In simple terms, an indemnity is a contractual promise that requires one party to compensate the other if a specific event or set of circumstances occurs – usually connected to a breach of contract. The purpose of an indemnity is to shift risk away from the party receiving the indemnity and onto the party giving it. Clear contractual wording ensures everyone understands when an indemnity is triggered and what losses it is intended to cover.
Indemnities appear frequently in commercial agreements, and their impact can be significant. Many businesses seek guidance from specialist business contracts solicitors to ensure these clauses are drafted and negotiated appropriately.
How Does Indemnity Work?
Indemnities operate on a pound-for-pound basis, meaning the party suffering the loss is entitled to recover the full amount specified under the indemnity without having to meet the usual hurdles associated with warranty claims.
Key advantages of indemnities include:
1. Broader recoverability of losses
An indemnity may cover losses that would not ordinarily be recoverable as damages. This can include specific risks the parties have allocated in advance.
2. No duty to mitigate
Unlike warranty claims, the injured party does not have to show they took reasonable steps to reduce their losses.
3. A different limitation period
The time limit for bringing an indemnity claim usually runs from when the loss is actually suffered, rather than the date of breach. This can create a longer window for bringing a claim.
4. Increased certainty – depending on the drafting
The scope of an indemnity depends heavily on its wording. Expressly including items such as legal fees can materially affect recoverability.
For support drafting or reviewing key commercial protections such as indemnities, many organisations turn to solicitors experienced in preparing robust terms and conditions that accurately reflect the agreed allocation of risk.
Why the Wording of An Indemnity Clause is Critical
Courts interpret indemnities strictly. If the wording is unclear, overly broad or poorly structured, the clause may not provide the protection the parties intended. Areas that typically require careful consideration include:
Clear drafting ensures the indemnity sits coherently within the wider commercial agreement and reflects the commercial intention of the parties.
What should you do if you need more information about how an indemnity works?
Whether you are giving an indemnity or receiving one, it is crucial to understand the risk this creates, how losses will be measured, and what your ongoing obligations may be. This forms an important part of wider corporate and commercial risk management, and many businesses seek guidance from specialist solicitors as part of this process.
Our Corporate Services team regularly advises on indemnities, risk allocation and contract negotiation, ensuring agreements are both practical and protective.
Frequently Asked Questions
Disclaimer: The information provided on this blog is for general informational purposes only and is accurate as of the date of publication. It should not be construed as legal advice. Laws and regulations may change and the content may not reflect the most current legal developments. We recommend consulting with a qualified solicitor for specific legal guidance tailored to your situation.
Written by Christopher Buck
Associate Partner, Business Services at Franklins Solicitors LLP
Specialises in insolvency law for practitioners and funders, commercial contracts including IT and franchise agreements, dispute resolution through to High Court appeals and intellectual property including trademarks, copyright and confidential information.
Christopher Buck is an Associate Partner and Commercial Services Solicitor at Franklins Solicitors LLP. He joined the firm in 2005 after graduating from the University of Reading and the College of Law in Guildford, qualifying in 2007 and becoming an Associate Partner in 2012.
Christopher specialises in insolvency, commercial contracts, dispute resolution and intellectual property. He acts for clients across sectors including IT, manufacturing and recruitment and has notable experience in high-value insolvency litigation and complex contract negotiations. He also advises on IP enforcement, trademarks and e-commerce compliance.
Known for his attention to detail and pragmatic advice, Christopher is also involved in mentoring and recruitment at the firm, helping develop future legal talent.
Outside of work, Christopher enjoys music, supports MK Lightning ice hockey and spends time with his two children.
