Indemnity

A promise to cover someone else's losses. Broader and more dangerous than ordinary contractual damages.

What it means

An indemnity is a contractual promise to reimburse the other party for specified losses. Unlike a claim for breach of contract, an indemnity generally avoids the usual limits — the duty to mitigate, remoteness of damage, and sometimes the liability cap.

That is why they are drafted in, and why they are worth reading carefully.

Why it matters

An uncapped indemnity can outsize the contract that contains it by orders of magnitude. Agreeing to indemnify a customer against "any and all losses arising from" your services on a £20,000 contract is an unbounded exposure for a bounded fee.

Your insurance may not respond to a liability you assumed contractually that you would not otherwise have had.

What it looks like in practice

What to negotiate: cap the indemnity, tie it to the liability cap, limit it to third-party claims rather than the customer's own losses, exclude indirect and consequential loss, and require the other side to notify and let you conduct the defence.

Check the indemnity against your policy wording before agreeing it, not after a claim.

What to watch out for

Indemnities buried in schedules and order forms rather than in the main terms.

Back-to-back exposure. If you indemnify a customer for something a subcontractor might cause, you need the same protection flowing up from the subcontractor.

Where to get proper advice

A commercial solicitor, and your insurance broker on whether the policy responds. These are two different questions and both need answering.