Indemnity clause
A clause in which one party agrees to compensate the other for specified losses or third-party claims. Often the most expensive overlooked provision in a contract.
What is an indemnity clause?
An indemnity shifts financial risk. Party A promises to compensate party B if losses arise from — for example — IP infringement, data breaches, or Party A's non-compliance with law.
Example
"Supplier shall indemnify Customer against all third-party claims arising from infringement of intellectual property rights by the delivered software."
Meaning: if a third party sues Customer for IP infringement, Supplier bears the cost — including legal fees.
When it matters
- Software and SaaS contracts (IP indemnity)
- Data processing agreements (GDPR fines)
- Construction and services agreements (bodily injury)
- M&A deals — with attention to caps and survival periods
Common pitfalls
- No cap — unlimited indemnity can exceed annual revenue.
- Not mutual — one party carries all the risk.
- No survival clause — indemnity dies with the contract.
- No notice obligation — the indemnifying party only hears after the claim is settled.
How GuardPilot flags this
GuardPilot's Contract Review agents extract every indemnity clause, compare it against your house standard (cap, mutuality, notice, survival), and flag deviations before signing.
Related terms: Penalty clause · Force majeure · Contract compliance