Indemnity Clauses For Consultants In New Zealand

Sarah runs a small brand strategy consultancy in Auckland. A new corporate client sends her a 28-page services agreement and one clause jumps out: she must indemnify the client for all losses connected with her services, with no cap and no time limit.

That can feel like a lot, especially when your fee for the project is $8,000 and the client is asking you to take on risk that could be many times bigger.

Indemnities are common in consulting agreements, but they aren't just legal filler. A broad indemnity clause in a consultant agreement in NZ can shift serious financial risk onto you, even where the problem was only partly your fault or outside your control.

The good news is you can usually negotiate them. The key is knowing what the indemnity covers, how it works with your limitation of liability, and whether your insurance would actually respond if something goes wrong.

What Is An Indemnity Clause In A Consultant Agreement?

An indemnity is a promise to cover someone else's loss if a particular risk happens.

In a consulting agreement or services agreement, your client may ask you to indemnify them for losses connected with your work. That might include legal costs, third party claims, fines, compensation, remediation costs, or damage to property or data.

A simple example is:

The consultant indemnifies the client for losses suffered by the client arising from the consultant's breach of confidentiality.

That's different from an ordinary breach of contract claim. With a standard contract claim, the client usually needs to show that you breached the agreement, that the breach caused the loss, and that the loss isn't too remote. An indemnity can sometimes make recovery easier for the client, depending on how it's drafted.

That's why wording matters. Small changes like caused by instead of arising out of, or to the extent caused by instead of in connection with, can make a big difference to your consultant contract risk in New Zealand.

Is The Indemnity In My Client's Terms Too Broad?

It depends, but an indemnity is usually too broad if it makes you responsible for risks you can't control.

Client-drafted agreements often start from a very protective position for the client. That doesn't always mean the client expects you to accept every word. Many clients are open to sensible changes, especially if you explain the commercial reason.

Watch out for indemnities that cover:

• All losses arising from the services, even where you did nothing wrong.
• Losses caused by the client, their staff, their systems, or their other suppliers.
• Indirect or consequential loss, such as lost profits, lost opportunity, reputational harm or internal management time.
• All third party claims, without linking the claim to your breach, negligence or misconduct.
• Regulatory fines or penalties, especially where you can't control the client's compliance decisions.
• Unlimited legal costs, including costs the client chooses to incur without involving you.
• Indemnities with no cap, even where the rest of the agreement has a liability cap.
• Personal liability, where you trade through a company but the clause or signature block pulls you in personally.

For example, say Sarah's client wants her to indemnify them for any loss connected with a new advertising campaign. If the client gives Sarah inaccurate product claims, ignores her warning, and publishes the campaign anyway, Sarah shouldn't be responsible for every Fair Trading Act 1986 risk that flows from the client's decision.

A fairer position would make Sarah responsible for losses caused by her own breach, negligence, or unlawful content she supplied. It should also carve out losses caused by the client's instructions, approvals, edits, delays, systems or misuse of the deliverables.

What Should A Fair Consulting Agreement Indemnity Cover?

A fair consulting agreement indemnity should focus on risks that are within your control.

For many consultants, a balanced indemnity might cover losses that result from:

• Your breach of the agreement, such as failing to meet a confidentiality obligation.
• Your negligence or wilful misconduct, where your actions cause loss.
• Your infringement of someone else's intellectual property, but only for materials you created or supplied.
• Your breach of privacy or data security obligations, where you caused the issue.
• Your failure to comply with laws that apply to your services, not the client's whole business.

The phrase to the extent caused by can be helpful because it links your responsibility to your share of the problem. If you are 30 percent responsible and the client is 70 percent responsible, the contract shouldn't make you wear 100 percent of the loss.

You may also want the indemnity to exclude losses caused by:

• The client's instructions, materials, approvals or business decisions.
• Changes the client makes to your work without your approval.
• Use of your deliverables outside the agreed scope.
• Failure by the client to follow your reasonable recommendations.
• Third party platforms, software or suppliers you don't control.
• Pre-existing client data, systems, IP or compliance problems.

This is where templates can fall short. A clause in an IT services agreement might not suit a management consultant, HR consultant, marketing strategist, architect, engineer, accountant, or IT security consultant.

How Does A Limitation Of Liability Help Consultants?

A limitation of liability clause helps by putting a ceiling on how much you may have to pay if something goes wrong.

Your indemnity and limitation of liability need to work together. If the agreement caps your liability at the fees paid, but then says the indemnity is unlimited, the cap may not protect you from the biggest risks.

A professional services liability clause might include:

• A financial cap, such as the fees paid under the agreement, the fees paid in the previous 6 or 12 months, or a set dollar amount.
• An insurance-based cap, such as the amount recoverable under your professional indemnity insurance.
• An exclusion of indirect loss, such as loss of profit, loss of revenue, loss of goodwill, loss of data, or loss of opportunity.
• A carve-out list, which states which liabilities aren't capped, such as fraud, wilful misconduct, or certain confidentiality breaches.
• A time limit for claims, so the client can't bring certain contract claims years after the project ends, subject to any legal limits that apply.

There are some limits to what you can contract out of. For example, the Fair Trading Act 1986 restricts misleading and deceptive conduct in trade. In business-to-business contracts, parties can sometimes contract out of certain Fair Trading Act provisions, but only if both parties are in trade, the agreement is in writing, and the contracting out is fair and reasonable.

The Consumer Guarantees Act 1993 can also matter if your services are supplied to consumers. In business-to-business situations, parties can often contract out where both are in trade and the contracting out is fair and reasonable. If your consultancy works with both consumers and businesses, your terms need to be especially careful.

A liability clause also can't magically remove every statutory duty or professional responsibility. If you operate in a regulated industry, your professional rules, licences, registration conditions, or industry obligations may still apply.

How Should Insurance Fit With Your Indemnity?

Your insurance should support the risk you're taking on, but it shouldn't be the only thing protecting you.

Before you sign client terms, check whether the indemnity matches your insurance cover. A client may ask for broad indemnities, unlimited liability, or cover for risks that your policy excludes.

Common types of cover for consultants include:

• Professional indemnity insurance, which may respond to claims about professional errors, omissions, or negligent advice.
• Public liability insurance, which may respond to personal injury or property damage claims connected with your business activities.
• Cyber insurance, which may respond to certain data breach, cyber incident, notification, and recovery costs.
• Management liability insurance, which may cover some company management risks, depending on the policy.

Read the policy exclusions closely. Your insurance may not cover:

• Contractual liabilities you accepted beyond what the law would otherwise impose.
• Fines, penalties, or punitive damages.
• Known issues or claims you should already have disclosed.
• Cyber incidents caused by failure to meet minimum security standards.
• Work outside your insured business description.
• Claims above your policy limit or below your excess.

If your client requires a liability cap of $2 million because that's your insurance limit, think carefully before agreeing that the client can recover the full $2 million for a small project. Your policy limit isn't the same as your commercial risk appetite.

A practical middle ground is often to cap liability at the fees paid or a fixed amount for ordinary claims, with a higher cap for specific insured risks. The right structure depends on your services, bargaining position, contract value, and insurance wording.

What If The Client Wants You To Indemnify Them For Data, Privacy Or IP Issues?

It depends, but you should only indemnify the client for data, privacy or IP issues that you cause or control.

Privacy And Data

If you handle personal information for a client, the Privacy Act 2020 can be relevant. New Zealand organisations that suffer a notifiable privacy breach must notify the Privacy Commissioner and affected individuals if the breach has caused, or is likely to cause, serious harm.

Your client may want you to indemnify them for privacy breaches. That may be fair if your team causes the breach, such as by emailing customer data to the wrong recipient or using an insecure system contrary to the contract.

It's much less fair if the indemnity also covers:

• Personal information the client collected unlawfully before giving it to you.
• The client's failure to obtain consent or provide a proper privacy notice.
• The client's system vulnerabilities.
• The client's decision to ignore your security recommendations.
• Data the client asks you to use in a way that breaches the Privacy Act 2020.

Your agreement should also say who is responsible for privacy notices, consents, security standards, breach reporting, data return, and data deletion at the end of the project.

Intellectual Property

IP indemnities are also common. Your client may ask you to indemnify them if your work infringes someone else's copyright, trade mark, or other intellectual property rights.

That can be reasonable where you create original work and promise the client it can use it. For example, if you design a logo and copy someone else's artwork, it's fair for the client to look to you.

But you should be careful about indemnifying the client for IP risks caused by:

• Client-supplied content, logos, images, fonts, code, product names, or brand assets.
• Stock materials or third party software used under separate licence terms.
• Client changes to your work.
• Use of the work outside the agreed territory, purpose, or licence period.
• A trade mark clearance issue the client chose not to check with IPONZ or other relevant registers.

If you're granting the client a licence to use your deliverables, make sure the IP ownership and licence terms match the indemnity. You don't want to keep ownership in one clause, give a narrow licence in another, and then indemnify the client for every possible use worldwide forever.

How Can I Negotiate A Safer Indemnity Clause?

You can usually negotiate a safer indemnity by making the risk specific, capped, and tied to what you can control.

When reviewing client terms, start with these questions:

• What exact events trigger the indemnity?
• Does the indemnity apply only where you caused the loss?
• Does it cover the client's own acts, omissions, systems or decisions?
• Is the indemnity subject to the liability cap?
• Are indirect losses excluded?
• Does your insurance cover the risk?
• Are you being asked to sign personally?
• Does the indemnity survive forever after the agreement ends?

Useful negotiation points include:

• Replace arising out of or in connection with with to the extent caused by.
• Limit the indemnity to your breach, negligence, wilful misconduct, or IP infringement.
• Carve out losses caused by the client or third parties.
• Make the indemnity subject to the liability cap.
• Exclude indirect and consequential losses.
• Require the client to notify you promptly of any claim.
• Give you reasonable control or input into how third party claims are handled.
• Stop the client settling a claim in a way that increases your liability without your consent.
• Align any insurance obligations with policies you actually hold.

You don't need to make the clause one-sided in your favour. The aim is to make it commercially fair. If a client wants you to take on more risk, it may be reasonable to increase your fees, narrow the scope, adjust the timeline, or require the client to carry certain insurance too.

Also check the wider agreement. Indemnities often interact with:

• Scope of work and deliverables.
• Acceptance and approval processes.
• Client responsibilities.
• Payment terms.
• Confidentiality clauses.
• Privacy and data processing obligations.
• IP ownership and licensing.
• Termination rights.
• Independent contractor wording.

If you're an individual consultant, make sure your consultancy agreement reflects the true working relationship. The Employment Relations Act 2000 and the Employment Relations Amendment Act 2026 changes, including the contractor gateway test, can affect whether some working arrangements are treated as genuine contracting. An indemnity clause won't fix a relationship that operates like employment in practice.

Key Takeaways

• An indemnity is a promise to cover specific losses, so it can create more risk than an ordinary contract clause.
• A fair indemnity should be tied to risks you can control, such as your breach, negligence, confidentiality breach, privacy breach or IP infringement.
• Your limitation of liability should apply to indemnities unless there's a clear commercial reason for an exception.
• Insurance matters, but your policy may not cover every contractual indemnity you accept.
• Data, privacy and IP indemnities need careful drafting because client materials, client systems and third party tools can all change the risk.
• You can often negotiate safer wording by making the clause specific, capped, and proportionate to your fees and role.

If you'd like help with reviewing your consulting terms, negotiating indemnity and liability clauses, or tailoring your client agreements to your services and insurance, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.