To explain an indemnity agreement, it is first necessary to define the term "indemnity.

"
Indemnity is defined as "a duty to make good any loss, damage, or liability incurred by
another (Black's Law Dictionary). Indemnity has the general meaning of "hold harmless;"
that is, one party holds the other harmless for some loss or damage. Some variations of
meaning for therm "indemnity:"
Indemnity also includes an understanding that an injured party has a right to claim
reimbursement or compensation for a loss or damage against the person who has the duty.
Indemnity can also refer to compensation for loss or damage from the actions of another
party
And indemnity can also be described as a legal exemption from loss or damages, as in the
case of an indemnity clause in a contract.
What Type of Business Would Use an Indemnity Agreement?
The most common case of a business that has indemnity agreements is inconstruction. But
any business with employees may want those employees to sign an indemnity agreement
to protect against employee lawsuits.
Rental car companies also use indemnity agreements to protect against lawsuits from
accidents involving rental car drivers.
Indemnity Agreements and Dangerous Activities
Businesses that offer somewhat dangerous activities to the public (skiing, para-sailing,
amusement park rides) require that the members of the public sign an indemnity agreement
releasing the business from liability in case of an accident. In reality, if the business is found
to be negligent (faulty equipment, poor maintenance), the individual who was injured still
has a claim against the company.
An indemnity agreement (sometimes called a "hold harmless agreement" can be a contract
or a section of a contract. In these cases, an indemnity agreement is contract language that
indemnifies (holds harmless) one of the parties in a contract for specific actions that might
cause damage to the other party.
Examples of Indemnity Agreements
A kennel may want an indemnity agreement in a contract with a pet owner to keep the
kennel from being sued for damage caused by the owner's pet to other pets. I this case, the
pet owner is being asked to indemnify the kennel owner (to hold the kennel owner harmless)
for damages caused by the pet.
Indemnity clauses are often found in intellectual property licensing agreements.
In another general example, a landlord may require a tenant to sign a "hold harmless"
clause in a rental agreement, agreeing that the landlord is not responsible for damages
caused by the tenant's negligence.
In each of these cases and many others, Party A must be persuaded to sign a contract which
could cause him or her to be sued. So, Party B is being required to indemnify Party A, so the
contract can be signed.
Types of Indemnity Agreements
Indemnity agreements are found commonly in construction contracts. In this context, there
are several types:
Broad form indemnity agreements, also called "no fault" agreements, have been common in
construction contracts where all loss is placed on the sub-contractors. Many states have
declared this type of indemnity agreement to beillegal.
Limited indemnity agreements state that the subcontractor pays for all damages caused by
the subcontractor's own negligence. This type of indemnity agreement still places a heavy
burden on the subcontractor.
Comparative form agreements or clauses are based on the common law principle that
negligence is based on actions over which the actor has complete control.
Typical Parts of an Indemnity Agreement
The specific form of an indemnity agreement varies by state law. This is a general overview
of what you might find in an indemnity agreement.
The two parties will be described:
The Indemnitee - the person wanting protection
The Indemnifier - the person promising (warranting) to minimize harm to the indemnitee
The agreement may describe consideration (usually a sum of money) that will be used to
secure the agreement.
The agreement will state the specific terms under which the indemnitee will be held
harmless. This is fairly complicated legal language.
Exclusions to the agreement will be described. One common exclusion isnegligence or fault
of the indemnitee. That is, if the indemnitee can be shown to be negligent, the
indemnification doesn't work (the indemnitee is at fault and can be sued).
A claims process will described, including when a claim must be filed and the limits to the
claim.
The agreement wills state who has the burden of proof; usually the indemnifier must prove
that the claim is not appropriate.
These are the main parts to an indemnification agreement, mostly procedural.