How to review an indemnification clause

An indemnification clause shifts the cost of certain losses from one party to the other. It is one of the most negotiated clauses in commercial contracts because it can expose a party to losses well beyond the value of the deal. This guide covers how to read an indemnity, the state law rules that affect it, and how to review it in Word with LexDraft.

Last checked: 17 October 2026. The law changes; check the current position before relying on this page.

Read the indemnity in four parts

1. Who indemnifies whom. One-way or mutual, and whether affiliates, officers and employees are covered as indemnified parties.
2. Which losses. Third-party claims only, or also direct claims between the parties? An indemnity that covers direct claims can sidestep the normal limits on contract damages.
3. Triggers. What causes the obligation: breach, negligence, IP infringement, violation of law, bodily injury or property damage.
4. What is paid. Losses, damages, settlements, fines, and attorneys' fees.

Clause checklist

• Defend, indemnify and hold harmless. A duty to defend is separate from a duty to pay, and usually arises earlier. In California, Civil Code section 2778 sets default rules for reading indemnity contracts, including that an indemnity against claims or demands covers the costs of defense.
• The indemnitee's own negligence. Some states require clear language before an indemnity covers the indemnified party's own negligence. Texas applies the express negligence doctrine (Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705 (Tex. 1987)) and fair notice requirements (Dresser Industries, Inc. v. Page Petroleum, Inc., 853 S.W.2d 505 (Tex. 1993)).
• Attorneys' fees between the parties. In New York, an indemnity is read to cover fees in a suit between the contracting parties only if that intention is unmistakably clear (Hooper Associates, Ltd. v. AGS Computers, Inc., 74 N.Y.2d 487 (1989)).
• Anti-indemnity statutes. Many states limit indemnities in construction contracts. New York General Obligations Law section 5-322.1, for example, voids construction-related agreements that indemnify a party for bodily injury or property damage caused by its own negligence, and California Civil Code section 2782 restricts indemnity for the indemnitee's sole negligence or willful misconduct in construction contracts.
• Procedure. Prompt notice (and whether late notice only reduces the obligation to the extent of prejudice), control of the defense, choice of counsel, cooperation and consent to settlements.
• IP infringement indemnity. Standard in technology deals. Check exclusions for customer modifications and combinations, and the provider's remedies (modify, replace, license or refund).
• Interaction with the liability cap. Are indemnities inside or outside the cap? Uncapped indemnities are common for IP and third-party bodily injury claims, but should be a deliberate choice. See our limitation of liability guide.
• Insurance. Check that the indemnifying party's insurance covers contractual liability for the indemnified risks.
• Exclusive remedy. In M&A deals, the indemnity is often the exclusive remedy for breaches of representations, with baskets, caps and survival periods.

A indemnification clause review workflow in Word

LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the agreement never leaves the tool you already draft in.

1. Open the agreement in Word and open LexDraft in the side panel.
2. Pick the governing law. Select the state named in the governing law clause so LexDraft looks for state-specific red flags.
3. Run the review. Run the review on the whole agreement. For NDAs, SaaS MSAs, DPAs and services agreements, run the matching playbook on the whole agreement; for other contracts LexDraft runs a general review against the governing law you chose. LexDraft has no separate clause-only playbook.
4. Triage by severity. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
5. Run the quick checks. The defined-term and cross-reference checks are rule-based and run without AI.
6. Accept or reject each redline. Accepted changes land as native Word tracked changes.
7. Verify and sign off. You check every output before it goes to the client or the other side.

What LexDraft does not do

LexDraft does not give legal advice or decide whether an indemnity is enforceable in your state. Nothing changes in your document until you accept a redline.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.