fault. A claim that comes from the client's own decisions, their other vendors, or how they used your work could still fall on you. "Losses" and "expenses" can include legal fees, settlements and internal costs.
What to ask for instead
Sample wording to propose: "Contractor will indemnify Client against third-party claims to the extent caused by Contractor's breach of this Agreement, negligence or willful misconduct."
The words "to the extent caused by" matter. They limit your share to the part of the harm you actually caused.
2. One-sided indemnity
A typical clause might read: "Customer agrees to indemnify and hold Company harmless from any claim arising from Customer's use of the Service."
Illustrative example, not from any specific contract.
Why it works against you
Only one side makes a promise. If the other party's product fails, leaks your data or infringes someone's rights and you get sued, the contract may give you nothing to fall back on. This is common in SaaS subscription agreements and platform terms, where individuals usually can't negotiate. In a negotiated business contract, though, it's a fair thing to raise.
What to ask for instead
Sample wording to propose: "Each party will indemnify the other against third-party claims to the extent caused by its own breach of this Agreement, negligence or willful misconduct."
3. Duty to defend and control of the defense
A typical clause might read: "Contractor shall defend Client at Contractor's expense with counsel selected by Client, and shall pay all costs, attorneys' fees and settlements, whether or not the claim has merit."
Illustrative example, not from any specific contract.
Why it works against you
A duty to defend is separate from a duty to repay. It can start as soon as someone makes a claim, before anyone decides who was at fault. "Whether or not the claim has merit" means you could pay to fight a baseless claim. If the other party picks the lawyers and controls the settlement, you're paying for decisions you can't influence.
What to ask for instead
Sample wording to propose: "The indemnified party will give prompt written notice of any claim. The indemnifying party may control the defense with counsel reasonably acceptable to the other party, and no settlement admitting fault or imposing obligations on the indemnifying party will be made without its written consent."
4. Uncapped indemnity carved out of the liability limit
A typical clause might read: "The limitations of liability in Section 9 shall not apply to Contractor's indemnification obligations."
Illustrative example, not from any specific contract.
Why it works against you
Many contracts cap each party's liability, for example at the fees paid. A carve-out like this one means your indemnity has no cap at all. The cap you thought protected you doesn't cover the clause most likely to produce a large claim. For a freelancer on a small project, exposure could be far larger than the project fee. Read this together with the limitation of liability clause. The two clauses only make sense side by side.
What to ask for instead
Sample wording to propose: "Each party's total liability under this Agreement, including indemnification obligations, will not exceed the fees paid or payable under this Agreement in the twelve months before the claim."
Some carve-outs, such as fraud or willful misconduct, may be reasonable. A blanket carve-out for every indemnity isn't the same thing.
5. IP indemnity that covers the client's materials
A typical clause might read: "Contractor shall indemnify Client against any claim that the Deliverables infringe any third-party intellectual property right."
Illustrative example, not from any specific contract.
Why it works against you
It sounds fair to stand behind your own work. But deliverables often include logos, photos, text or code the client supplied, or stock assets the client chose. As written, you could be covering infringement in material you didn't create or pick. This often comes paired with an IP assignment clause that hands the client ownership of everything, so they get the rights and you keep the risk.
What to ask for instead
Sample wording to propose: "Contractor's IP indemnity does not apply to claims arising from materials provided or selected by Client, modifications made by anyone other than Contractor, or use of the Deliverables in combination with items not supplied by Contractor. Client will indemnify Contractor for claims arising from Client-provided materials."
Also worth a look
Check whether the contract asks you to carry insurance that covers your indemnity, and whether you can realistically get that insurance. Check how "Indemnified Parties" is defined too. It may stretch to affiliates, officers, employees and customers, which widens who can come to you for payment. Also look for "hold harmless" wording on its own. Depending on the contract and where you are, it can work as a waiver of your own claims against the other side. How any of this is enforced depends on your jurisdiction, so for a high-value contract, ask a qualified lawyer.
For more on related clauses, see freelance contract red flags and independent contractor agreement red flags.
This page is general information, not legal advice.
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