Indemnity
Contract Law

In the context of contracts, an indemnity clause is a promise to make good the loss sustained by a person as a consequence of an act or omission of another - it is an express promise to compensate for defined loss or damage are used to contracts (in addition to warranties) to ensure that a contracting party has an express remedy to correct defects in goods or services delivered under the contract. Without an indemnity, a person will be left with their usual rights for breach of contract to recover the specified loss, if on the construction of the agreement relief is available.

The value of an indemnity is in the avoidance of difficulties with remoteness of damage when recovering loss when properly drafted.

Indemnities are usually set up with reference to specific conduct, although they may be drafted to cater for specific events or failures; alternately it may apply generally to any breach of an agreement. It is arguable that they are most warranted in areas exposing the party relying upon warranties that expose them to the greatest risk and loss in the event of a breach of contract.  Liability on such clauses may be capped to a fixed maximum amount; and may be restricted in time or be made perpetual.  In commercial contracts, a risk management strategy may incorporate taking out insurance of the indemnified risks to over potential liability.

In contracts that involve the creation of intellectual property rights and provision of services (for instance software development contracts), it is customary to include an intellectual property indemnity so that the person receiving the services may recover their losses in the event that the provider infringes a third party's intellectual property property rights in the production of the deliverables under the contract. To take an obvious example, if a party to a contract were to deliver another person's software (without their permission) under a contract, the contracting procuring those services would infringe that other's software by using it, and be liable for copyright infringement and damages to that other person. An indemnity would entitle the procuring party to sue the supplier of the software for the losses occasioned by the infringement.

An example of an indemnity, would read as follows: "The supplier undertakes that it will indemnify and hold harmless the customer against all proceedings, costs, expenses, liabilities, injury, death or damages arising from negligent performance or breach or failure of performance by the supplier of the terms of this agreement".  Professionally drafted clauses often incorporate conditions upon which such clauses may be relied upon, such as the indemnifier having control over claims made and consultation prior to a settlement or making of admissions in respect to liability.