Contract clauses

What is an indemnity clause? A plain guide with examples

Published 5 July 2026 · by Vora

An indemnity clause is a promise by one party to cover the losses of the other if a particular thing goes wrong. In plain terms, it says: if this happens, I will make you whole. It is one of the most negotiated clauses in any contract, because it decides who carries the cost when something breaks.

How it differs from ordinary damages

If a contract is breached, the injured side can usually claim damages, but it has to prove the loss and that the breach caused it, and the amount can be reduced by various legal rules. An indemnity is more direct. It creates a specific promise to pay for a defined type of loss, often without the same hurdles, which is why the wording matters so much.

A simple example

Suppose a software vendor promises that its product does not infringe anyone's copyright. If a third party later sues the customer for infringement, an indemnity clause can require the vendor to cover the customer's legal costs and any award. Without it, the customer might have to fight that battle, and pay for it, alone.

What to check before you agree

• Is it mutual or one-way? Make sure you are not the only one giving an indemnity.
• What losses does it cover? Direct losses are normal. An indemnity that reaches indirect or consequential losses is much broader, and worth resisting.
• Is it capped? Check whether the indemnity sits inside the limitation of liability, or outside it. Uncapped indemnities are a real risk.
• What triggers it? The events that set off the indemnity should be specific, not open-ended.
• Who controls the defence? If a third party sues, the clause should say who runs the defence and who approves any settlement.

Frequently asked questions

What is an indemnity clause in simple words?

It is a promise by one side to pay for a specific kind of loss the other side suffers if a defined event happens. It shifts an agreed risk from one party to the other.

How is an indemnity different from damages?

Damages are what you claim after a breach, and you have to prove the loss and its cause. An indemnity is a direct promise to cover a defined loss, often without the same barriers, which makes precise wording very important.

Should an indemnity be mutual?

Where both sides carry similar risks, a mutual indemnity is fairer. If only you are giving one, that is worth questioning.

Are indemnity clauses enforceable in India?

Yes. Indemnity is recognised under the Indian Contract Act, 1872. As with any clause, enforceability depends on clear drafting and the specific facts.

What is the biggest risk in an indemnity clause?

An indemnity that is uncapped and reaches indirect or consequential losses. That combination can expose you to far more than the value of the contract.