An indemnity clause is one of the most consequential provisions in any commercial contract — and one of the least understood. Unlike most contractual obligations, which require a court to assess what loss you suffered, an indemnity is a direct obligation to pay. If it applies, it applies.
Paste any UK contract clause and get a structured risk report — plain English, red flags, enforceability insight, and a suggested counter-proposal.
The basic mechanics
An indemnity requires one party to compensate the other for specified losses, costs, or liabilities. The indemnified party does not need to prove negligence or foreseeability of loss — they simply need to show the triggering event occurred and they suffered loss as a result.
This is materially different from an ordinary breach of contract claim. In a breach claim, courts apply remoteness rules — losses not reasonably foreseeable at contracting are not recoverable. Indemnities can override this entirely: they can make you liable for losses you could not have anticipated, for amounts bearing no relationship to what you were paid.
How indemnities interact with liability caps
Most commercial contracts contain both a limitation of liability clause and one or more indemnities. The critical question is whether the indemnities are carved out of the liability cap. In many standard form contracts — particularly those drafted by large organisations — they are. This means the liability cap provides no protection against indemnity claims, leaving the indemnifying party with effectively unlimited exposure on exactly the provisions most likely to generate large claims.
Always check whether your limitation of liability clause applies to indemnity obligations. If it does not, the cap is providing less protection than it appears.
Types of indemnity in UK contracts
IP indemnities are common in technology and creative contracts — the supplier warrants their deliverable does not infringe third-party intellectual property and agrees to indemnify the client for any claims that arise. Third-party indemnities require one party to compensate the other for claims brought by third parties. General indemnities — covering any loss arising from breach — are the most dangerous, particularly when combined with no financial cap.
What to negotiate
The priority in any indemnity negotiation is the financial cap. Link it to the total contract value, or to fees paid in the twelve months preceding the claim. Push for carve-outs: losses caused or contributed to by the indemnified party's own negligence should not fall within your indemnity obligation. Insist on a notification requirement — you should be informed promptly of any potential claim and given the opportunity to participate in its defence before costs are incurred.