What is indemnification?
Indemnification is a promise to cover the other party's losses, including legal costs, arising from specified events.
Indemnification is a promise to compensate someone for losses they incur.
Where the word "Indemnification" comes from
Indemnification comes from the Latin indemnis, meaning unharmed. The promise shifts the risk of a loss from one party to another, so the indemnitor agrees to make the indemnitee whole for covered claims, a staple of commercial and construction agreements.
Why Indemnification matters
It allocates risk between parties before a loss occurs. A contractor may agree to indemnify a property owner for injuries on the job site, and a software vendor may indemnify a customer for patent claims, giving each side predictable exposure.
Common confusion about Indemnification
Indemnification is broader than insurance and operates differently. Insurance is a contract with an insurer, while indemnification is a private promise between the contracting parties; one can exist without the other, and the order in which they respond to a claim is often litigated.
A real-world example of Indemnification
A contractor's employee injures a passerby on your property, and your contract requires the contractor to indemnify you for such claims. The contractor must cover the settlement and defense costs, shifting the financial burden of the accident off you.
A worked example of Indemnification
A manufacturer sells a component to a seller of finished products, agreeing to indemnify the seller for claims that the component infringes a patent. When a competitor sues the seller over the component, the manufacturer must pay the defense costs and any judgment, as promised. The scope matters: the clause may cover only third-party claims or also first-party losses, and courts interpret broad indemnity language strictly against the party seeking coverage.
How Indemnification works in practice
Read indemnity clauses carefully, because they can shift enormous risk. Know whether you are indemnifying the other side or being indemnified, and whether the clause covers negligence, attorney fees, and consequential damages. If you give an indemnity, cap it and carve out your own fault; if you receive one, keep it broad enough to cover the real risks and require prompt notice of claims.
Questions about Indemnification
Who pays under indemnification?
The indemnifying party covers the protected party’s losses.
Is it the same as insurance?
No, but it works like a contractual promise to reimburse.
Can it cover negligence?
Sometimes, depending on how broadly it is written.