Indemnify

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To indemnify means to compensate another party for losses or damages that have occurred, or which may occur in the future. It is a common practice for one party to guarantee it will compensate another party for any loss that may occur due to a contractual obligation. To explore this concept, consider the indemnify definition.

Definition of Indemnify

Verb

 

  1. To protect someone, or some entity, from loss, damages, or injury that may occur in the future.
  2. To compensate someone, or some entity, for loss, damages, or injury.

Origin

1605-1615 Latin indemni

What is Indemnity

While the term indemnify is a verb, referring to the act of compensating someone for loss, the term indemnity is a noun, referring to the agreement or guarantee to compensate someone in the event loss occurs. Indemnity is commonly included as a clause in contracts in which the actions or mistakes of one party may result in the other party being liable for damages.

For example:

A wheelchair manufacturer enters into an agreement with a large hospital to provide 500 wheelchairs at a discount price. The manufacturer asks that an indemnity clause be included in the contract, in which the hospital agrees to protect the company from any losses or lawsuits should patients be injured while using any of the wheelchairs. In doing this, the hospital indemnifies the wheelchair company, or the hospital guarantees indemnity for any losses or injuries that may occur.

Insurance and Indemnity

The most common use of the terms indemnify and indemnity occur in insurance policies. When purchasing an insurance policy, the insurance company agrees to indemnify the policyholder, or another specified party, against losses or damages that may occur.

For example:

Lola has a homeowner’s insurance policy on her home in Texas. The insurance company has agreed to indemnify Lola against damages to her home and the personal property kept there, from many types of damage, including fire, burglary, and liability if someone gets injured on Lola’s property. A visiting neighbor trips on a crack in the walkway and falls, breaking her arm. Lola’s insurance company would protect Lola from the medical bills and other losses claimed by the neighbor by paying the claim.

Indemnify and Hold Harmless Agreements

Any time one person is using another person’s property, or one person is performing services for another, the creation of an indemnify and hold harmless agreement helps ensure one party will take responsibility for any problems that may occur. In other words, the person borrowing the item, or doing work on someone’s property, agrees to indemnify the owner of the property from loss or damages.

For example:

Luke takes his car to the shop for repairs that will take a few days. The shop offers Luke a loaner car so he can get back and forth to work. Luke signs the shop’s loaner car agreement, which requires Luke have insurance, and includes an indemnify and hold harmless clause.

While driving through town in in the loaner car, Luke rear-ends a car at a stoplight. Luke suffers minor injuries, but the driver of the other car has several moderate injuries, and the damage to the loaner car is substantial. A couple of weeks later, the other driver demands payment from the repair shop, as owner of the car that hit her, for medical bills, repairs to her own car, and pain and suffering.

The repair shop quickly notifies the accident victim that they have a valid hold harmless agreement with Luke, who is solely responsible for any events surrounding the accident. In this case, Luke’s written agreement to indemnify and hold harmless the repair shop protects the business from liability.

Each jurisdiction has specific laws regarding indemnity and hold harmless agreements. In some jurisdictions, such an agreement can only be used to protect both parties to a contract. In other jurisdictions, such an agreement can only be used to protect an individual or entity not involved with the contract.

The most common uses of an agreement to indemnify and hold harmless include:

  • An individual allows another party to use his property or facilities, and he wants to avoid being held liable for any damages to the property, or if someone is injured while using his property
  • An individual or entity performing services for another person or entity, wants to be protected (“indemnified”) if a third party suffers a loss

For example:

Robert is remodeling his house to transform it into the home of his dreams. The front porch and yard are being torn down and reconstructed, leaving Robert to worry about whether one of the contractors may trip over debris and sue him for injuries. To protect himself, Robert asks all of the contractors and laborers working on his home to sign an indemnity and hold harmless agreement. The agreement releases Robert from all damages, losses, or injuries that might occur on the job site.

Some states require that indemnity and hold harmless agreements have very specific language, and do not recognize such agreements that contain broad language. Some states even prohibit the use of indemnity agreements in certain construction situations.

Sample Indemnify and Hold Harmless Clause

Many companies and other entities have policies against entering into hold harmless agreements. Nevertheless, agreeing to indemnify and hold harmless the other party is often necessary in order to do business. In this case, such entities prefer to enter into a mutual hold harmless clause, which benefits both parties. Following is an example of a mutually-indemnifying hold harmless clause:

“Each party to this agreement shall indemnify, defend, protect, hold harmless, and release the other, its officers, agents, and employees, from and against any and all claims, loss, proceedings, damages, causes of action, liability, costs, or expense, including attorneys’ fees and witness fees, arising from, or in connection with, or caused by, any act, failure to act, or negligence of such indemnifying party, to the extent limited in accordance with the laws of the state of [insert state in which the agreement is made]. This indemnification shall not be limited in any way, by any limitation on the amount or type of damages or compensation payable to, or for, the indemnifying party under workers’ compensation, disability benefits, or other employee benefit acts.”

Alternatively, parties to an agreement may specifically state that neither will indemnify the other should things take a turn for the worse. An example of such a non-indemnification clause follows:

“Each party to this agreement shall assume the risk of any liability arising from its own conduct, to the extent permitted by the laws of the state of [insert state in which the agreement is made]. Neither party agrees to indemnify, defend, or insure the other.”

Hidden Agreements to Indemnify

Indemnification agreements are commonly used in contracts and terms of service agreements people sign, or click through, every day. Tucked away in the terms of service for nearly every popular website, indemnification clauses are rarely read, even though they have American consumers promising to indemnify and hold harmless such mega-corporations as eBay, Facebook, Skype, and Amazon, and that is just a tiny snippet from a very long list.

Indemnity clauses also generally include protecting the company’s officers, owners, employees, an other individuals related to the business. Such indemnity generally protects the entity against all losses, damages, and expenses of any type, including attorney’s fees, and legal costs, should any claim arise out of the consumer’s use of their service.

Big business corporations are not the only entities asking consumers to agree to indemnify them against any loss imaginable. Permission slips for children to take part in school field trips, sports, and other extracurricular activities, usually include an agreement to indemnify and hold harmless the school, the teachers, coaches, bus drivers, and other people working to ensure the children are kept safe and in line.

Legal experts recommend reading every agreement, right down to the fine print, before signing on the dotted line (or clicking the “Agree” box). While the legal terminology may make for boring reading, everyone should understand exactly what they are agreeing to, and what they are giving up.

Related Legal Terms and Issues

  • Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
  • Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
  • Contractor – A person who contracts to provide goods or services to another for payment.
  • Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property, or an injury.
  • Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical region of authority to enforce justice.
  • Liable – Responsible by law; to be held legally answerable for an act or omission.
  • Obligation – A promise or contract that is legally binding; the act of binding or obliging oneself, as in a contract.