What is it?
Indemnity is a contractual clause that governs allocation of risk and responsibility for third‑party claims.
indemnity
Contract LawLegal glossary term
Quick answer
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Definitions
What is indemnity?
Legal Definition
A promise to cover another's losses, damages, or legal costs when a specified event occurs. It shifts the financial burden from the indemnitee to the indemnitor, often requiring the latter to defend and pay any judgment. The scope may be limited by a “no-fault” carve‑out or statutory cap.
Plain-English Translation
Imagine a hall pass that says, “If you get a detention, I’ll pay the principal’s fine for you.” The pass obligates the holder to cover the cost.
Contract relevance
Why indemnity matters in contracts
Misapplying indemnity can leave the indemnitee exposed to unrecovered damages, while the indemnitor bears unexpected liability.
Document context
Where indemnity appears in documents
| Document type | Section | Why it matters |
|---|---|---|
| Construction contracts | Indemnification section | Defines responsibility for job-site injuries |
| Software licenses | Limitation of Liability clause | Specifies who bears IP infringement risk |
| Leases | Covenants section | Allocates liability for property damage claims |
| Insurance policies | Coverage exclusions | Outlines what damages won't be covered |
| Corporate contracts | Indemnification of officers | Protects directors from legal actions |
Contract language
Common contract wording
| Contract wording | Plain-English meaning | What to check |
|---|---|---|
| Contractor shall indemnify Owner against all claims | Contractor pays for lawsuits against Owner | Check if subcontractor work is included |
| Licensee agrees to hold Licensor harmless | Licensee pays if product injures someone | Verify if negligence is covered |
| Indemnify and defend against third-party claims | Insurer pays legal costs and settlements | Look for dollar limits and exclusions |
Red flags
Red flags to watch for
Wording examples
Clearer wording examples
Vague wording
Indemnify against all losses
Clearer wording
Indemnify only against losses specified in this section
Vague wording
Hold harmless from all claims
Clearer wording
Hold harmless only from claims arising from indemnified party's breach
Note: “clearer” means easier to read — not legally reviewed or guaranteed safe.
Pre-signature checklist
What to check before signing
1
Verify the scope of coverage (what events are included)
2
Check if there's a dollar limit or cap on liability
3
Confirm if the obligation includes legal defense costs
4
Determine if negligence or intentional acts are covered
5
Ensure notice requirements are reasonable and defined
6
Check if subrogation rights are granted to the indemnitor
Party impact
How indemnity affects each party
| Party | What this party should check |
|---|---|
| Vendor | Verify if indemnity covers intellectual property claims made by third parties |
| Client | Ensure vendor indemnifies against data breaches and security failures |
| Landlord | Confirm tenant covers injury claims in common areas |
| Contractor | Check if you're required to indemnify for subcontractor's negligence |
Comparison
indemnity vs similar terms
| Related term | Plain meaning | Main difference from indemnity |
|---|---|---|
| Liability insurance | Financial protection against claims | Insurance transfers risk to an insurer while indemnity transfers risk between contracting parties |
| Hold harmless agreement | Protection from legal claims | Hold harmless is narrower, typically only requiring defense, while indemnity often includes payment of damages |
| Warranty claims | Promise about product performance | Warranty claims arise from breach of contract terms, while indemnity addresses external claims against the indemnitee |
| Contribution clause | Apportionment of liability | Contribution divides liability among multiple parties, while indemnity places full responsibility on one party |
Missing or vague
If indemnity is missing or vague
Without clear indemnity provisions, parties may disagree about who pays when third-party claims arise. Ambiguity about claim triggers can lead to disputes over whether specific incidents fall within coverage scope. Vague language about notice requirements may result in one party losing indemnification rights by failing to meet unstated deadlines. Uncertainty about liability caps can lead to unexpected financial exposure when claims exceed anticipated amounts.
Document map
Document section map
| Contract section | What to inspect |
|---|---|
| Definitions | Confirm 'Indemnified Claims' includes all relevant loss types |
| Limitation of Liability | Check if indemnity survives contract termination |
| Insurance Requirements | Verify adequate coverage backs indemnity obligations |
| Term and Termination | Ensure indemnity continues after contract ends |
| Governing Law | Confirm indemnity interpretation follows favorable jurisdiction |
| Dispute Resolution | Specify where indemnity disputes will be resolved |
Visual model
Understand indemnity fast
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01
Landlord requires tenant to indemnify the landlord for any injury to visitors on the premises.
02
Borrower signs a loan agreement that obligates the guarantor to indemnify the lender for any default‑related losses.
Document context
How indemnity shows up in legal documents
Why does it matter?
Misapplying indemnity can leave the indemnitee exposed to unrecovered damages, while the indemnitor bears unexpected liability.
When does it matter?
When a third‑party lawsuit is filed against the indemnitee, the indemnity clause triggers the indemnitor’s duty to defend and pay.
Where is it usually seen?
Standard in UCC § 2‑207 contracts, construction agreements, and ISDA master agreements where risk allocation is critical.
Who is affected?
The indemnitor (e.g., a subcontractor) assumes payment obligations; the indemnitee (e.g., a general contractor) gains protection from costly claims.
How does it work?
First, the indemnitor receives notice of the claim. Then, within the contract’s specified period, the indemnitor must assume the defense and any settlement. Finally, the indemnitor pays any judgment or settlement up to the agreed limit.
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Wikipedia
Indemnity
In contract law, an indemnity is a contractual obligation of one party (the indemnitor) to compensate the loss incurred by another party (the indemnitee) due to the relevant acts of the indemnitor or any other party. The duty to indemnify is usually, but not...
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Where indemnity connects to real contract work
This layer links the term to nearby glossary entries, document use cases, and contract-risk guides so readers can move from definition to context without dead ends.
Glossary
Use Cases
Purchase Order (PO)
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NDA
Legal & Corporate: Signing an NDA is easy. Understanding what you just agreed never to say is harder.
Source & disclosure
This page is an AI-assisted plain-English explanation based on LexPredict Legal Dictionary context and contract-review patterns. It is not legal advice. Meaning may vary by jurisdiction, industry, and exact clause wording.
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