Understanding Indemnification

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 2,680 reviews

Jump to Section

Need help with a Business Contract?

Post Project Now

Indemnification in contracts is essential to protecting your business from negligent or nefarious third parties. An indemnification clause ensures that you don’t face civil damages in several legal situations.

In this article, we discuss indemnification, how it works in legal contracts, different types of indemnification, examples, and more. Let’s start by looking at its definition.

What is Indemnification in Legal Terms?

Indemnifications in legal terms are contractual provisions where one or both parties agree to compensate the other for any harm or loss resulting from damages caused by a third party. Insurance companies may require businesses to indemnify their vendors for liability coverage. This requirement shifts the financial risk to the other party and vice versa unless they’re unilateral indemnifications.

This web page also defines indemnification in legal terms.

What is Indemnification in a Contract?

Indemnification in a contract is usually inserted as a provision or standalone agreement. Identifying these clauses, on the other hand, can be one of the most challenging aspects. Some contracts make identification simple by utilizing specific language that should alert the reader, such as “hold harmless” and “indemnify.”

Indemnification in a contract is also known as:

Indemnification provisions are enforceable in local, state, and federal courts. However, there are some exceptions. Additionally, certain states prohibit indemnification clauses that include punitive damages . Additionally, pay attention to the party writing the contract since they’re often doing so for their legal advantage and gain.

What Does It Mean to Indemnify Someone?

Indemnifying someone means that you will compensate someone for their harm or loss. In the majority of contracts, an indemnification clause exists to pay a party for harm or loss caused by the other party’s. The purpose is to transfer liability from one party to the other party.

A civil action typically results from a factor within the indemnifying party’s control. Additionally, an indemnification clause will typically include language governing the manner in which claims are made and paid.

Clauses can easily exceed a page in length, and the indemnification section of a contract can be lengthy and challenging to read. This insertion doesn’t absolve any party of their legal responsibilities. Do not try to navigate these provisions on your own, and involve your contract attorney in developing an indemnification clause tailored to your business.

Meet some lawyers on our platform

Scott S.

12 projects on CC
View Profile

Kristen R.

27 projects on CC
View Profile

Donya G.

58 projects on CC
View Profile

Max M.

102 projects on CC
View Profile

Examples of Indemnification in Business Contracts

Indemnification is challenging to utilize since it’s a very abstract concept from a legal standpoint. However, real-world examples can help you understand how they work (or don’t work) for varying industries and companies.

Below, we’ve outlined three examples of indemnification in business contracts:

Example 1. Snow Removal Service Contract

Retailers with a physical location can benefit from business contract indemnification. Here is an example of how indemnification works in business contracts between retailers and snow removal service providers:

  • Jordan owns a store called Dress Flair in Butte, Montana
  • He wants to hire a snow removal service for the winter months
  • Dress Flair’s contract lawyers recommend that Jordan use indemnification
  • Indemnification protects Dress Flair from damages caused by the snow removal service company
  • Dress Flair hires Devil Sticks Snow Removal
  • Devil Stick’s owner, Trent, agrees to sign the contract
  • Trent is now responsible for damages related to improper snow removal

This situation demonstrates how an entire retail store owner can shift the legal burden of snow removal to the snow removal company. If someone slips and falls on snow or ice, Dress Flair is not liable for their injuries. You should also make them sufficiently broad to address concerns while remaining reasonable and equitable in all respects to ensure their enforceability.

Example 2. Digital Marketing Agency Contracts

Digital marketing agencies should limit as much of their risk as possible, especially since they primarily provide services. Here is an example of how indemnification works in contracts for digital marketing agencies:

  • Marta owns Crank Gear Marketing & Design
  • She employs eight people and provides digital marketing services
  • A new customer approaches Crank Gear about their amazing product, LipidFire
  • The product is diet pills that allow customers to lose weight without dieting
  • Marta decides to engage this business and offers a contract
  • The contract includes an indemnification clause
  • The indemnification clause protects Crank Gear against false claims made by its client
  • LipidFire chooses not to hire Crank Gear over the indemnification clause
  • Marta thanks their team and walks away from the prospect

Did you expect that outcome in this scenario? Probably not, but it illustrates a more significant point. Be wary of customers that refuse indemnification clauses that promote wild claims. You do not want to be responsible for damages associated with false advertising and bad faith claims.

Example 3. Online Retailer Contracts

Online retailers will only benefit from indemnification if another party causes damages. Here is an example of when an online retailer may not benefit from indemnification:

  • Rafael hand-carves wooden statues of gnomes and trolls
  • Friends and family like them so much that he decides to sell them online
  • Rafael sets up a website and online shopping cart
  • He has his suppliers sign indemnification clauses for raw materials
  • Rafael sprays finished statues with a highly-flammable lacquer
  • He does not put any type of warning or indication as such on his website
  • Rafael sells 37 hand-carved statues of trolls over the year
  • One customer places their troll statue on their kitchen counter
  • A fluke cooking accident caused a small kitchen fire where the statue’s lacquer sizzled immediately
  • Shards suddenly popped away from the statue and flew into the customer’s eye while they were trying to extinguish the fire
  • The customer sues Rafael for their injuries and wins
  • Rafael cannot sue his suppliers with indemnification provisions since he was responsible for warning customers about the lacquer

In this example, the retailer may purchase supplies from vendors, but there are limitations to these provisions. Business owners still need to mitigate their legal risk when using indemnification clauses by safeguarding customers and third parties.

When Should I use an Indemnification Clause?

You should use an indemnification clause when you want to avoid liability for lawsuits related to third-party negligence or abuse. If you run an online business, chances are you rely on vendors and have no control over their business practices and methods, and you expose yourself and your business to significant financial risk without an indemnification clause.

Businesses should use an indemnification clause if any of the following apply:

  • You don’t want third-party liability for your customer’s businesses
  • You want to recover civil damages for indemnification clause violations
  • You want to be absolved of risks and liabilities
  • You want to work with reputable companies and organizations

Consider it a red flag if a party doesn’t want to sign a contract with an indemnification clause. You can inquire about their limited liability insurance if you are concerned about their ability to fulfill obligations. This provision demonstrates that your supplier is accountable for its products and services.

Get Legal Help with an Indemnification

Before drafting an indemnification clause, ensure that you are complying with all applicable laws. Indemnifications should always be prepared carefully, as ambiguity is frequently resolved in the indemnifying party’s favor by courts. Put your mind at ease, and get legal help with an indemnification by hiring contract lawyers from your state today.

Post a project in ContractsCounsel’s marketplace to get flat fee bids from lawyers that specialize in indemnification provisions. All lawyers in our marketplace are vetted by our team and peer reviewed by customers for you to explore before hiring.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

View Tiffanie
Member Since:
September 8, 2022

Tiffanie W.

Free Consultation
Get Free Proposal
3 Yrs Experience
Licensed in FL
Florida Coastal School of Law

Tiffanie Wilson is a business transactions and personal injury lawyer. She helps clients realize their business goals by expertly drafting contracts, providing sound legal advice, and working for justice for injured clients.

View Daniel
Member Since:
September 6, 2022

Daniel F.

Free Consultation
Get Free Proposal
Woodmere, NY
12 Yrs Experience
Licensed in NJ, NY
St. Johns School of Law

An experienced attorney with a varied range of legal abilities. Focusing on real estate transactions and general commercial litigation.

View Doug
Member Since:
September 7, 2022

Doug F.

Managing Director
Free Consultation
Get Free Proposal
Boston, MA
40 Yrs Experience
Licensed in MA, NY
Boston University School of Law

Doug has over 20 years of private and public company general counsel experience focusing his legal practice on commercial transactions including both software and biotech. He is a tech savvy, business savvy lawyer who is responsive and will attain relationship building outcomes with your counterparty while effectively managing key risks and accelerating revenue. He received his Juris Doctor from Boston University School of Law earning the Book Award in Professional Ethics and after graduation he taught legal writing there for a number of years. Prior to law school, Doug earned a M.A in Mathematics at the State University of New York at Stony Brook, and a B.S in Honors Mathematics at Purdue University. After law school, Doug joined Fish & Richardson, where his practice focused on licensing software, trademarks and biotech. While at Fish & Richardson Doug authored a book on software licensing published by the American Intellectual Property Lawyers Association. Later he joined as General Counsel at FTP Software and led an IPO as well as corporate development. Doug has broad experience with a broad range of commercial agreement drafting and negotiation including SaaS software and professional services, distribution and other channel agreements, joint venture and M&A. Doug continued his leadership, corporate governance and commercial transaction practice at Mercury Computers (NASDAQ:MRCY) leading corporate development. Doug’s experience ranges from enterprise software to biotech and other vertical markets. He joined the board of Deque Systems in 2009 and joined in an operating role as President in 2020 successfully scaling the software business.

View Kathryn
Member Since:
September 13, 2022

Kathryn K.

Solo Practitioner
Free Consultation
Get Free Proposal
Longmont, CO
13 Yrs Experience
Licensed in CO
Georgetown University Law Center

I have been practicing law for thirteen years, specializing in commercial contracts. Since 2018, I have worked as a solo practitioner advising clients in a range of industries on commercial contracts, including a variety of services agreements, SaaS agreements, and vendor agreements. I have advised clients on overhauling their existing MSAs and SOWs, updating data processing agreements, given training presentations to new members of my clients' sales teams, reviewed NDAs, and worked on process improvement in collaboration with my clients' senior leadership. Throughout the negotiation process, I work closely with a variety of stakeholders, including my clients' sales teams, data security and privacy officers, and finance. I am accustomed to, in partnership with the sales team, taking ownership over deals with no supervision. I pride myself on taking a business-savvy approach to closing deals, protecting my clients' interests without nit-picking or unnecessary redlines, and finding creative solutions to potential hurdles during negotiations. Prior to starting my solo practice, I worked for an Am Law 100 law firm, the Federal Government, and a boutique law firm.

View Michael
Member Since:
September 9, 2022

Michael M.

Free Consultation
Get Free Proposal
Los Angeles
35 Yrs Experience
Licensed in CA

I am an experienced contracts professional having practiced nearly 3 decades in the area of corporate law. I enjoy providing a cost effective, high quality and timely solution to client needs. This includes any form of contract a business may encounter as well as mergers and acquisitions. I graduated from NYU Law School. I have worked at top Wall Street firms, top regional firms as well as long term experience in my own practice. I would welcome the opportunity to be of service.

View Spencer
Member Since:
September 15, 2022

Spencer R.

Free Consultation
Get Free Proposal
New York
26 Yrs Experience
Licensed in NY
Washington College of Law at American University

I am an experienced attorney working in New York specializing in transactional work, tax structuring and contracts.

View Max
Member Since:
September 18, 2022

Max L.

Free Consultation
Get Free Proposal
Fort Lauderdale, Florida
16 Yrs Experience
Licensed in FL
The Benjamin N. Cardozo School of Law

Hi there. My practice focuses on several aspects of business law, including business entity formation and organizational documents, trademark and copyright, and contracts. I work with quite a few creative entrepreneurs, such as photographers, artists, and musicians.

View Erdal
Member Since:
September 15, 2022

Erdal T.

Owner, CEO and Managing Attorney
Free Consultation
Get Free Proposal
New Jersey
16 Yrs Experience
Licensed in NJ, NY
New York Law School

Erdal Turnacioglu of Erdal Employment Law focuses on providing employment solutions to both employees and businesses, whether through litigation, review of employee handbooks, workplace investigations, or training seminars.

View Dragan "Dan"
Member Since:
September 21, 2022

Dragan "Dan" I.

Managing Attorney
Free Consultation
Get Free Proposal
Chicago, Illinois
23 Yrs Experience
Licensed in IL
University of Illinois College of Law

DRAGAN DAN IVETIĆ received a bachelor’s degree in philosophy from Northwestern University in 1996 and went on to the University of Illinois College of Law where he received a Juris Doctorate in 1999, and has been practicing law ever since then. Dragan is currently licensed and authorized to practice before the Illinois courts all the way up to the Illinois Supreme Court, and the United States’ District Court for the Northern District of Illinois. Internationally he is one of a select few American attorneys licensed and authorized to practice before the United Nations ICTY/IRMCT, the International Criminal Court, and the State Court of Bosnia-Herzegovina. His practice has led him across the United States, Europe, and Africa. Dragan has been sought and/or retained for international work alongside local counsel in several European countries, as well as Australia and Africa in private legal matters. Since 2009 he has owned his own law firm continuing with both a domestic and international practice including Trial litigation (including Commercial, Premises Liability, Personal Injury, Criminal Defense, and General Litigation), as well as Transactional work (Contracts, Corporate formation, and Real Estate Transactions). His international practice has included both civil matters and criminal defense, before both the UN ICTY, UN IRMCT, and State Court of BiH. He is a past President of the ADC-ICT (the Official Bar Association of Practitioners before the UN ICTY and UN IRMCT in The Hague) and current officer. He has been involved in multiple ICTY/IRMCT cases. He is also Chair of the ICCBA Defence Committee (the Official Bar Association of Practitioners before the ICC in The Hague). Mr. Ivetić has also been a long-standing member of the ADC-ICT training committee, and served as an instructor/lecturer on Oral Advocacy and Trial Practice for the participants of the ADC-ICT & ICLB Mock Trial since 2014, and has presented Advocacy Training lectures for the ADC-ICT on several topics as well as regularly lecturing to visiting University and Bar groups from around the world. Dragan's practice at this law firm continues with the same diligence and zeal in domestic cases as shown for international cases, with a focus on Trial and Appellate litigation, as well as Transactional work. Perhaps you have a legal matter important to you, or have a loved one that has such a legal matter. Sign up for a free consultation and see if your case will be Dragan's next project. His current firm also is affiliated with the Kansas-Based law firm of Warrior Lawyers International - Kerns Law Group. Through Warrior Lawyers International he and his colleagues have been sought and/or retained for international work alongside local counsel in several European countries, as well as Australia and Africa.

View Justin
Member Since:
September 22, 2022

Justin K.

Freelance Attorney
Free Consultation
Get Free Proposal
Valencia, CA
19 Yrs Experience
Licensed in CA
University of Southern California School of Law

I have been practicing law exclusively in the areas of business and real estate transactions since joining the profession in 2003. I began my career in the Corporate/Finance department of Sidley's Los Angeles office. I am presently a solo practitioner/freelancer, and service both business- and attorney-clients in those roles.

View James
Member Since:
September 22, 2022

James G.

Free Consultation
Get Free Proposal
Glendale, Arizona
7 Yrs Experience
Licensed in AZ
Arizona Summit School of Law

I am a lawyer in Glendale, Arizona. I have practiced in contract work including buy/sell agreements, contracts for the purchase of goods and services and real estate. I also practice in bankruptcy law and sports and entertainment law.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call