Indemnity clause: what it means, a typical example, and what to ask for
An indemnity clause makes you cover the builder's losses in stated circumstances. A narrow indemnity tied to your own negligence is normal and insurable. A broad one that covers losses "arising out of or in connection with" your work can make you pay for things you didn't cause, and may sit outside what your insurance covers.
A typical builder version
The Subcontractor indemnifies the Contractor against any loss, liability, claim, cost or expense (including legal costs on an indemnity basis) arising out of or in connection with the Subcontract Works or any act or omission of the Subcontractor, its employees, agents or subcontractors.
Illustrative wording of the kind found in builder-authored subcontracts, not taken from any one contract.
What it means for you
If anything connected with your work causes the builder a loss, you pay, whether or not you were at fault and whatever the amount, including the builder's legal costs.
- "Arising out of or in connection with": a link to your work is enough, fault isn't needed.
- No reduction where the builder or others contributed to the loss.
- Uncapped, and wider than your public liability or professional indemnity cover.
What market looks like
An indemnity limited to loss caused by your negligence or breach, reduced proportionately to the extent the builder or others contributed, excluding consequential loss, and within an overall liability cap. Check the wording against your insurance before signing.
What to ask for
"The Subcontractor indemnifies the Contractor against loss to the extent caused by the negligent act or omission or breach of this Subcontract by the Subcontractor, reduced proportionately to the extent the loss was caused or contributed to by the Contractor or others."
Check the version in your contract
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Common questions
Will my insurance cover a contractual indemnity?
Not always. Many policies exclude liability you take on by contract beyond what you'd owe anyway. Send the indemnity clause to your broker before you sign.
What does "to the extent caused by" mean?
It limits the indemnity to the share of the loss your conduct actually caused, rather than the whole loss because your work was connected to it.
One clause rarely tells the whole story
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General information, not legal advice. Example wording is illustrative. Check any clause you rely on against your full contract and your state's Security of Payment Act. Written by Mat Kennedy, The Construction Contracts Co.