Why Every Freelancer Should Understand Indemnity

An indemnity clause is a section in a contract where one party agrees to compensate the other for certain losses, damages, or legal claims.

In Simple Words:

If something goes wrong, you agree to cover the other party’s losses—even if you didn’t cause the problem.

This often comes up when a client wants to reduce their own risk. They shift it onto you.

If you’ve ever skimmed a freelance contract and stumbled on a paragraph full of legalese—words like “indemnify,” “hold harmless,” or “liability”—you’re not alone. Many freelancers skip these parts because they sound scary or confusing. But here’s the thing:

An indemnity clause can make or break your business.

It’s not just legal fluff—it can determine whether you owe thousands of dollars if a project goes wrong.

In this guide, we’ll break down what indemnity means, how it works in freelance contracts, and how to protect yourself (even if you’re not a lawyer).

What Is an Indemnity Clause?

Example:

Let’s say you’re a freelance graphic designer. A client asks you to design a logo, and later, they get sued by another company claiming the logo is a copy. Even if you didn’t copy anything, an indemnity clause might force you to pay for their legal costs.

Key Terms to Know

Here are some words you’ll see in indemnity clauses and what they mean:

• Indemnify = promise to cover losses or damages

• Hold harmless = protect someone from being sued or held liable

• Liability = legal responsibility for something

• Damages = financial compensation owed for a mistake or problem

• Third party = someone outside your agreement (like a customer or user) user)

Understanding these terms helps you read contracts like a pro.

Why Clients Use Indemnity Clauses?

Clients often seek to shield themselves from potential legal or financial repercussions that may arise in the course of their business transactions. One common tool they employ for this purpose is the indemnity clause, which serves as a form of insurance that transfers the risk of certain liabilities onto another party. While these clauses provide a sense of security for clients, it’s essential to recognize that their implementation can sometimes create an imbalance in the contractual relationship. This means that while clients may feel protected, the other party may be unfairly burdened by the consequences, leading to an inequitable situation. It is crucial to approach these clauses with a critical eye, ensuring that they are fair and just for both parties involved.

Common reasons clients include indemnity clauses:

• They’re worried about copyright or IP claims

• They’re passing the risk from their clients down to you

• Their lawyers use a template that includes indemnity “just in case.”

📌 Red flag: If a client insists on one-sided indemnity (you cover everything), that’s a negotiation moment.

What Freelancers Need to Watch Out For

1. One-sided indemnity

If the contract only protects the client, not you, it’s unfair and risky.

2. Unlimited liability

If there’s no financial cap, you could be on the hook for millions.

3. Broad language

Vague terms like “any losses” leave the door open to unreasonable claims.

4. Third-party claims

Some clauses say you must cover any claim from anyone. That’s a lot of exposure.

How to Negotiate a Safer Indemnity Clause

1. Mutual indemnity

Both parties agree to protect each other. Fair is fair.

2. Cap the damages

Limit your financial risk to the value of the contract (e.g., "not to exceed $5,000").

3. Narrow the scope

Limit it to things you control—like your code, designs, or deliverables.

4. No third-party liability

Unless you’re explicitly responsible, remove broad language about outsiders.

Sample Clause (Before vs. After Negotiation)

Original (Client’s Version):

The Contractor agrees to indemnify and hold the Client harmless from any claims, damages, or losses arising from the Contractor's services, including legal fees and expenses. This ensures the Client is protected from any negative consequences of the Contractor’s actions or omissions during service delivery.

Revised (Fairer Version):

Each party agrees to indemnify the other against claims directly resulting from their own negligence or intentional misconduct. Contractor’s liability shall not exceed the total amount paid under this agreement.

Big difference, right?

How Insurance Can Protect You From Indemnity Risk

Even a perfect contract won’t stop all legal issues. That’s where insurance comes in.

Types of Insurance That Help:

• Tech E&O (Errors & Omissions): Covers you if you’re sued over your work.

• Professional Liability: Similar to E&O, great for consultants and creatives.

• Cyber Insurance: Useful if indemnity is tied to data breaches or online risk.

⚠️ Tip: Make sure your policy covers third-party claims and contract disputes.

Real Scenario: Developer Hit With $30K Indemnity Claim

Freelancer: Full-stack dev for a fintech startup

Problem: The Company was sued for API misuse. The contract said the developer had to indemnify.

Outcome: Insurance kicked in and paid legal costs—but only because the developer had Tech E&O in place.

Don’t rely on luck. Check your coverage before you sign.

📄 When to Ask a Lawyer for Help

Sometimes it’s worth paying a pro. Use legal help when:

• You’re working on a big contract ($10K+)

• The client is a large corporation

• The clause seems unusually aggressive

Affordable options:

• Use a freelance-focused legal service (e.g., Bonsai, Freelancers Union)

• Get a one-time contract review from a lawyer (usually $100–$300)

Best Practices for Managing Contract Risk

• Use your contract when possible

• Read every clause—don’t just skim

• Ask questions about unclear language

• Save all versions of your contracts

• Get professional liability insurance

💡 Use our [Contract Review Checklist] to scan for legal red flags before signing.

📚 Additional Resources

• [Download: Indemnity Clause Template Pack]

• [Guide: How Freelancers Can Negotiate Contracts Without a Lawyer]

• [Checklist: Are You Insurable? Freelance Edition]

💬 Final Thoughts

Understanding indemnity clauses isn’t about becoming a lawyer. It’s about protecting the business you built.

The more confident you are with legal language, the more power you have in negotiations. So next time you see the word “indemnify,” you won’t panic—you’ll be ready.

Want more no-fluff legal explainers? Browse our [Compliance & Legal section here] or sign up for our monthly roundup of tools and contract tips.

Frequently asked questions

1. What does an indemnity clause mean in a freelance contract?

An indemnity clause is a legal provision that requires one party (often the freelancer) to cover losses, damages, or legal fees if certain problems occur. For example, if a client gets sued due to work you delivered, the clause may force you to pay for their legal defense—even if the issue wasn't entirely your fault.

2. Should freelancers agree to indemnify clients in contracts?

Not blindly. While indemnity clauses are common, they can be risky. You should never sign one without fully understanding the scope. If the clause is broad or one-sided, it may expose you to unlimited liability. Always ask for mutual indemnity or limit your liability to the value of the contract.

3. Can indemnity clauses be negotiated by freelancers?

Yes, and they should be. Freelancers can negotiate indemnity terms just like payment terms or deadlines. You can request to narrow the scope, add exceptions, or include a cap on liability. A fair indemnity clause should protect both parties—not just the client.

4. Does professional liability insurance cover indemnity clauses?

In many cases, yes. Professional liability insurance (also known as Tech E&O) can help cover legal costs, settlements, or damages if you’re sued under an indemnity clause—as long as the incident is related to your professional services and not excluded in your policy.

5. Where can I find indemnity clause examples for freelancers?

You can find real-world examples in our [Legal Clause Swipe File], which includes editable contract language tailored for freelancers, designers, developers, and consultants. These are vetted by legal experts and written in plain English.