Short answer: An indemnity clause is a promise by one party to cover specified losses, claims or costs suffered by another party. It is usually used to allocate a defined risk rather than every possible loss under the contract.
Indemnities can move financial risk quickly. They are common for third-party claims, intellectual property infringement, data breaches, tax issues, confidentiality breaches, employment claims and regulatory non-compliance.
A software supplier might indemnify a customer for third-party intellectual property claims caused by the software. The customer may ask whether the indemnity is uncapped, whether defence costs are included and whether it interacts with the limitation of liability clause.
Common mistakes include treating an indemnity as boilerplate, accepting broad wording without operational controls, missing notice and conduct-of-claim rules, and failing to map the indemnity to insurance cover.
See also confidential information, audit rights clause and how to build a contract clause library.
Reviewed for general contract operations use. This definition is general information and is not legal advice.