An indemnity clause in a UK commercial contract requires one party to compensate another for losses arising from specified events. The clause should identify each trigger, covered loss, payment condition and financial limit. Broad wording can expose a business to lost profits, legal costs and liabilities above the contract value. A liability cap may not protect the business if the contract excludes indemnity claims from that cap. Businesses should also check whether their insurance covers the contractual risk before signing.<\/p>\n\n\n\n
This article explains when an indemnity may apply, the possible financial exposure, payment conditions, claim risk, liability caps and insurance.<\/p>\n\n\n\n
Some indemnity clauses are narrow and only apply within a limited range of specified events. This will likely avoid scenarios in which a minor, innocuous breach leads to accusations of contract breach. For example, non-perishable goods arriving one day late due to a postage strike are unlikely to trigger an indemnity clause<\/a>. However, some indemnity clauses can be wide. This will depend to an extent on negotiations between your business and the other company. <\/p>\n\n\n\n For example, a broad clause may seek: <\/p>\n Breach of indemnity clauses can be expensive. For example, suppose your business supplies \u00a310,000 worth of goods on a 12-month contract to another company and, upon the 6-month mark, your company breaches the written agreement by failing to provide goods. The other company’s directors usually make \u00a315,000 profit on reselling your goods each month. As such, they are furious, terminate the agreement and start a contract claim against you.<\/p>\n\n\n\n Your business could potentially face:<\/p>\n\n\n\n\n
2. How Much Money Could Your Business Owe?<\/h2>\n\n\n\n
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