Risky business: risk minimisation through indemnity clauses

Risk minimisation is necessary for any successful business. Indemnity clauses, liquidated damages, warranties, exclusions and limitation of liability clauses are all mechanisms of risk allocation in a contract that require careful drafting to be effective and enforceable.

In this article, we consider how to mitigate risk through indemnity clauses and the importance of drafting good indemnities clauses so that they are beneficial and enforceable. Indemnity clauses allocate risk as one party agrees to cover particular loss and damage suffered by another. They often deal with issues such as negligence by a party, non-performance, environmental risk, litigation and product liability.