Indemnity clause agreement explained

In the business world, every agreement is bound by a legal contract which is mostly enforceable in the court of law. The contract protects the interest of the two parties. It ensures that they both succumb to the terms earlier agreed at the point of signing. More so, an indemnity clause is one of the most widely use contractual agreement. Just like any other contract, it holds both parties to their word, precisely each of their roles such as in an insurance policy. Let’s look at the indemnity clause in full.

What is an indemnity clause in a contract?

Indemnity is a contract agreement that exists between two parties outlining certain insurance compensations for losses and damages. Furthermore, narrowing it down a little, an indemnity clause is a clause that performs and indemnity function in a contract. Basically, one party takes full responsibility for covering potential losses or damages incurred by another party. With this, a very common example of indemnity is a standard insurance contract.

In reality, when you purchase car insurance, for example, you pay premiums to the insurance company. In exchange, they assume the responsibility for your car and should damages happen, compensate you for it. The insurer can be called the indemnifier, while you as the insured, the indemnitee.

Why do you need an indemnity clause?

We basically need an indemnity clause for risk transfer and management. Since they design the clause to compensate one party over a loss caused by another, its intent is to remove the risk or liability away from that party. Therefore, with an indemnity clause, the risk is transferred to the indemnifying party. More so, you need an indemnity clause when there is a good amount of risk involved which could lead to severe losses. An indemnity clause is just a way to insure yourself against unforeseen eventualities.

Indemnity in contracts is a clause that compels a party to compensate another for losses suffered under specific conditions. We usually call these conditions the trigger event and it cuts across a wide range of happenings. In essence, as long as the contract captures the terms, it binds the party with the legal responsibilities to pay compensations.

Also, when dealing with an agreement that has an indemnity clause, legal experts recommend that you read every detail down to the final dot. This is because it is important that you understand exactly what you are getting into before signing in. However, although it may take long, it is worth it. In addition, you can simply invite an expert to look through and supervise the contract agreement if you don’t have much time.


Although not limited to, we mostly use an indemnity clause in insurance contracts. It transfers the risk from one party to another, ensuring that the party gets compensation for losses. Every day, businesses and personal agreements keep adopting this clause in the contract for security. 

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