Indemnification Clauses Explained

In this article, we’ll answer common questions regarding indemnification clauses in contracts, including “What is an indemnification clause?” and “How do I write a secure indemnification clause?” Indemnification clauses can appear confusing or intimidating and are often overlooked, as they contain unfamiliar legal jargon; continue reading to learn how to effectively navigate these clauses.

What is an Indemnification Clause?

An indemnification clause is a common element of contracts, used to formally transfer the risk of potential liability from one party to another. Legally defined as, “to make reimbursement to one of a loss already incurred by him,” an indemnity clause states that one party agrees to “indemnify the other party,” or absorb the losses caused by the other party.

When you agree to indemnify someone, you are stating that if you or your agents do certain specified things that result in the other party experiencing monetary loss, damages, or a lawsuit from a third party, you agree to defend the other party and pay for all costs of the lawsuit including any damages they are required to pay as a result of the suit. You are also agreeing to pay the other party back for any out of pocket costs resulting from your wrongdoing.

Essentially, the indemnifying party is acting as an insurer, because the giver of the indemnity is monetarily responsible to the other party in the agreement for things that may go wrong.