Indemnity clause (UK): what you are agreeing to pay for

An indemnity clause is a promise to pay for someone else's losses if a specified thing happens. It is not a cap or a defence, it is an obligation to reach into your own pocket, and it can be triggered without the other side having to prove you breached the contract at all.

If you are a freelancer or contractor, this is the clause most likely to turn a small project into a large bill. A limitation of liability clause protects you. An indemnity clause is the one working against you.

Key Takeaways

• An indemnity is a primary promise to pay, not a claim for damages, so the usual hurdles of proving breach may not apply.
• In a business to business contract there is no statutory ceiling on an indemnity you give. Uncapped wording means uncapped exposure.
• A liability cap elsewhere in the contract does not automatically cover the indemnity. It has to say so.
• Your professional indemnity insurance may not follow you into a liability you accepted only by contract.

What does an indemnity clause do?

An indemnity clause usually has three moving parts, and each one decides how much it can cost you:

• The trigger: what has to happen before you owe anything. Common triggers are a breach by you, a third-party claim, an intellectual-property infringement, or a data-protection failure.
• The losses covered: often written as "all losses, costs, claims, damages and expenses", sometimes extended to legal fees on a full indemnity basis.
• Who is protected: sometimes just the client, often the client plus its group companies, officers, employees and customers.

The wording carries the whole risk. "Indemnify the client against direct losses arising from your breach of clause 7" is a narrow, arguable obligation. "Indemnify the client and its affiliates against all losses however arising in connection with the services" is close to open-ended. Because it interacts with what can be recovered from you overall, read it directly next to the limitation of liability clause.

What an indemnity clause means for you

The practical difference between an indemnity and an ordinary damages claim is what the other side has to do to get paid.

In a normal claim for damages, they must prove you breached the contract, prove the loss was caused by that breach, and their recovery is limited by the rules on remoteness. They also have a duty to mitigate. Under a well-drafted indemnity, several of those protections can fall away: if the loss falls inside the trigger and the wording is wide enough, the obligation to pay can arise more or less on its own terms.

Three questions are worth asking before you sign:

1. Is it mutual? Many contracts indemnify the client and say nothing about you. That is a choice, not a standard.
2. Is it capped? Look for wording that expressly brings the indemnity inside the liability cap. If the cap says "subject to clause X (indemnity)", the indemnity sits outside it.
3. Can I actually control the claim? If you are paying for a third-party claim, you should have a say in how it is defended and settled. Without that, the client can settle generously at your expense.

Indemnities are one of the provisions we flag in our rundown of risky contract clauses UK freelancers should always check.

The UK law on indemnity clauses

The honest position is that statute does very little to help a freelancer here, and that is the most important thing to understand about this clause.

Section 4 of the Unfair Contract Terms Act 1977 was headed "Unreasonable indemnity clauses" and controlled indemnities given by a person dealing as a consumer. It was repealed by the Consumer Rights Act 2015, and nothing replaced it for people contracting in the course of a business. A freelancer signing a client's service agreement is contracting in business, so that protection was never available to you and no longer exists at all.

What UCTA still does is control the other direction, where the client tries to limit its own liability to you:

• Section 2(1) means nobody can exclude or restrict liability for death or personal injury resulting from negligence. That one is absolute.
• Section 2(2) means other loss or damage from negligence can only be excluded or restricted so far as the term satisfies the requirement of reasonableness.
• Section 3 applies where you are dealing on the other party's written standard terms of business. In that situation they cannot exclude or restrict liability for their own breach, or claim the right to perform something substantially different, except so far as the term is reasonable. If your client sent you a contract they use across all their freelancers, this section is on your side — though a heavily negotiated agreement may fall outside it.
• Section 11 sets the reasonableness test, and judges it by what was known or in contemplation when the contract was made, not with hindsight after a dispute.

So the shape of the law is asymmetric. The client's attempt to shield itself is policed. The indemnity you give is not. Negotiation, not statute, is what protects you.

Indemnity clause: a reasonable version vs an aggressive one

What to push back on before you sign

• Bring it inside the cap. The single most valuable change is wording that makes the indemnity subject to the overall limitation of liability. Ask for it first.
• Narrow the trigger. Tie it to your breach of a named clause rather than anything arising in connection with the work.
• Cut indirect losses. Ask for the indemnity to cover direct losses only, and for legal costs to be reasonable costs.
• Add conduct-of-claims wording. Prompt notice, your right to participate, and no settlement without your consent.
• Check your insurance before you agree. Contractual indemnities that go beyond your ordinary legal liability are commonly excluded, so confirm the position with your insurer rather than assuming cover.
• Ask for mutuality. If the client will not indemnify you on the same terms, that tells you how one-sided the deal is.

If you are not sure whether an indemnity in your contract is capped or open-ended, upload the agreement to Ookulli and it will flag the trigger, whether the liability cap reaches it, and what a fairer version looks like, with each point traced back to how UK law reads it.

This page is general information, not legal advice. It describes English contract law as it applies in England and Wales; Scots law takes its own approach. An uncapped indemnity is a genuinely high-stakes term, so for a significant contract speak to a qualified solicitor.