indemnity

Contractual ObligationLegal glossary term

Legal Definition

Indemnity is a contractual obligation where one party agrees to cover the losses or liabilities of another party, providing financial protection against specified risks. It establishes a legal duty for the indemnifying party to make the indemnitee whole following a loss or claim.

Plain-English Translation

Imagine this is like a promise that says, 'If something bad happens, you will pay for it.' It's a way to make sure one person agrees to cover the costs or losses of another person when something goes wrong in a legal situation.

Context in Contracts

It matters because it clearly defines the financial responsibility between parties involved in a contract. It ensures that if a loss occurs, the responsible party has a defined obligation to cover the costs, thereby allocating risk and liability.

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Example 1: A contract where Party A agrees to indemnify Party B for losses arising from a breach of warranty.

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Example 2: An insurance policy where the insurer provides indemnity coverage for claims against the insured.

Document context

How indemnity shows up in legal documents

What is it?

Indemnity is a contractual provision where one party (the indemnitor) agrees to provide financial protection and coverage for specified losses, liabilities, or claims incurred by another party (the indemnitee).

Why does it matter?

It matters because it clearly defines the financial responsibility between parties involved in a contract. It ensures that if a loss occurs, the responsible party has a defined obligation to cover the costs, thereby allocating risk and liability.

When does it matter?

Indemnity usually appears in contracts where one party agrees to protect another from specific losses or claims arising from the contract or an event. This is common in commercial agreements, insurance policies, and legal settlements.

Where is it usually seen?

It is usually seen in contracts, insurance policies (especially liability insurance), litigation documents, and settlement agreements where one party guarantees financial protection for another's exposure.

Who is affected?

The parties involved are the indemnitor (the party who promises to pay) and the indemnitee (the party whose losses are being covered).

How does it work?

In practice, it works by setting specific terms that define what losses are covered, the scope of the coverage, and the limits of the indemnity. It dictates the financial obligation when a defined event occurs.

Related terms

Terms to compare with indemnity

Indemnitee

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Disclaimer: We do not provide legal advice. We translate legal language into plain English and help you prepare for a conversation with a lawyer.