Understanding Indemnity Clauses In Consulting Contracts

Most lawyers will tell you indemnity just means reimbursement. They’re wrong. Because indemnities don’t just say “I’ll pay you back if you lose.” They say “the risk belongs to me the moment the claim appears.” That’s a huge difference. Without indemnity: You get sued, you defend yourself, maybe years later you try to recover from the other party. With indemnity: The other party may have to step in immediately - cover your defense, control the case, and pay any settlement or judgment. And in some jurisdictions, indemnities are treated very differently than normal damages. 1. In the UK, indemnities often bypass two big contract limits: - Mitigation: the indemnitee doesn’t always have to show they tried to reduce their loss. - Remoteness: losses that might be “too remote” under normal contract law can still be claimed under an indemnity. 2. California: vague clauses won’t cover negligence. The law requires express language if one party is expected to indemnify the other’s own negligence. 3. Delaware: indemnities can cover first-party claims (your own losses, not just third-party claims) - but only if drafted explicitly. Many drafters forget this. That’s why parties fight for indemnities - they’re not just stronger reimbursement, they’re a different liability regime. So the myth “indemnity = reimbursement” misses the point. The real question is: what risks are you reallocating, and how will the forum treat that reallocation? That’s why smart drafters interrogate indemnities as a system: scope, trigger, defenses, survival. __ This post is for educational purposes only and does not constitute legal advice. It should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. __ Hello, I'm Gvantsa, Partner at GBPLO. I help entrepreneurs and high-growth companies close complex cross-border deals, secure IP, ensure enforceability across jurisdictions, and transform legal operations into profit-protecting, efficiency-driven systems.

"Each of Vendor and Client shall indemnify the other for any third party claims arising out of the Services." For some of you, the #ContractTrap in that statement seem obvious. But sadly, I still see language like this a fair amount. The problem is that it's not clear at all which party is indemnifying the other. If Vendor gets sued for IP infringement based on Client's use of the Services, is Client supposed to indemnify Vendor? If Client gets sued for the same thing, is Vendor supposed to indemnify Client? And what if they both get sued (as often happens)? Are they each indemnifying the other? None of this makes much sense. And when things don't make sense, you don't know how they will play out if there's a dispute. I suspect that the way this language appears is that someone's template has a broad indemnity in their favor - e.g., "Vendor shall indemnify Client for any third party claims arising out of the Services." And then the Vendor demands that clause be made mutual, resulting in the problematic language. So what do you do instead? Think about what each party really should be indemnifying the other for, and specify that. If it makes sense for both parties, the fix could be as simple as "Each party shall indemnify the other for claims relating to the Services to the extent arising out of the actions or wrongful omissions of such party." Sometimes it's more complicated - you may want to specify certain claims (e.g., IP infringement) as the risk of one party and other claims (e.g., data security) as the risk of the other. But whatever you do, don't wind up in a situation where each party is indemnifying the other for the very same claim! #contracts #inhousecounsel

Don’t fear indemnity clauses— master them! Recently, I ran a poll asking which contractual provision keeps you up at night. The results were clear: indemnity clauses took the top spot by a landslide. But here's a 🌶️ take— indemnity clauses don't have to be a source of sleepless nights. In fact, with the right approach, they can be managed effectively and even become a strategic advantage. Here are some real, actionable considerations to tackle indemnity clauses head-on: ➡️ Understand the Scope: Indemnity clauses vary widely. Make sure you understand whether the clause is limited to specific risks or if it imposes a broad, all-encompassing liability. Clarify any ambiguous language with the GC or your attorney. ➡️ Negotiate Fair Terms: Don't assume you have to accept the clause as-is. Negotiate terms that are fair and reasonable. Aim to limit your liability to your own negligence or fault rather than accepting responsibility for others' actions. ➡️ Get Insured: Ensure you have the appropriate insurance coverage to back up the indemnity obligations. Review your policy with your broker to confirm it covers the specific risks you are taking on. ➡️ Include Reciprocal Clauses: Consider negotiating for mutual indemnity clauses where both parties agree to indemnify each other for specific risks. This can create a more balanced contract and reduce your overall exposure. ➡️ Document Everything: Maintain thorough documentation of all project activities, communications, and RFIs. This can be invaluable in defending against claims and demonstrating compliance with contract terms. Indemnity clauses are complex and can seem scary, but with these strategies, you can turn a potential nightmare into a manageable aspect of your contract. Remember, it's about being proactive, informed, and strategic in your approach. ~~~~~~~~~~~ 𝐎𝐰𝐧 𝐲𝐨𝐮𝐫 𝐜𝐨𝐧𝐭𝐫𝐚𝐜𝐭𝐬. 𝙒𝙞𝙣 𝙢𝙤𝙧𝙚 𝙥𝙧𝙤𝙟𝙚𝙘𝙩𝙨. 𝘌𝘭𝘪𝘮𝘪𝘯𝘢𝘵𝘦 𝘤𝘭𝘢𝘪𝘮𝘴. 𝗠𝗮𝘅𝗶𝗺𝗶𝘇𝗲 𝗽𝗿𝗼𝗳𝗶𝘁𝘀. 𝐃𝐨 𝐢𝐭 𝐥𝐢𝐤𝐞 𝐚 𝐥𝐚𝐰𝐲𝐞𝐫.™️ 👉 Do you have any other contractual provisions that keep you up at night? 👇 ~~~~~~~~~~~ 📈 P.S. 𝐈𝐟 𝐲𝐨𝐮'𝐫𝐞 𝐚 𝐬𝐮𝐛𝐜𝐨𝐧𝐭𝐫𝐚𝐜𝐭𝐨𝐫 𝐥𝐨𝐨𝐤𝐢𝐧𝐠 𝐭𝐨 𝐰𝐢𝐧 𝐦𝐨𝐫𝐞 𝐩𝐫𝐨𝐣𝐞𝐜𝐭𝐬, 𝐞𝐥𝐢𝐦𝐢𝐧𝐚𝐭𝐞 𝐜𝐥𝐚𝐢𝐦𝐬, 𝐚𝐧𝐝 𝐦𝐚𝐱𝐢𝐦𝐢𝐳𝐞 𝐩𝐫𝐨𝐟𝐢𝐭𝐬, you're in the right place. I coach subcontractors on how to master their subcontracts to achieve these goals. 🔔 𝙁𝙤𝙡𝙡𝙤𝙬 𝙢𝙚 for subcontract insights and tips that can transform your business. 𝗗𝗼𝗻'𝘁 𝗷𝘂𝘀𝘁 𝘀𝗸𝗶𝗺 𝗯𝘆—hit that follow button and let’s turn your contracts into your greatest asset. Questions? Shoot me a message—I love coffee chats! ☕