Indemnity

Indemnity is a contractual promise by one party to compensate another for specified losses or damages. It is a risk-allocation device in which an indemnitor agrees to reimburse the indemnitee for costs, expenses, and damages, including amounts paid to settle third-party claims or to defend against them. Indemnity differs from insurance in that it is created by contract and does not require an insurance policy to operate, though it is often supported by corresponding insurance.

Indemnity clauses are common in commercial contracts such as supply agreements, licensing, construction, and technology arrangements. They may cover third-party claims of infringement, product liability, data breaches, confidentiality breaches, and breach of contract. Clauses can specify who bears defense costs, who controls the defense, and how settlements are approved. They may also carve out indirect or consequential damages and place caps on liability. Indemnities can be one-way (one party indemnifies the other) or mutual (each party indemnifies the other).

Common features include notice of claim requirements, cooperation obligations, and conditions for triggering the indemnity. Limitations often apply to gross negligence, willful misconduct, or acts outside the agreed scope. Some agreements exclude indemnities for certain types of losses or place monetary caps or maximums on liability, with exceptions for breaches of fundamental terms or IP infringement.

IP indemnity is a frequent form, where a vendor defends against claims that its products or content infringe third-party rights. Indemnity principles vary by jurisdiction, but clarity and reasonableness are common standards. Indemnity is a contractual tool, not a substitute for insurance, though it is often complemented by insurance coverage.