# Indemnification Clause

Source: https://contracko.com/clause-library/indemnification

# Indemnification Clause

One party agrees to cover specified losses, claims or third-party liabilities of the other party.

## What it is

An indemnity is a promise to compensate the other party for defined losses, often third-party claims arising from IP infringement, data breaches or negligence. It shifts risk contractually beyond what general damages law would otherwise provide.

## Why it matters

Indemnities give a direct, often broader claim than ordinary breach damages and govern who controls and pays for third-party litigation. Their scope and caps can dwarf the contract value, so precise drafting is essential.

## How to apply it

- Define exactly which losses and claims are covered and any carve-outs.
- Set procedure: prompt notice, control of defence, and duty to cooperate.
- Decide whether the indemnity is capped or sits outside the liability cap.
- Require the indemnified party to mitigate and avoid admitting liability.

## Sample wording

> The Supplier shall indemnify and hold harmless the Customer against all third-party claims, losses and reasonable legal costs arising from the Supplier's infringement of intellectual property rights.

## Negotiation tips

- • The indemnifying party should seek a cap and exclude the other party's own negligence.
- • The indemnified party should keep IP and confidentiality indemnities uncapped.

## Common pitfalls

- • Open-ended indemnities with no cap, exposing one party to ruinous liability.
- • No defence-control or notice mechanism, leading to disputes mid-litigation.

### How Contracko helps

Contracko's AI review identifies indemnification clauses across your contract portfolio and flags uncapped or one-sided obligations before they become a liability. All indemnity-bearing contracts are kept in one searchable repository so your legal and finance teams can quickly assess total exposure and find specific agreements when a third-party claim arrives.

## Legal references

- [BW 6:74 Damages for non-performance Dutch law](https://wetten.overheid.nl/BWBR0005289)
- Indemnity vs. warranty distinction (general doctrine)

Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.

## Relevant for

[Software & SaaS](https://contracko.com/industries/software-saas)[IT Services](https://contracko.com/industries/it-services)[Manufacturing](https://contracko.com/industries/manufacturing)[Construction](https://contracko.com/industries/construction-industry)[Pharmaceuticals & Biotech](https://contracko.com/industries/pharma-biotech)

## Related clauses

- [Limitation of Liability Clause](https://contracko.com/clause-library/limitation-of-liability)
- [Warranties Clause](https://contracko.com/clause-library/warranties)
- [Intellectual Property Clause](https://contracko.com/clause-library/intellectual-property)

## Related terms

- [Indemnity](https://contracko.com/glossary/indemnity)
- [Liability](https://contracko.com/glossary/liability)
- [Breach of contract](https://contracko.com/glossary/breach-of-contract)

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## Frequently asked questions

Common questions about this clause.

- **Q:** Is an indemnity the same as a warranty?
  **A:** No. A warranty supports a damages claim for breach; an indemnity is a direct promise to pay defined losses, often without proving breach or causation in the usual way.

- **Q:** Should indemnities be capped?
  **A:** It is negotiated. Indemnifying parties want caps; recipients often carve out IP, data and confidentiality indemnities from the cap.

- **Q:** What is the notice requirement when a third-party claim triggers an indemnity?
  **A:** Most clauses require prompt written notice; failing to notify in time may reduce or forfeit the right to indemnification if the indemnifying party is prejudiced.

- **Q:** Who controls the defence of a third-party claim under an indemnity?
  **A:** Typically the indemnifying party, if it accepts the claim promptly and conducts the defence diligently; the indemnified party usually retains a right to approve any settlement.

- **Q:** Can an indemnity cover gross negligence or wilful misconduct?
  **A:** Contractually yes, but Dutch courts may not give effect to an indemnity that shields a party from the consequences of its own intentional or grossly negligent conduct.

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