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Contracts & Pricing

Indemnity Clause

An indemnity clause is a contract term where one party agrees to compensate the other for specified losses, damages or liabilities that may arise.

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Indemnities allocate risk by making one party responsible for certain losses the other might suffer — for instance, claims arising from defective goods, intellectual-property infringement or third-party injury. Unlike a general damages claim, an indemnity is a direct promise to cover the defined loss, which can make recovery faster and more certain when the trigger occurs.

Because they can carry significant financial exposure, indemnity clauses need careful drafting: what exactly is covered, whether liability is capped, and how it interacts with insurance and any limitation-of-liability terms. Buyers and suppliers negotiate these boundaries so the party best able to control a given risk bears it, without leaving either side facing unlimited exposure.

Frequently asked questions

What is an indemnity clause?
An indemnity clause is a contract term in which one party agrees to compensate the other for specified losses, damages or liabilities that may arise from defined events.
How is an indemnity different from ordinary damages?
An indemnity is a direct promise to cover a defined loss, which can make recovery faster and more certain, whereas ordinary damages must be claimed and proven after a breach.

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