Indemnification Explained: The Scariest Word in Law

Indemnification is the clause that everyone skips because it's hard to read. It's usually in ALL CAPS. And it is the single most dangerous paragraph in any contract.

The Concept

To "Indemnify" means to "pay for the loss." If you agree to indemnify me, you are agreeing to pay my legal bills and any judgments against me if I get sued because of you.

The Scenario

You are a web developer. You build a site for a client. You accidentally use a copyrighted image on the homepage. The photographer sues the Client for $50,000. If you signed an Indemnification clause, YOU have to pay that $50,000. Not the client.

The "Defend" Trap

Look for the phrase "Indemnify, Defend, and Hold Harmless."

"Defend" means you have to hire the lawyer immediately when the lawsuit starts, paying hourly legal fees long before any judgment is made. This creates an immediate cash flow crisis.

How to Negotiate It

1. Mutuality: Make sure they indemnify you too. If they give you bad content that gets you sued, they should pay.
2. The Cap: Try to cap your indemnification liability at the value of the contract. (Note: Many clients won't accept this for IP infringement, but it's worth asking).
3. "Final Judgment": Try to remove "Defend" so you only reimburse them after a court gives a final judgment, not during the process.