What Is an Indemnification Clause?

Clause Glossary · Part of ClauseGuard's contract red-flag library

An indemnification clause requires one party to cover the other's losses, damages, or legal costs if certain events happen — most commonly, third-party claims arising from the contract. It often appears as the phrase "indemnify, defend, and hold harmless." On its own this is a completely standard clause. The problem is when it's one-sided or unlimited in scope.

Mutual vs. one-sided indemnification

A mutual indemnification clause means both parties agree to cover each other for losses caused by their own breach, negligence, or misconduct. A one-sided clause obligates only you to indemnify the other party — meaning you carry all the risk of third-party claims regardless of who actually caused the problem. Many contracts default to one-sided language unless you push back.

Common red flags

• Only one party indemnifies the other. Check whether the obligation runs both ways or just one.
• "Any and all claims" with no limitation. Broad language that isn't tied to your own breach, negligence, or misconduct means you could be on the hook for problems you didn't cause.
• No dollar cap. An indemnification obligation with no ceiling can, in theory, expose you to unlimited liability — similar to a missing liability cap.
• No requirement that the other party carry insurance. If they're relying on your indemnification to cover their risk, it's fair to ask what's backing their side of the bargain too.
• No notice or control provisions. A fair clause gives you notice of a claim and some say in how it's defended, rather than requiring you to pay whatever the other party decides to settle for.

Example red-flag language

"Contractor shall indemnify, defend, and hold harmless Client from any and all claims, damages, and expenses arising out of or related to this agreement."

Notice this only obligates the Contractor — there's no reciprocal promise from the Client, and no limitation to claims actually caused by the Contractor's own conduct.

How to negotiate it

• Push for mutual indemnification — both parties indemnify each other for their own breach, negligence, or misconduct.
• Narrow the scope from "any and all claims" to claims "arising from Contractor's breach of this agreement, negligence, or willful misconduct."
• Add a cap — commonly tied to fees paid under the contract.
• Require the other party carry appropriate insurance (commercial general liability, professional liability, etc.).
• Add a notice and defense-cooperation requirement so you're not blindsided by a claim.