Liability and Indemnity: Ignore them and you may be left holding the bag

Let’s talk about the one part of every contract that everyone loves to glaze over, the liability and indemnity sections.

They’re usually buried toward the end, written in dense legal jargon (often in ALL CAPS) and dismissed as “boilerplate.”

But here’s the truth: not only are they not throwaways, they’re critical and almost always negotiable.

They may not seem as important as your rate, payment terms, or specific deliverables, but these clauses determine who’s on the hook when things go wrong, who pays if there’s a third-party claim and the cap on your potential exposure if the engagement goes sideways.

So yes, they can have massive implications. Yet, outside of large, complex deals, they’re the most overlooked and untouched parts of day-to-day commercial contract negotiations.

The good news? In my experience, most counterparties are surprisingly open to reasonable adjustments that make these terms more balanced, especially when the changes are presented clearly and fairly.

In this post, your lawyer friend will walk you through what to look for when reviewing liability and indemnity language and share some simple negotiation tactics to achieve fair, mutual protection with minimal pushback.

Why It Matters

Liability and indemnity provisions can dramatically shift risk between parties. What seems like harmless “standard” language might:

• Make you responsible for someone else’s negligence, or

• Cap your ability to recover if they breach the contract, or

• Leave you exposed if a third party sues due to your counterparty’s conduct.

I’ve seen businesses lose tens and sometimes hundreds of thousands of dollars because they didn’t pay attention to these sections or assumed they were “boilerplate” or “approved last time.”

The 5 Most Overlooked Clauses and Risks

1. Unilateral Indemnification

• A one-way street where you agree to cover claims, losses, and attorney’s fees, even if you didn’t cause the issue.

• Often silent on causation, leaving you as the default insurance policy.

• Push to make this mutual.

2. Unlimited Liability

• No cap on damages means your exposure could be infinite, even for small-dollar projects.

3. Exclusion of Certain Damages

• Most contracts exclude indirect, consequential, or incidental damages.

• These exclusions are generally fair, but make sure foreseeable losses (like specific project delays) aren’t unintentionally excluded.

4. Third-Party Claims Without Control of Defense

• Always ensure you control the defense, including settlement decisions, for claims you’re funding.

• Letting your counterparty steer the defense on your dime is risky, both financially and reputationally.

5. Vague Definitions of “Losses” or “Claims”

• Overly broad language can include reputational harm, lost profits, or speculative damages.

• Push for specific, causation-based definitions tied to actual, measurable losses.

How to Protect Yourself: Focal Points and Negotiation Tips

Indemnification Clauses

1. Push for Mutual Indemnity

• This creates balance and is often an easy give.

• If both sides have similar exposure, they’re more likely to soften extreme terms or reveal their hand if they won’t.

2. Control the Defense

• Ensure you have the right to manage or approve defense strategies and settlements for any claim you’re paying for.

Limitation of Liability

1. Cap Liability

• Limit total liability to the amount paid under the contract or the past 12 months of payments for multi-year deals.

2. Carve Out Extremes

• Fraud, willful misconduct, and material misrepresentation can be excluded from the cap, everything else should stay within it.

3. Tie Liability to Direct Actions

• You should only be responsible for losses caused solely by your conduct, not joint or third-party issues.

4. Exclude Indirect Damages

• Carve out indirect, incidental, or consequential damages unless expressly agreed otherwise.

Final Thought

These clauses may seem intimidating, but if they’re not negotiated and later triggered, the consequences can be catastrophic.

Take the time to review them, ask questions, and negotiate. Even a few simple tweaks can mean the difference between a manageable risk and an existential one.

Because when a deal unravels, the liability and indemnity terms are where the real money moves and that’s not something to sweep under the rug.

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Disclaimer: This post is for informational purposes only and reflects the author’s personal views. It does not constitute legal advice, does not create an attorney-client relationship, and should not be relied upon as a substitute for consultation with qualified legal counsel. The content may be considered attorney advertising in some jurisdictions, including New York and Connecticut. Prior results do not guarantee a similar outcome.