Contract Glossary
Indemnity
Definition
Indemnity is a contractual obligation where one party agrees to compensate another for losses, damages, or liabilities arising from specified events or actions. Unlike indemnification (which describes the broader process), indemnity refers to the actual financial protection or security provided. It shifts risk from one party to another, ensuring that a party who suffers a loss doesn't bear the financial burden alone. Indemnity provisions are among the most negotiated clauses in commercial contracts because they determine who pays when things go wrong.
In Practice
A software vendor signs a contract with a client that includes an indemnity clause covering intellectual property claims. When a third party sues the client alleging the software infringes their patent, the vendor's indemnity obligation kicks in — covering the client's legal defense costs and any settlement or judgment amount. Without this indemnity, the client would bear those costs despite having done nothing wrong.
Example Clause
Vendor shall indemnify, defend, and hold harmless Client from and against any and all claims, damages, losses, costs, and expenses (including reasonable attorney's fees) arising out of or relating to any allegation that the Services or Deliverables infringe upon any third party's intellectual property rights.
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Frequently asked questions about indemnity
Indemnity is the obligation or promise to compensate for a loss — it's the security itself. Indemnification is the process or act of making someone whole after a loss has occurred. Think of indemnity as the insurance policy and indemnification as the claim payout. In practice, contracts often use both terms, but indemnity refers to the protection and indemnification refers to the act of compensating.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.