Indemnification Clause in Contracts: Who Pays When a Third Party Sues?
What This Clause Does
Indemnification means one party agrees to cover the other party's legal costs, damages, and settlements if a third party makes a claim related to the contract. In SaaS agreements, you'll typically indemnify the vendor if someone sues them because of how you used their software. The vendor typically indemnifies you if their software infringes someone else's intellectual property.
The scope of what you're indemnifying matters enormously. Indemnifying for your own misuse of the product is reasonable. Indemnifying for any claim arising out of your use, including claims that aren't your fault, is not.
Example Clause Pattern
"Customer shall indemnify, defend, and hold harmless Vendor and its officers, directors, and employees from any third-party claims arising from (a) Customer's use of the Service in violation of this Agreement, (b) Customer's breach of any representation or warranty, or (c) Customer Data."
What to Watch
- You indemnify the vendor for any claim related to your data, regardless of fault
- Your indemnification obligation is broader than the vendor's
- Vendor's IP indemnification excludes modifications you made at their direction
- No mutual indemnification: all obligations run in one direction
What to Negotiate
- Ensure your indemnification obligation is limited to claims arising from your actual breach or fault — not any claim related to your data or presence
- Negotiate mutual indemnification: the vendor's IP indemnification should match your breadth of obligation
- Cap your maximum indemnification exposure at the same limit as the liability cap elsewhere in the contract
- Request a carve-out excluding claims caused by the other party's own actions even when your involvement is incidental
Need a Contract Template?
If you need a lawyer-reviewed template for this type of agreement, these services can help.
Rocket Lawyer
Lawyer-reviewed templates for individuals and small businesses
LawDepot
Customizable legal documents — fill in the blanks, download instantly
LegalZoom
Legal documents drafted with attorney guidance
Affiliate links — KlausClause may earn a commission at no cost to you.
Found in These Contracts
This clause commonly appears in the following contract types:
Frequently Argued Questions
What does an indemnification clause mean?
An indemnification clause requires one party to compensate the other for losses, damages, and legal costs if a third party makes a claim related to the contract. In SaaS and service agreements, you typically agree to indemnify the vendor if someone sues them because of how you used their service, and the vendor agrees to indemnify you if their product infringes on someone's intellectual property.
Is indemnification the same as liability?
They're related but distinct. Liability refers to your direct responsibility to the other contracting party for losses they suffer. Indemnification specifically covers third-party claims — situations where someone outside the contract sues one of the parties and that party seeks reimbursement from the other. An indemnification obligation can be broader or narrower than the general liability cap, which is why both clauses need to be read together.
How broad is a typical customer indemnification obligation?
Standard customer indemnification covers three things: your use of the service in violation of the contract, your breach of your representations or warranties, and claims related to your data. A broader (worse) version covers any claim arising from your use, which could include claims that aren't your fault. Always check whether the indemnification is limited to your actual breach or fault, and whether it's capped at the same limit as the rest of the contract.
Negotiation Strategies
Ensure the vendor's IP indemnification covers the product as delivered, not just unmodified versions
Limit your data indemnification to claims arising from your actual breach of the agreement
Have a contract with this clause?
Upload it and get plain-English explanations and risk scores for every clause.
Upload your contract for a full analysis