OK - Sorry for the delay, and thank you all for being patient while I spent a week doing my AS level Italian exams. Now on to the very serious business of indemnity, which means that the publisher holds you wholly responsible for anything that goes wrong.
The Author will indemnify and keep the Publishers indemnified against all actions, suits, proceedings, claims, demands, damages and costs (including any legal costs or expenses properly incurred and any compensation costs and disbursements paid by the Publishers on the advice of their legal advisers to compromise or settle any claim) occasioned to the Publishers in consequence of any breach of this warranty or arising out of any substantiated claim alleging that the Work constitutes an infringement of copyright or contains libellous, obscene, defamatory, blasphemous or other unlawful matter. The Publishers reserve the right to insist that the Author alter the text of the Work in such a way as may appear to them appropriate for the purpose of altering or removing any passage which on the advice of the Publishers' legal advisers may be considered objectionable3 or likely to be actionable at law, but any such alteration or removal shall be without prejudice to and shall not affect the Author's liability under his [sic] warranty and indemnity herein contained. If the Author shall refuse to amend or delete to the Publishers' satisfaction any passages in the Work as aforesaid the Publishers may refuse to publish the Work and upon the Publishers' giving notice in writing to the Author of such refusal the Author shall forthwith repay to the Publishers any sums advanced to him as provided in Clause 14 hereof and subject to such repayment this Agreement shall thereupon terminate and all rights granted to the Publishers hereunder shall revert automatically to the Author.
Got that? It's very long..... the longest clause in the contract, in fact. It means that if you breach any of the conditions we've looked at previously about the work being legal (ie no breach of copyright, no blasphemy, libel, lies, dangerous recipes, etc) you will be liable for anything it costs the publisher. So if you include a bit of someone's song, or you slag off your ex-partner and they notice, and the offended party sues the publisher, you will have to pay any fine and the publisher's legal costs and any other expenses. It's a 'we'll have your house, scummy author' clause.
This is a fairly reasonable version of the clause in that it specifies that the costs must arise out of a 'substantiated' claim. This means that if someone claims you have defamed them and you haven't, and the court finds in your favour or the legal teams agree that there was no defamation, you don't have to pay the costs. Some contracts try to sneak in that you pay even if the claim is NOT substantiated. I think we'll look at some unreasonable clauses later, when we've finished this contract. So, in this, clause, check that the word 'substantiated' is included and insist on having it included if it's not there.
Notice in this first sentence that the costs can include the publisher paying compensation without a court settlement if their legal advisers suggest it. This means that if they decide they might lose, or that the case will be expensive, the publisher can settle out of court and charge you even if you did not actually include anything illegal. If you are feeling particularly stroppy, you might like to add that you want your own legal adviser involved in this process, too. The best thing to do is to make sure there is nothing actionable in your book - but you can't guard against mad opportunists like those who have tried to sue JK Rowling for 'copying' their substandard, obscure works. Maybe it's a risk you have to live with, like crossing the road.
The next sentence means that if they tell you to change your book to avoid any possible legal action you have to do so. Fair enough, but the last part is not OK: if you change it in the way they tell you to, you are STILL not let off the indemnity, even though it is now their content that is illegal.
So, suppose you have been wronged by a hideous, duplicitous and manipulative person and decide to write her into a novel as the villain. (Let's assume it's her to avoid putting him/her all the time.) Your publisher thinks she will recognise herself and sue, so insists that you change the name, and perhaps her skin colour, and maybe make her a dentist instead of using her real job. They publish the book and the hideous, duplicitous, manipulative person sues. The publisher can still claim costs from you, even though you did as they asked. Not good. (You might wonder why the HDM person wants to own up to the description, but you'd be surprised - they do!)
Or say you write a non-fiction book in which you say that homeopathy is a load of crap, and the publisher is worried that they will be sued Simon-Singh-style, so they say you have to change it to say there is no credible evidence that homeopathy works. But the world's homeopaths sue anyway - again, you'd still be liable for the costs.
If you don't like the publisher's changes, or if the suggestion that the text might actionable has frightened you off, you can go with the last bit of the clause and refuse to make the changes. The book then won't be published, you repay any money you've had, but you keep your house. Notice that there is not an option for the publisher to make the changes anyway as part of the editorial process. If they made the changes and you had not seen or approved them, I think the liability would then be theirs - which clearly they don't want.
A final point is that this clause means you need to check the edited text and the layouts VERY carefully. If the editor has changed something so that it is actionable and you don't notice you are likely to be liable. Let's say you've written about that HDM person and used a fake name. The editor doesn't like the name for some reason or other and changes it, coincidentally, to the person's real name. Bad news. If you don't spot it and the book goes out like that, and HDM person is anal enough to be reading the books of her enemies, you're in trouble.