Indemnification

An indemnification provision in a contract provides protection for one party (the indemnitee or indemnified party) by obligating another party (the indemnifier or indemnifying party) to cover any losses or damages the indemnitee may incur due to specific events or circumstances outlined in the contract. Such a clause essentially shifts the financial burden from potential risks from the indemnitee to the indemnifier. 

What is indemnification?

In law, indemnification commonly refers to a contractual obligation to not hold one party responsible for damage or loss, and to, instead, hold the other party responsible for costs and expenses related to the loss.

There are two parties involved in an indemnification agreement: the indemnified party and the indemnifying party. For example, in commercial contracts, the customer (indemnifying party) promises to indemnify (pay) and "hold harmless" the company (indemnified party) from any costs for claims that arise from their business relationship, which can include third party claims.  

You might find an indemnification clause in any of the following contracts:

• Commercial contracts
• Supply agreements
• Loans
• Leases
• Licensing agreements
• Promissory notes
• Construction contracts
• Management service agreements

In an insurance policy, an insurance company can use an indemnity agreement to consent to compensate the policy holder for losses incurred due to an accident or property damage. 

FAQs 

What triggers indemnification?

Typically, indemnification is triggered when events or circumstances defined in a contract's indemnification clause occur. These events can be broad or specific, varying widely by the nature of the contract and the parties involved. 

What is an example of an indemnification clause?

Renting a car is one example in which an indemnification clause might appear in a contract. A rental car company might require the renter to indemnify them from damages caused to the car during the rental period. LegalZoom also offers an indemnity agreement template that you can check out for a general structure of an indemnification clause. 

Are indemnification agreements enforceable?

Indemnification agreements are generally enforceable, but laws vary by state. For example, some states have historically disregarded broad-form indemnity provisions that require one party to indemnify the other for any claim regardless of fault or willful misconduct. Contact an attorney for advice on indemnity laws in your state.

Who determines the costs of an indemnification claim? 

The contents of the contract will typically determine how much an indemnification obligation costs.