An indemnification clause is a contract provision in which one party, the indemnitor, agrees to pay for losses or liabilities incurred by the other party, the indemnitee. To indemnify means to make whole: the clause shifts the financial burden of a claim from the party who suffered it to the party who promised to absorb it.
You will find one in nearly every construction contract, commercial lease, and service agreement, almost always alongside a hold harmless agreement in the same risk transfer section.
Indemnification Clause
A contractual provision obligating one party to compensate another for specified losses or liabilities, restoring the indemnitee to the position it held before the loss.
How does an indemnification clause work?
The clause names who pays, for what, and how far the promise reaches. The indemnitor assumes the financial consequences of the indemnitee's liabilities within the described scope, typically claims arising out of the indemnitor's work.
Scope is where the fights happen. A clause tied to your own negligence is a limited form transfer. A clause obligating you whenever you share any fault is intermediate form. A clause covering even the indemnitee's sole negligence is broad form, and that last tier is where courts push back.
All but six states have anti-indemnity statutes limiting how much of an upstream party's own fault can be pushed downstream. In Zurich American Insurance Co. v. Nokia, the Texas Supreme Court held a construction indemnification provision violated the state's anti-indemnity statute because it required indemnity for the indemnitee's own negligence. Related but distinct: hold harmless is the assurance that transfers the risk, indemnification is the actual payment of the loss.
Does insurance cover contractual indemnification?
Partly, through a definition worth knowing. The CGL policy excludes liability assumed under contract, then hands most of it back through an exception for an insured contract. That defined term includes the part of a contract pertaining to your business in which you assume the tort liability of another party for bodily injury or property damage to a third person. Sign a subcontract indemnifying the general contractor for injury claims arising from your work and your CGL can respond on the GC's behalf.
The coverage has edges you should respect. It applies to tort liability for bodily injury and property damage, not to professional obligations, contract penalties, or every promise a drafter can invent, and endorsements exist that strip sole negligence indemnity back out. When a claim arrives, the adjuster's first request is the signed contract, and an unsigned or postdated agreement is the fastest route to a denied tender.
Upstream parties know indemnity clauses can be voided by statute, which is why they also require additional insured status and a waiver of subrogation as parallel routes to your policy.
Frequently asked questions
What is the difference between an indemnification clause and a hold harmless agreement?
Hold harmless is the promise that the protected party will not be held responsible, the risk transfer itself. Indemnification is the payment that makes the protected party whole after a loss. Contracts usually pair them, but they are distinct obligations.
Who is the indemnitor and who is the indemnitee?
The indemnitor gives the promise and pays, typically the downstream party such as a subcontractor. The indemnitee receives the protection, typically the upstream party such as a general contractor or property owner.
Are indemnification clauses enforceable?
Usually within limits. All but six states have anti-indemnity statutes, and many void clauses requiring indemnity for the indemnitee's sole negligence, particularly in construction contracts. The wording and your state's statute decide, so get contracts reviewed.
Does my general liability policy cover indemnity agreements?
Often yes. The CGL insured contract exception covers tort liability for bodily injury or property damage you assume under a qualifying contract. It does not cover every contractual promise, and endorsements can narrow it, so send the contract to your broker first.
This definition is for educational purposes. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.