An Indemnity Agreement is a legally binding contract under English law by which one party (the Indemnifying Party) promises to compensate another party (the Indemnified Party) for specified losses, liabilities, costs, or damages that the Indemnified Party may suffer arising from a defined event, activity, or set of circumstances. Unlike a standard breach of contract claim, an indemnity is enforceable as a primary obligation on the occurrence of the triggering event, without the need for the Indemnified Party to establish breach or causation in the usual sense. This makes an indemnity a powerful and commercially important tool in English business law.

In England and Wales, indemnity agreements are governed by English common law principles, supplemented by statutory protections under the Unfair Contract Terms Act 1977 (UCTA) in business-to-business contracts and the Consumer Rights Act 2015 (CRA 2015) in consumer contracts. Section 4 of UCTA is particularly significant: where one party is dealing on the other’s written standard terms of business, a clause requiring indemnification against negligence or breach of contract is only enforceable to the extent it satisfies the statutory reasonableness test. This template includes an acknowledgment clause by which the parties confirm that the indemnity is reasonable in their specific commercial context.

Indemnity agreements are used across every sector of the English economy. In construction and engineering, the main contractor will typically require subcontractors to indemnify it against losses arising from the subcontractor’s work. In technology and professional services, service providers may indemnify clients against third-party intellectual property infringement claims. In property transactions, a vendor may indemnify a purchaser against identified historic liabilities. In financial services, a lender may require a borrower or guarantor to indemnify it against enforcement costs.

A well-drafted indemnity agreement will clearly define the scope of the indemnity (specifying the events that trigger the obligation), identify any financial cap on liability, set out the claims notification procedure, require the Indemnifying Party to maintain adequate insurance, and specify the duration of the obligation. This template covers all of these essential elements and is suitable for use in commercial and business contexts in England and Wales. It is not intended for use in employment disputes, consumer transactions, or situations involving personal injury, where separate legal considerations apply.

An Indemnity Agreement is appropriate in a wide range of commercial and professional situations in England and Wales. The need for an indemnity typically arises wherever one party is exposed to financial risk as a result of the activities, services, or products of another party, and wishes to transfer or share that risk contractually.

Common situations in which an indemnity agreement is used include: engaging contractors, subcontractors, or service providers whose work creates a risk of third-party claims (for example, contractors performing work on client premises, where accidents or damage to property may give rise to third-party liability); entering into licensing or IP agreements where one party may inadvertently infringe third-party intellectual property rights; property transactions where a vendor may be liable for historic breaches of planning conditions, restrictive covenants, or environmental obligations; joint ventures or commercial partnerships where one partner assumes operational risk on behalf of the other; and distribution or supply agreements where a manufacturer indemnifies a distributor against product liability claims.

An indemnity agreement is also commonly used when a party is required by law or regulation to hold a particular person harmless — for example, directors of a company may be indemnified by the company against liabilities incurred in the execution of their duties, subject to the restrictions in the Companies Act 2006 (sections 232–234). Similarly, in employment disputes settled by way of a ACAS-conciliated or solicitor-certified settlement agreement (under section 203 of the Employment Rights Act 1996), an employer may include an indemnity clause to protect itself against future claims.

An indemnity should be distinguished from an insurance policy: insurance involves payment of a premium in exchange for the insurer’s promise to indemnify against insured losses, whereas a contractual indemnity is provided by one of the contracting parties at no separate premium. However, as this template notes, it is good practice to require the Indemnifying Party to maintain adequate insurance so that its indemnity obligations are properly backed by financial resources.

A well-drafted Indemnity Agreement for use in England and Wales must contain several key provisions to ensure it is legally effective, commercially enforceable, and protective of both parties’ interests.

The indemnity obligation itself is the core provision. It must clearly identify the Indemnifying Party, the Indemnified Party, and the specific events or circumstances that trigger the obligation. The scope of the indemnity should be drafted with precision — an overly broad indemnity may be challenged under the Unfair Contract Terms Act 1977, while an overly narrow one may fail to protect the Indemnified Party against the risks it faces. Standard heads of loss covered by an indemnity include legal costs (on an indemnity basis), damages and compensation awarded by courts or arbitral tribunals, the costs of settlement, and regulatory fines.

The financial cap clause limits the maximum aggregate liability of the Indemnifying Party. A financial cap provides commercial certainty and allows the Indemnifying Party to price the risk of the indemnity accurately. However, as this template provides, the cap should not apply to losses arising from fraud, fraudulent misrepresentation, or wilful misconduct, since English law does not permit a party to limit or exclude liability for its own fraud.

The insurance clause ensures that the Indemnifying Party maintains adequate insurance to back its indemnity obligations. In practice, an indemnity is only as valuable as the financial resources of the Indemnifying Party, so an obligation to maintain public liability, professional indemnity, or product liability insurance (as appropriate) is an important protection for the Indemnified Party.

The UCTA acknowledgment clause (where included) confirms that both parties have considered the reasonableness of the indemnity in the context of their commercial relationship. In a negotiated business-to-business contract, including this acknowledgment reduces the risk that a court will strike down the indemnity clause as unreasonable under UCTA s.4.

The claims notification clause requires the Indemnified Party to give prompt written notice of any claim that may trigger the indemnity. This is important because the Indemnifying Party needs the opportunity to investigate, manage, and defend the claim. Failure to give timely notice can, in some circumstances, reduce or extinguish the indemnity obligation if the Indemnifying Party can show it was prejudiced by the delay.

The term clause specifies the duration of the indemnity obligation. Under the Limitation Act 1980, a claim on a simple contract must be brought within six years from the date the cause of action accrued, so the term of the indemnity should be aligned with the applicable limitation period.