Definition
This clause requires one party to compensate the other for specified losses or claims. It goes beyond warranties to require actual compensation if problems occur.
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Indemnification shifts risk: 'Seller indemnifies buyer against environmental claims arising from seller's operations.' Seller agrees to pay buyer's environmental cleanup costs. Indemnification goes beyond warranty (promising something is true) to requiring compensation if problem occurs. Indemnification typically covers: third-party claims (neighbor sues), government actions (EPA issues cleanup order), losses resulting from specific activities. Indemnity might require defending other party (paying for attorney), or just reimbursing losses. Indemnity is particularly important in commercial/investment real estate. Residential contracts sometimes include indemnity for: environmental issues, title defects, undisclosed easements. Broad indemnity can be risky: indemnifying 'all claims' is broader than indemnifying 'claims for breach of this contract.' Understanding indemnity scope is important: what claims trigger indemnification? What losses are covered? What's the monetary cap?
Pro Tip
Limit indemnification to risks you can control. Don't indemnify for events you can't prevent.
Example
Commercial lease includes: 'Landlord indemnifies tenant for environmental claims arising from landlord's operations.' Tenant has recourse if EPA issues contamination order.