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What is indemnification?

Indemnification is a term we see all the time in various contracts ranging from employment to real estate and nearly everything in between. But do you know what it means and why it matters?

What indemnification means:


The basic premise of an indemnification clause or agreement is that the indemnitor agrees to pay for certain claims, damages, or allegations made against the indemnitee. Generally, the duty to indemnify stems from someone making a claim or demand for something someone else did. The most common example that most people are familiar with is insurance.  Your insurance provider agrees to pay the aggrieved party for something the insured did (i.e. – a car accident). In that case, the insurance provider is the indemnitor and the insurance customer is the indemnitee.

Another example of an indemnification agreement is in a partnership buyout.


When a partner is buying out another partner from a business, they may want an indemnification clause in the buyout.  This ensures that the remaining partner is forced to pay for any business claims made against the selling partner.  The selling partner will be out of the business and won’t want to be subject to any claims against the business. We also see indemnification clauses in construction contracts with contractors.  If the sub-contractor messes up and the customer sues the general contractor, the GC will likely seek indemnification from the sub-contractor.

Why it matters:


These provisions aren’t all the same so what’s covered (and what triggers it) can vary quite a bit. Next time you’re signing a contract, check to see if there is an indemnification clause and make sure you understand the terms of the clause since it may obligate you to do something (or pay for something) that you don’t expect. It may be very important later on!


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