Guide
What to Look for in an Indemnification Clause
By Keelstar Team · Updated June 1, 2026
The short answer
Check who indemnifies whom, for what types of claims, whether indemnification is mutual or one-way, and whether it is capped by the limitation of liability. Broad indemnification — covering all claims arising from the contract regardless of fault — is a red flag. Indemnification for the other party's negligence should be resisted.
What indemnification does
An indemnification clause requires one party (the indemnitor) to compensate the other (the indemnitee) for specified losses — including third-party claims, legal fees, and settlements. It shifts financial risk from the indemnitee to the indemnitor for covered events. In vendor contracts, vendors often ask customers to indemnify them broadly while offering narrow indemnification in return.
The four questions to ask
Every indemnification clause answers four questions:
- Who indemnifies whom — one-way or mutual?
- For what — breach, negligence, IP infringement, data breach, bodily injury?
- Scope — only third-party claims, or also direct losses between the parties?
- Cap — is indemnification subject to the limitation of liability, or uncapped?
Red flags in vendor contracts
Watch for language requiring you to indemnify the vendor for claims arising from your use of the product — even if the product caused the harm. Indemnification for the vendor's own negligence, gross negligence, or willful misconduct is one-sided and should be rejected. Uncapped indemnification paired with a low liability cap on the vendor's obligations creates asymmetric risk.
IP indemnification
Vendors typically indemnify customers against third-party claims that the product infringes intellectual property. Confirm the scope: does it cover modified versions, combinations with your systems, and claims in all jurisdictions where you operate? IP indemnification is one of the few areas where vendor indemnification of the customer is standard — push for it if missing.
Defense and control of claims
Indemnification clauses often specify who controls the defense of indemnified claims. If the indemnitor controls defense, they choose the lawyers and settlement strategy. If you are the indemnitee, you may want the right to participate in or approve settlements. Read the defense obligations — they affect how claims are handled in practice, not just who pays.
Interaction with limitation of liability
Some contracts cap general liability but carve out indemnification from the cap — meaning indemnification obligations are unlimited even when other damages are capped. Others subordinate indemnification to the overall liability cap. Understand which structure applies: uncapped indemnification with a $50,000 liability cap is a significant exposure.
Frequently asked questions
- What does indemnification mean in plain terms?
- One party agrees to cover the other party's losses from specified claims — typically including legal defense costs and settlements. It is essentially a contractual insurance policy.
- Should indemnification be mutual?
- In balanced commercial relationships, yes. Each party indemnifies the other for claims arising from its own breach, negligence, or misconduct. One-way indemnification favoring the vendor is common in form contracts and should be negotiated.
Related guides
Put this into a monitored workflow
Contract Risk Scanner handles this continuously — with reminders and an audit trail.