What is Indemnification?
Definition
An indemnification clause requires one party to compensate the other for specified losses, damages, legal fees, and related costs. This is one of the highest-impact provisions in any contract because it can shift enormous financial exposure onto you. In a one-sided indemnification arrangement, you could be responsible for paying the other party's legal defense costs, settlement amounts, and judgments, even in situations where their own conduct contributed to the harm. Mutual indemnification, where both parties bear responsibility for their own actions, is the more balanced approach. For example, if your service agreement includes a broad indemnification clause and a client's customer sues over something you built, you could be on the hook for the client's entire legal bill plus any settlement, regardless of whether the client gave you flawed specifications. Watch for indemnification obligations with no cap, clauses that require you to indemnify for the other party's own negligence, and provisions that lack a requirement to notify you promptly when a claim arises.
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