A few weeks ago I was tagged in a post on social media by one of our customers. They were asking if our insurance products would have helped a freelancer who was saying they had avoided financial ruin by not signing their client’s contract, which included an indemnity clause.
An indemnity clause will usually look like this:
The freelancer will indemnify the client and hold it harmless against any or all liability which the client incurs or suffers arising out of any act, error or omission of the freelancer whilst conducting activities under this agreement.
Like a lot of legal wording it sounds scarier than it is. If we break it down, it’s saying that a client can look to recover money from you if you make a mistake that leads to a financial loss for them.
It’s not an unreasonable ask. It’s very common in contracts and it’s precisely what your professional indemnity insurance is designed to help with. It’s also why clients ask you to be insured in the first place.
Your professional indemnity insurance is triggered if a client tries to recover monetary damages from you as a result of a mistake you’ve made (or you’re alleged to have made). It can also be triggered due to a threat of legal action, but that isn’t relevant for this example which is strictly focused on indemnification.
If you’re interested in learning more about what triggers your insurance, we’ve broken common claims down by profession.
Had the freelancer bought insurance, which can cost as little as £14/month, they could have accepted the job and avoided financial ruin—all while earning some money!
You might have heard me saying contracts are there to be negotiated and it’s OK to push back on terms you’re not comfortable with. While I believe it is reasonable for your client to include an indemnity clause, you could always counter this with a limitation of liability clause.
This limits the amount of damages a client can claim against you—either to the fees you’ve received for a project, or more commonly your level of professional indemnity cover. It seems like a good compromise. If your client is saying you’re liable to pay them damages, it’s fair to limit what those damages are.
Even if your client doesn’t include an indemnity clause, you’ll want to have professional indemnity insurance to prevent financial ruin and pass that risk over to the insurer instead of carry it yourself.
