Indemnity Clause Definition

The indemnity clause definition is the clause which compensates either party in a contract against loss. It is one of the most common ways for a party to mitigate the risk of a contract. Indemnity clause contracts provide repair, replacement, or payment for an indemnitee from an indemnitor.

Indemnity Clause Meaning

The indemnity clause meaning is a protection to one or both parties in a contract in the event a loss is incurred. Lawyers often refer to the concept as the “indemnity lottery”; though an indemnity clause in contract exists the outcome of said clause is still uncertain. Despite this, indemnity clauses are often included in contracts where one party has a distinct chance of experiencing loss as a result of problems with the transaction. Additionally, an indemnity clause hold harmless agreement exists to displace the damages of one party from another.

Indemnity Clause Example

Maggie is an experienced lawyer. Working with commercial clients, her hard work and attention to detail have created mutually beneficial outcomes for both her and her clients. She is hoping to achieve another one of these outcomes while finalizing a contract for one of her clients today.

Two Party Contract

The contract is for two parties: a car manufacturer and a car seller. Maggie represents the car seller. In the contract, Maggie writes the details of how to sell the vehicles and ship them from the car maker to the car seller. She also writes an indemnity clause in contract for the car seller to ensure that they will be met with fair compensation if the product is lost.
She completes this contract, then the consul representing the manufacturer reads it. Then both parties signs it. As she is doing other work, Maggie receives a call about the contract. It seems her client, the seller of cars to individual customers, has not received the vehicles. This was caused by a delayed at the manufacturing plant. In this call Maggie is thanked for including an indemnity clause in transfer because it covered the loss of income in the business. This business is a small company which needs consistent operations to meet the needs of their expenses.
Once again, Maggie helped another client. She vows to use her expertise to help her clients, as well as herself, for as long as she can.

Is it time to hire a CFO? Click to learn the 4 reasons why it may be time to hire a CFO.

ARTICLES YOU MIGHT LIKE

The Accounting Gap Between Large and Small Companies

March 8, 2023

The Accounting Gap: It’s unfortunate, but true. A large gap exists between the accounting departments of large or publicly traded companies and smaller or private companies. In our past 25 years of consulting we’ve noticed that more often than not, these smaller/private companies will fill the gap with Bookkeepers, rather than the degreed Accountants/CPAs they

The Struggles of Private Company Accounting

June 9, 2022

Building your Accounting Department… When I meet a business owner operating at a successful $10+ mil in revenue I often hear them say “My CPA…” and I immediately know they are referring to a tax CPA. One thing ALL entrepreneurs have in common is that they have to file a tax return. So from day

CPA’s are Specialized

June 8, 2021

The Difference in CPAs Looking back at my career I don’t know how many times I have introduced myself to someone and they ask, “Are you a CPA?” and I say yes. Then they tell me “you must be very busy with tax season” and I look at them with a bit of awe and

MARCH 28TH-31ST 2022

Days

Hours

Min

June 12-15th, 2023

Days

Hours

Min

SHARE THIS ARTICLE