Indemnity Agreement Template

In plain language: Identifies the indemnifier and indemnitee as legal entities, states their relationship, and describes the commercial context that gives rise to the indemnity obligation.

Common mistake: Using trade names instead of registered legal entity names. If the named indemnifier does not match the signatory's corporate registration, enforcing the indemnity against the right entity requires additional litigation to pierce the naming ambiguity.

In plain language: Defines exactly what events, acts, or circumstances trigger the indemnity obligation and what categories of losses are covered.

Common mistake: Using 'arising out of or in connection with' without narrowing the scope — courts have interpreted this language broadly enough to cover losses the indemnifier never intended, including the indemnitee's own negligence.

In plain language: Lists the specific types of damages and costs the indemnifier must cover — typically including legal fees, settlements, judgments, fines, and out-of-pocket expenses.

Common mistake: Omitting consequential or indirect damages from the definition without expressly excluding them. If the agreement is silent, courts in many jurisdictions allow recovery of consequential damages, which can dwarf direct losses in technology and IP contexts.

In plain language: Carves out circumstances where the indemnifier is not obligated to compensate the indemnitee — most commonly the indemnitee's own gross negligence, willful misconduct, or fraud.

Common mistake: Excluding only 'negligence' without specifying 'gross negligence.' In many jurisdictions, a simple negligence exclusion can void the entire indemnity clause under anti-indemnity statutes — particularly in construction contracts.

In plain language: Sets the maximum aggregate amount the indemnifier is required to pay, protecting them from unlimited exposure and making the indemnity obligation commercially insurable.

Common mistake: Setting the cap equal to the contract value without considering the actual risk exposure. In IP licensing or M&A contexts, third-party infringement or warranty claims routinely exceed the underlying contract value by multiples.

In plain language: Requires the indemnitee to promptly notify the indemnifier of any claim or proceeding that triggers indemnification, specifying how notice must be given and the consequences of late notice.

Common mistake: Making late notice an automatic forfeiture of indemnification rights. Courts often refuse to enforce forfeiture unless the indemnifier can show actual prejudice from the delay — but the ambiguity creates costly disputes.

In plain language: Allocates the right to control the defense of covered third-party claims — including selecting counsel, managing strategy, and approving settlements.

Common mistake: Allowing the indemnifier to settle claims that include non-monetary relief — such as injunctions or admissions of liability — without the indemnitee's consent. Such settlements can materially harm the indemnitee's ongoing business even if they cost the indemnifier nothing.

In plain language: Requires the indemnifier to maintain specific insurance coverage — general liability, E&O, or umbrella — to ensure the indemnity obligation is actually collectible.

Common mistake: Omitting an insurance obligation entirely. An indemnity from an underinsured or insolvent counterparty is an unsecured promise — without required insurance, the indemnitee may win the legal argument and still collect nothing.

In plain language: Specifies how long the indemnification obligations continue after the agreement terminates or the underlying transaction closes.

Common mistake: Setting a survival period shorter than the applicable statute of limitations for the underlying claims. If a third party can sue the indemnitee for three years but the survival period is twelve months, the indemnitee is exposed for the gap.

In plain language: Specifies which jurisdiction's law governs the interpretation and enforcement of the agreement and how disputes between the parties are resolved.

Common mistake: Selecting a governing law with no meaningful connection to either party or the underlying transaction. Arbitrators and courts will honor the choice, but local mandatory employment or anti-indemnity statutes may override the chosen law regardless of what the contract says.

An indemnity agreement is a contract in which one party — the indemnifier — agrees to compensate the other party — the indemnitee — for specific losses, claims, liabilities, or damages arising from a defined event or relationship. It shifts the financial risk of a covered loss from the indemnitee to the indemnifier, and typically also includes an obligation to defend the indemnitee against covered third-party claims. Indemnity agreements are used across M&A transactions, IP licensing, services contracts, real estate, and corporate governance.

The terms are often used interchangeably, but they carry slightly different meanings in strict legal usage. A hold harmless clause prevents the indemnitee from being held liable for specified losses — it is a promise not to sue or assert claims. An indemnity clause goes further and requires the indemnifier to actively compensate the indemnitee for covered losses. Many commercial agreements combine both in a single clause: 'shall indemnify, defend, and hold harmless.' Using both together provides the broadest protection.

An indemnity agreement is generally enforceable when properly executed, clearly drafted, and not prohibited by applicable law. However, enforceability is subject to significant limitations: anti-indemnity statutes in many US states restrict or void clauses that indemnify a party for its own negligence, particularly in construction contracts. Courts also scrutinize caps, survival periods, and scope language carefully. Consider consulting a lawyer to confirm the agreement is enforceable in your specific jurisdiction and context.

A mutual indemnity agreement — sometimes called a cross-indemnification agreement — imposes reciprocal indemnification obligations on both parties. Each party agrees to indemnify the other for losses caused by its own acts, omissions, or breaches. Mutual structures are common in joint ventures, technology partnerships, and services agreements where both parties have meaningful exposure. A unilateral structure, by contrast, places the entire indemnification burden on one party — typically the vendor, contractor, or seller in a transaction.

A liability cap is a contractual ceiling on the total amount the indemnifier can be required to pay under the agreement. It matters for two reasons. First, it makes the indemnity commercially insurable — most insurers will not underwrite unlimited indemnification exposure. Second, it allows parties to price the risk appropriately and structure insurance coverage to match. Common benchmarks include the total contract value, 12 months of fees, or the limits of the required insurance policy. Fraud and willful misconduct are almost always carved out from the cap.

The survival period — how long indemnification obligations remain enforceable after the agreement terminates — is one of the most negotiated provisions in an indemnity agreement. For standard commercial contracts, survival periods of 12 to 36 months are typical. In M&A deals, ordinary business representations survive 12–24 months while fundamental representations (title, authority, capitalization) often survive 5–7 years or indefinitely. The survival period should always be at least as long as the applicable statute of limitations for the most serious covered claim.

An indemnity clause embedded in a broader contract — a services agreement, license, or asset purchase agreement — is generally sufficient and often preferable because it keeps all obligations in one document. A standalone indemnity agreement is typically used when the indemnification obligation arises independently of a larger contract, when the parties want to negotiate and execute the indemnity on a separate timeline, or when the indemnity backstops multiple underlying agreements. Both structures are equally enforceable when properly drafted.

Anti-indemnity statutes are state or provincial laws that limit or prohibit contractual indemnification for a party's own negligence — most commonly in construction, oilfield, and transportation industries. The US states with the broadest anti-indemnity laws include California, Texas, Colorado, Louisiana, and New York (for construction contracts). If your indemnity covers acts in one of these states, clauses that shift liability for the indemnitee's own negligence may be void regardless of what the contract says. A lawyer familiar with the applicable jurisdiction should review the agreement before execution in high-risk industries.

Control of the defense is typically granted to the indemnifier, since they are paying for it — including the right to select counsel and manage litigation strategy. However, the indemnitee should negotiate the right to approve defense counsel, participate in strategy at its own cost, and withhold consent to any settlement that includes non-monetary terms such as injunctions, admissions of liability, or restrictions on the indemnitee's future business. Without these protections, the indemnifier could settle a claim in a way that damages the indemnitee's operations or reputation at no cost to itself.