Indemnification Claws: Protecting Your Enterprise in MSAs

Boilerplate commercial contract templates are built to protect the writer, never the signer. We examine how to customize indemnification sections to fully limit enterprise liability.

In commercial Master Service Agreements (MSAs), indemnification is the legal mechanism where one party promises to cover the losses, legal fees, and damages incurred by the other party from specific operational events. Left unchecked, a broad indemnity clause can bypass your insurance coverage entirely.

The Danger of Uncapped Liability

Many corporate clients sign agreements containing clauses that state they will "indemnify, defend, and hold harmless the Client from any and all claims arising out of the services rendered." This leaves you responsible for any negative business outcomes, regardless of fault or scale.

To mitigate this risk, every MSA must feature an explicit "Limitation of Liability" cap. This cap should restrict your maximum exposure to either the fees paid over the previous 12 months, or a specific, pre-negotiated dollar limit.

Three Rules for Indemnity Negotiation

• Limit the Scope: Ensure you only indemnify for direct, third-party claims arising solely from your gross negligence or willful misconduct, never general failures.
• Reciprocal Protection: Insist that the indemnification clause is fully bilateral. If you are protecting them from your breaches, they must protect you from theirs.
• Carve Out Exclusions: Ensure that indirect losses, consequential loss of profits, and punitive damages are explicitly excluded from all indemnification obligations.