Customer Indemnification Obligations: What's Market in SaaS and Software Contracts?

 This What's Market analysis examines how customer indemnification obligations appear across vendor forms, customer forms, and negotiated SaaS agreements. Each article takes data gathered by TermScout, which uses AI assisted by contract professionals to analyze, benchmark and rate contracts, and breaks down the differences between vendor forms, customer forms, and negotiated contracts.

This article will look into something we’ve touched on in the past, Indemnification. However, unlike last time where the topic was Vendor’s Indemnification Obligations, this time the focus will be on the customer’s indemnification obligations and how common they are within contracts.

What Are Customer Indemnification Obligations?

 One of the most negotiated clauses in SaaS contracts is indemnification. Customer indemnification obligations require customers to protect vendors from specified claims, losses, or liabilities defined by contract. 

Also, to make good; to compensate; to make reimbursement to one of a loss already incurred by him.” When customers have indemnification obligations in a contract, they are obligated to protect the vendor, generally against third-party claims.

Customer indemnification obligations are an important contract signal because they reveal how risk is allocated between vendors and customers.

As an example, the customer has indemnification obligations for any third-party claims. The vendor provides software that allows third parties to make payments online.

One of the vendor’s customers has been abusing the system and fraudulently collecting money. Though it was the vendor’s software that allowed this action to occur, the indemnification obligations require that the customer protect the vendor from any third-party claims.

Customer Indemnification as a Contract Signal

Customer indemnification provisions reveal how vendors and customers allocate risk. Because these clauses frequently become negotiation points, they often serve as contract signals that indicate risk tolerance, negotiating leverage, and market alignment.

Are Customer Indemnification Obligations Market Standard?

The data TermScout collected showed vendor’s indemnification obligations to be one of the most crucial and hotly negotiated topics, so how do customer’s indemnification obligations stack up?

Are the customer’s indemnification obligations as polarizing, and what types of claims are covered? To answer both of these questions, TermScout has analyzed 614 vendor contracts, 102 customer contracts, and 95 negotiated contracts in order to determine the most accurate and definitive answers.

Since there are a multitude of claims that can be indemnified, we will only be displaying the top five types of claims percentage-wise for each section. 

Benchmarking indemnification language helps organizations understand whether proposed obligations align with broader market practices.

What Claims Are Commonly Covered? 

What Vendors Offer (614 vendor forms)

Right off the bat we can see that vendors, unsurprisingly, have a great interest in customers indemnifying them, with 85% of contracts including a clause for customers’ indemnification obligations.

Additionally, we can see the top five claims have a near even spread, with breach of contract, and customers' use of the service ranking #1 and #2 respectively.

With this we can get a clear picture of what’s most important to vendors, something that will differ when we look at the customer side.

Contract Signal Example

A vendor requiring broad customer indemnification for all third-party claims may signal a more aggressive risk-allocation approach than vendors that limit indemnification obligations to specific circumstances.

_{Note: Covered claims are not mutually exclusive, so one contract can contain multiple indemnification obligations.}

What Customers Offer (102 Customer forms)

While a similar pattern appears, with the data being heavily skewed in one direction, it is nearly opposite of what we saw in the vendor forms. Customers do not want to indemnify vendors almost unanimously, with 92% of customer forms not including any language or denying indemnification obligations for the customer.

Interestingly enough, when there are obligations for the customer, the claims that are covered are far more spread out, with third-party IP infringement tied with ‘other claims’ – claims that do not fall into the other specified categories—for first place. It should be noted that although it is not the first priority, customers use of the service, which was the #1 claim for vendors, is still high on the list for customers, showing some agreement and understanding between the two parties.

Procurement teams often benchmark indemnification obligations because these provisions frequently influence negotiation complexity and deal timing.

What Happens During Negotiation?

What stands out almost immediately is the high percentage of contracts that include customer’s indemnification obligations. With 72% of negotiated forms stating that customers have indemnification obligations, it is clear that the vendors are more successful in the negotiation on this point. Of course, this comes as no surprise since vendors are protecting themselves when adding such language, making it a high priority during the negotiation process.

For procurement teams, customer indemnification obligations often serve as an early indicator of vendor negotiating priorities.

Interestingly enough though, the claims that are indemnified lean more towards the customer’s preference, with third-party IP infringement and customer’s content taking the top two spots. This can go to show that the negotiation process can be successful, with both parties coming away with a win.

Key Takeaway

Customer indemnification obligations are heavily disputed during contract negotiations, but market data shows they remain common in final negotiated agreements.

Benchmarking reveals not only whether customer indemnification exists, but also how broadly the obligation is drafted compared to market norms.

Representative Provisions

Examples of companies where customers have obligations:

• Automox: 8.2, Master Services Agreement
• MailChimp: 20, Standard Terms of Use
• Notion: 18, Terms and Conditions
• Outreach: Indemnification, Terms of Service
• SurveyMonkey: 12.5, Terms of Use
• UpKeep: 8.3, Terms of Use
• WordPress: 18, Terms of Service
• Zoom: 16, Terms of Service

_{Note: Examples of companies where the customer does not have indemnification obligations have been excluded from this list, as in almost all cases where this is true, it is due to the contract not addressing customer indemnification rather than clearly stating that the customer has no obligations.}

Final Thoughts

It is clear that vendors want customers to indemnify them, as they want to be protected, especially against claims that result from situations outside of the vendor’s control. The importance of such protection becomes most clear when we look at the data for negotiated contracts, where 72% of contracts contain customer indemnification obligations.

Customers who find vendors pushing for customer indemnification obligations may wish to concede on the point in order to gain victories elsewhere in the negotiation process.

Similarly, vendors cannot expect to always have customer indemnification obligations written into the contract upfront and should prepare to negotiate for them.

Market data suggests that negotiated agreements often reflect compromise, with vendors securing customer indemnification while customers narrowing the scope of covered claims.

Understanding indemnification obligations isn’t just important for legal teams managing risk; it’s also critical for sales teams looking to accelerate deal cycles, RevOps professionals aiming to streamline workflows, finance leaders responsible for forecasting and exposure, and marketing teams working to build trust through transparency.

Contract intelligence transforms clause review into decision support by revealing how contractual positions compare across the market.

Understanding whether customer indemnification exists is only the first step. Benchmarking reveals whether the scope and structure of those obligations align with market expectations.