Indemnify and Hold Harmless Clauses

If you run a small business, you’ve probably seen the phrase “indemnify and hold harmless” buried in a contract at some point - maybe in a customer agreement, supplier terms, a lease, or a services contract.

And if you’re like most business owners, your first reaction might be: Is this standard boilerplate, or is this a real risk?

The honest answer is: it can be both. These clauses can be a normal way to allocate risk between parties. But they can also quietly shift significant legal and financial exposure onto your business, especially if they’re broadly drafted or don’t match how your business actually operates.

In this guide, we’ll break down what these clauses mean in plain English, where they commonly show up, what to watch out for, and how to negotiate something more balanced - without losing the deal.

Note: This article is general information only and isn’t legal advice. Indemnity clauses are highly dependent on the contract wording and the situation, so it’s worth getting advice on your specific contract.

What Does “Indemnify And Hold Harmless” Mean In Plain English?

At a practical level, an indemnify and hold harmless clause is about who carries the risk if something goes wrong.

While the exact wording matters, these clauses usually do one or more of the following:

Indemnify: you agree to compensate the other party for certain losses or costs (for example, if they get sued, or suffer damage, or incur legal fees).
Hold harmless: you agree you won’t hold the other party responsible for certain claims, losses or liabilities (often overlapping with “indemnify”).
Defend (sometimes included): you agree to take over the defence of a claim brought against the other party, which can mean paying lawyers and managing the response.

These obligations can be triggered by many different events, such as:

a third party claim (for example, a customer suing your client)
property damage or personal injury
IP infringement allegations
data breaches or privacy claims
breach of contract or negligence

One key point: an indemnity can apply even when the other party also contributed to the problem, depending on how the clause is drafted and how the contract works overall.

Is “Indemnify” Different To “Hold Harmless” In Australia?

In many Australian commercial contracts, “indemnify” and “hold harmless” are used together, and the practical effect is often similar. The bigger issue isn’t the label - it’s the scope of what you’re promising.

Instead of getting stuck on the wording, focus on:

who is indemnifying whom
what claims are covered
whether the clause is limited (or open-ended)
whether it covers the other party’s own wrongdoing (and whether that’s clearly stated)
what the process is if a claim happens

Where Small Businesses Commonly See Indemnity Clauses (And Why They Matter)

Indemnify and hold harmless clauses pop up in all sorts of everyday business agreements. They often look “standard”, but they can create very different risk outcomes depending on where they’re used.

Customer Or Client Agreements

If you provide services (consulting, trades, marketing, IT, professional services), your client may try to include a broad indemnity for anything connected to your work.

This can matter a lot if your client is using your work in a larger project - because you might end up being asked to cover losses that are well beyond what you were paid for the job.

Supplier And Procurement Contracts

If you buy goods or services from suppliers, their terms might include a “hold harmless” clause that tries to protect them from claims connected to their products - even though they control how the product is made.

On the flip side, if you’re the supplier, your customer may ask you to indemnify them for product issues, delays, or third party claims.

Commercial Leases And Property Arrangements

Landlords and property managers often include indemnities relating to injuries on-site, damage to property, and compliance with laws.

Sometimes this is reasonable (for example, your responsibility for hazards created by your staff). Sometimes it goes too far (for example, trying to make you responsible for the landlord’s negligence, or for risks you can’t control).

Online Terms, Marketplaces And Tech Contracts

Software, platform, and online service agreements often include indemnities for:

content you upload
privacy breaches
IP infringement
misuse of the platform

If you run an online business, it’s also worth aligning indemnity risk with your broader compliance settings, including your Privacy Policy and internal processes.

What A Good Indemnity Clause Should Cover (And What It Should Not)

There’s no one-size-fits-all clause. A “good” indemnity is one that matches the reality of the deal and allocates risk in a fair, commercially sensible way.

Here are the key building blocks to look for.

1. Clear Trigger Events

A clause should be clear about what activates the indemnity.

For example, an indemnity might apply to losses “arising out of”:

your breach of contract
your negligence or wilful misconduct
your breach of law
your infringement of third party IP

Vague triggers like “in connection with this agreement” or “relating to the services” can expand your exposure far beyond what you expect.

2. A Fair Scope Of Losses

Contracts often try to define “loss” very broadly, including:

direct losses (immediate, obvious losses)
indirect or consequential losses (flow-on losses, loss of profits, reputational damage)
legal costs (sometimes on a full indemnity basis)

For a small business, open-ended liability for indirect or consequential loss can be commercially unworkable. It can also make it difficult to match risk with your insurance position.

3. Exclusions For The Other Party’s Fault

One of the biggest red flags is an indemnity that requires you to cover losses caused by:

the other party’s negligence
the other party’s breach of the contract
decisions outside your control (for example, their instructions or use of deliverables)

In many cases, a more balanced approach is to limit the indemnity to the extent the loss is caused by your acts or omissions.

4. A Practical Claims Process

If a claim happens, you want a clause that sets out a workable process, including:

prompt notice of claims
your right to control the defence (if you’re paying)
requirements that the other party cooperates
no settlements without your consent

Without a process, you can end up paying for a dispute you had no chance to manage.

5. Consistency With Any Liability Caps

If your contract has a limitation of liability clause, check whether the indemnity is carved out (meaning the cap doesn’t apply). This is common - and it can make the indemnity the biggest financial risk in the contract.

Also note that whether an indemnity is actually caught by (or excluded from) a liability cap depends on how both clauses are drafted and how they interact.

Even if you agree to provide an indemnity, you can often negotiate for it to sit within (or alongside) an agreed cap, particularly for low-to-mid value contracts.

Common Red Flags That Can Put Your Business At Risk

Many disputes don’t happen because a business didn’t “try to do the right thing”. They happen because the contract creates obligations that are unrealistic or unexpected.

Here are some common indemnify and hold harmless clause issues we see small businesses run into.

Unlimited Indemnities

An unlimited indemnity means you could be liable for a claim amount far exceeding the value of the contract.

This can be particularly risky in:

construction and subcontracting chains
tech and data arrangements
events and venues
product supply

Even if you’re confident in your processes, unexpected claims can happen. Unlimited exposure is rarely appropriate for a small business.

Indemnities For “Any And All Claims”

Broad language like “any and all claims, losses, damages, costs and expenses whatsoever” can make it unclear what is actually covered.

That uncertainty isn’t neutral - in a dispute, it can become leverage against you.

Indemnities That Cover The Other Party’s Negligence

If the clause requires you to indemnify the other party “regardless of fault” or even if the loss was “caused by the other party”, that’s usually a sign you should pause and renegotiate.

In Australia, clauses that try to make one party indemnify another for that other party’s own negligence can be contentious, and enforceability often turns on clear drafting and context. If the other party controls the premises, the system, the instructions, or the workflow, it’s generally not fair for you to carry all risk.

Mismatch With Insurance

Many business owners assume that “insurance will cover it anyway”. Sometimes it will - but many policies have exclusions or conditions, and some indemnities can create liabilities that are not insured.

A safer approach is to treat the contract as your first line of defence: draft the indemnity to reflect what you can realistically control and what you can reasonably insure.

How To Negotiate An “Indemnify And Hold Harmless” Clause Without Killing The Deal

Negotiating contract terms can feel uncomfortable, especially when you’re dealing with a larger client or a “take it or leave it” supplier template.

But in most cases, negotiation isn’t about being difficult - it’s about making sure the contract matches the actual deal.

Start With The Commercial Reality

A practical way to frame your response is:

What risks do you actually control?
What risks does the other party control?
What is the contract value compared to the potential liability?

For example, if you’re providing marketing services, you may be comfortable indemnifying for IP infringement in your deliverables. But it may not be reasonable for you to indemnify for all losses caused by how the client uses your work after delivery.

Offer A Balanced Rewrite (Not Just “No”)

Instead of rejecting the clause outright, propose a narrower version, such as:

limit it to losses “to the extent caused by” your breach or negligence
exclude consequential loss
require notice and control of defence
apply a liability cap

This makes it easier for the other party to say yes, because you’re still offering protection - just in a fairer way.

Align The Clause With Your Other Contract Protections

Indemnities shouldn’t sit in isolation. They should align with the rest of the contract, including:

your payment terms
scope of services and deliverables
exclusions and assumptions
termination rights
your general limitation of liability clauses

If your scope is unclear, your indemnity risk is almost always higher. Tightening the scope can reduce risk without even touching the indemnity clause.

Use The Right Contract Structure From The Start

Many small businesses only deal with indemnities when a client sends them a template contract. But you can often reduce risk by leading with your own agreement, drafted for your business model.

Depending on what you do, that might include:

service terms or a service agreement
supply terms
a contractor agreement
website or platform terms

When your contract documents are well set up, your indemnify and hold harmless terms can be consistent across your deals (instead of being renegotiated from scratch each time).

What Legal Documents Help Support Your Indemnity Risk Management?

Indemnities are just one part of managing legal risk. In practice, they work best when supported by the right suite of contracts and policies.

Here are some documents that often matter for small businesses dealing with indemnify and hold harmless clauses.

Customer Contract: sets expectations on scope, deliverables, payment, and liability allocation so your indemnity exposure is not wider than your actual obligations.
Service Agreement: useful when you provide ongoing or higher-risk services, especially where third party claims are possible (for example, IP, safety, or data handling).
Contractor Agreement: where you rely on subcontractors, this can help align responsibility and require appropriate insurance and compliance.
Privacy Policy: supports your data handling approach and helps reduce privacy-related risk, especially for online businesses (including marketing lists and customer accounts).
Employment Contract: if your staff deliver services, clear expectations around conduct and compliance reduce risk and help you manage incidents properly (a well-drafted Employment Contract can be part of that foundation).

If you’d like help reviewing or negotiating an indemnify and hold harmless clause (or putting a contract in place that better protects your business), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

Indemnify And Hold Harmless Clauses: A Practical Guide