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An indemnity clause in your general terms and conditions can be a good idea: it ensures that the counterparty protects you against claims from third parties. Unlike an exoneration clause, which limits your liability towards the counterparty, an indemnity shifts the risk of external claims.
Exoneration versus indemnification
An exemption clause limits or excludes your liability towards your contractual partner. An indemnity clause concerns third parties: the counterparty promises to compensate you if a third party holds you liable for something that falls within that counterparty's sphere of risk. Together, they cover various risks.
What does an indemnity clause do?
Suppose you deliver according to your customer's instructions, and a third party subsequently holds you liable because those instructions infringe upon their rights. With an indemnity clause, you can recover those damages and costs from your customer. The clause shifts the risk to the party that caused it or can best control it.
When is it wise?
An indemnity is particularly useful if you work with input, materials, or instructions from your client, or if your work ends up with third parties. Think of custom manufacturing, resale, or the use of content supplied by the client. It protects you against claims over which you had little control.
Pay attention to the borders
Just like an exemption clause, an indemnity has limits: it must not be unreasonably burdensome towards consumers, and an indemnity for your own intent or conscious recklessness will not hold up. Have the clause drafted carefully and in a balanced manner so that it holds up.
Frequently Asked Questions
What is the difference between exoneration and indemnification?
An exoneration limits your liability towards the counterparty; an indemnification protects you against claims from third parties through that counterparty.
When do I need an indemnity clause?
Especially if you work with input or instructions from your client, or if your work ends up with third parties, with the risk of external claims.
Does an indemnity always apply?
Not unlimited: it must not be unreasonably burdensome towards consumers, nor for your own intent or conscious recklessness.
Have an indemnity clause drafted?
Our legal experts incorporate a comprehensive indemnification clause into your general terms and conditions and perform a terms and conditions scan. View our contract lawteam or schedule a free consultation.
